Acadia Realty Trust (AKR) 2002 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Acadia Realty conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. If you should require assistance during today's conference, please press the * followed by the 0 on your touchtone telephone. As a remainder, ladies and gentlemen, this conference is being recorded. I would now like to hand the conference over to [Ms. Susan Garland] with the Financial Relations Board, [Weber-Shamwick]. Please go ahead, mam.

Thank you and good morning, welcome to the Acadia Realty's first quarter 2002 conference call. With us from the company is today is Kenneth Bernstein, President and CEO, and Perry Kamerman, CFO. If you have not received the press release that went across the wire this morning, please call the following number and we will fax you a copy immediately 212-445-8469. Additionally, we would like to mention that Acadia's first quarter supplemental information available on their website at www.acadiarealty.com. will be available next week. The company wishes me to tell you that the conference call and some company statements may contain certain forward-looking statements, which involve known and unknown risks, uncertainties and other factors not under the company's control which may cause the actual results, performances or achievements or expectations of the company to be materially different from the same as expressed or implied by such forward-looking statements. These factors include but are not limited to those detailed in the company's periodic filings with SEC. We would also like to mention that this call is accessible on the Internet of street events at www.streetevents.com. or alternatively at the company's corporate website at www.acadiarealty.com. First the management will give an update and overview of the first quarter operating results for 2002 and after that there will be an opportunity for Q&A. Now without further ado, I would like to turn the call over to Ken Bernstein. Ken, please begin.

Thank you. Good morning, I am here with Perry Kamerman, our CFO. Last quarter's call included our yearend review and in that call, we outlined in great detail the progress of our turnaround and its positive impact on the key components of our business. Today we are not going to go into the same details as the previous call. However, the one area that we will revisit in detail is the sale that occurred last week of a 17-property portfolio, which we call the Morgan Stanley portfolio. This transaction marks the completion of our non-core disposition initiatives. Perry is going to walk you through the economic impact of this as well as discuss our earnings in the key components of our balance sheet. After that, I am going to explain the additional benefits from the sale to the company as well as update you on the other components of our business. So with that, I would like to introduce Perry Kamerman.

Thanks Ken. First I would like to review our earnings for the quarter as well as the impact of last week's sale of the Morgan Stanley portfolio on our 2002 projection. Thereafter, I will discuss the status of the balance sheet. Please note that all per share information is presented on a fully diluted basis. FFO for the first quarter of 2002 was $0.37 per share inclusive of $0.13 of lease termination income relating Elmwood Park Redevelopment. This compares to $0.20 per share for the first quarter 2001. In conjunction with the lease termination at Elmwood, the center was re-anchored with [PATH MARK] supermarket. Other key factors that cause first quarter 2002 FFO, which was $0.24 excluding the lease termination income mentioned above, to be $0.04 higher than the first quarter 2001 are as follows. First the asset sales had an anticipated net dilutive effect on FFO of approximately $0.02. For setting this dilution, there were $0.06 of accretion due to the following: First, $0.02 of accretion was generated by same-store NOI growth of 2.2%. This was primarily attributable to a net reduction in snow removal account due to a comparably milder winter in 2002, which along with contractual rent increases outweighed the loss of rent associated with occupancy decline. Second, there was $0.02 of accretion from the completion of our Dutch Auction tender offer as well as other stock buybacks and redemption during 2001. Finally with a $0.02 accretion resulting from reduced interest rates on our mortgage debts and from additional interest income as a result of more cash on hand during 2002. As Ken mentioned, the Morgan Stanley portfolio we sold last week for $52.7 billion. As part of the sale, the purchaser assumed 8.84% existing mortgage debt of $42.4 dollars. The remaining balance of $10.3 million, which was received by Acadia consisted of a cash payment of $4 million and a 6.3 mezzanine or senior preferred interest in the owning entity. The mezzanine portion, which can be prepaid without penalty at any time at a five-year term and bears interest only at an initial rate of 15% increasing annually by 100 basis points and 18% in year four and five. In addition to these payments, Acadia was reimbursed approximately $2 million of [_____] and capital reserves held by the first mortgage lender. The portfolio was sold for 11.5% private basis capital rate after reflecting adjustments to NOI for anchor tenant reserves and the assumption of the above market debt. As discussed at yearend, the annualized dilution from this sale was approximately $0.11 after taking into account the 15% mezzanine interest and the cash portion of the purchase price assumed to pay down debt. To the extent that the mezzanine which carries a high interest rate is paid off early, an additional dilution may occur until the capital is redeployed into our joint venture and used to purchase additional shares for the company. At our last conference call, we forecasted that 2002 FFO would be between $0.78 to $0.82 excluding the $0.13 of lease termination income received during the first quarter and considered nonrecurring in nature. One of the key assumptions in that model was that same store NOI would decrease by 2% primarily attributable to reserves for unforeseen anchor tenant events, as well as due to general economic uncertainties. Today, we have not been required to utilize these reserves and as previously discussed, same store NOI increased approximately 2%. As the uncertainty continues, we are maintaining our conservative outlook and are therefore not prematurely upwardly revising our previous FFO projections. Moving next to our balance sheet, as at the end of the quarter, we had $219 million of mortgage debt and additionally our pro-rata share of joint venture debt totaled $17 million. Of this total debt, 55% was fixed at an average interest rate of 7.4%. The remaining 45% was variable at an average rate of 3.7%. In total the average rate on our debt was 5.7%. Please note that these amounts do not include $42.6 million of debt, which is assumed by the buyer in connection of the sale of the Morgan Stanley properties in April 2002. In April 2002, we also refinanced $6.2 million of 9.9% fixed rate debt, which related to our Gateway redevelopment with a five-year variable rate loan. This new loan bears interest at LIBOR plus 300 basis points, increasing to 175 points after completion of construction, which is anticipated by the third quarter of 2003. Additionally, during the first quarter we extended $5 million of outstanding variable debt at a rate of LIBOR plus 175 basis points and maturing in 2007. Looking at our remaining upcoming maturities, we have $32 million of debt coming due for the balance of this year, all of which is variable at an average rate of LIBOR plus 198 basis points. We are finalizing the financing of these properties, which have mortgage values approximately 63% with our existing lenders and do not anticipate any problems arising. Additionally, we have unused credit facilities totalling $24 million in seven properties, which are unencumbered. Further, at the end of the quarter, our debt-to-market capitalization was 52%. Additionally, we have $43 million of working capital, which is expected to be used to complete our two remaining redevelopment and fund the required equity portion of our new joint venture. Moving now to key operating ratios, our annual interest coverage ratio is 2.89:1 and our debt service coverage ratio is 2.26:1. As previously announced, we increased our dividend from $0.12 to $0.13 in the first quarter of 2002. Even after this increase our FFO payout ratio, which is below 55% remains conservative. And now, back to Ken.

Thank you, Perry. I would like to again revisit the Morgan Stanley portfolio sale. As we said before, the portfolio consisted a 17 properties across collateralized through a securitized loan that was originated by Morgan Stanley's assets name. In the aggregate, the portfolio contained approximately 2.23 million square feet. 10 of the properties are located in Pennsylvania and seven are in various South Eastern states from Virginia to Florida. With the sale of this portfolio, we have now completed our non-core disposition initiatives. And as Perry mentioned, while they will be dilution to our earnings from this sale the benefits are significant. Specifically, the Morgan Stanley portfolio represented 25% of the company's GLA, but less than 5% of our estimated net asset value. This sale eliminates this misalignment. Secondly, we reduced our exposure to weakened retailers such as KMART and AMES. We reduced our KMART exposure from 10 stores to 7 stores and our AMES exposure from 8 to 4 locations. AMES went from being our second largest tenant in 2001 to currently our seventh largest tenant. We strengthened our balance sheet by eliminating $42 million of fixed rate debt at 8.84%. That is reducing our cost of debt as well as our leverage. And more importantly, we improved the quality of our earnings by having both a stronger balance sheet and higher quality revenues. Finally, this sale has allowed us to continue to refine our management focus and efficiencies by calling us out of the South East and reducing our exposure to Central Pennsylvania. On a going forward basis, we will continue to periodically sell properties but will do so opportunistically and as part of our overall capital recycling program. Those of you who have monitored the slow but steady multi-quarter progress of this asset sale program might have felt like it was like watching grass grow. I assure you internally this transaction required a significant effort and persistence by our team and I congratulate and thank the team for their excellent job. Turning to our core portfolio with respect to occupancy, as anticipated our first quarter occupancy dropped by 140 basis points from yearend to 89.4%. This decline was primarily the result of two anticipated tenant losses, which aggregated approximately 75000 square feet. Neither of these tenants were primary anchors at their respective shopping centers. Contrast to the occupancy decline as Perry mentioned, our net operating income for the quarter increased by approximately 2.2%. While this growth is stronger than we are forecasting for the full calendar year, and we certainly welcome positive variances, I feel that given that we are only through the first quarter and the future remains unclear, we are going to maintain a cautious outlook for the economy and its impact on our portfolio. Thus we are going to maintain a conservative view with respect to occupancy growth and same store NOI growth until we see the light at the end of the tunnel. Keep in mind that real estate tends to be a lagging indicator and that growth in GDP does not immediately translate into NOI growth. However given that we are now just under 90% occupancy, people have asked us for guidance with respect to list of prospects. In the short run, we are going to maintain a neutral position with respect to our occupancy increase. However in the long term, we are confident that this portfolio should stabilize above 90% occupancy. And our estimates are that for every 1% increase in occupancy, it actually translates into between $400,000 and $500,000 of incremental NOI or approximately 11/2-2 cents of additional FFO net of interest expenses associated with TI. Turning to our anchor tenant exposure, as we discussed in depth in the last call, we have seven remaining KMARTs. They are paying an average rent of $4.30 per square foot and have above average sales of $193 per square foot with the rent-to-sales ratio averaging 3%. We have four remaining AMES and they are paying an average of $3.30 per square foot and have sales averaging a $106 a foot. While these remaining KMART and AMES are productive and are not currently scheduled to be closed it is too early to predict the ultimate resolution. Historically, we have been successful in recapturing our Caldor's, our Bradlee's, our Grand Unions and other anchors and profitably turning them into Wall Marts, Home Depots, Joint Foods, and Stop and Shop, and so we will keep you posted of these as events unfold. On the redevelopment front, in the last call we walked through our two most recently completed redevelopments as well as the two that are in our pipeline and I will briefly discuss the two that are in our pipeline; those are our Elmwood Park redevelopment in Elmwood Park, New Jersey and our Gateway Plaza redevelopment in Burlington, Vermont. With respect to Elmwood Park, we have completed the phase I of that redevelopment and all that is left is the construction of a new 50,000 square foot [PATH MARK] Super market. The construction is underway. We anticipate the construction to be completed and [PATH MARK] to be opened by the end of this year. In Burlington, Vermont we have an executed lease and all of the approvals and have begun the demolition and remodeling process to redevelop this property into 115 square foot super market anchored shopping center. That would be anchored by a new 72,000 square foot Shaw super market. We anticipate completing that construction in the middle of next year. In total we are going to spend approximately $15.3 million on these two projects and once stabilized, they are going to generate an incremental NOI of approximately $3.3 million and thus contribute approximately $0.06 of FFO on an annual basis. As I said, Elmwood should be on line first quarter of 2003 and Gateway should be on line third quarter of 2003. Turning to our acquisition joint venture, which we discussed in detail on our last call we are working on several transactions that we are excited about, but we do not have any firm transactions to announce at this time. Given that it is an extremely competitive market place and given that we are only going to execute on transactions that make sense, we will continue with our guidance for 2002 of no incremental external FFO from the acquisition joint venture. As our venture activity progresses, we will update you and update our guidance. In conclusion, with respect to our first quarter performance everything remains on track and consistent with our previous forecast and guidance. For the reasons we have discussed, the sale of the Morgan Stanley portfolio was an important final step in our turnaround. Now that we have absorbed the dilution associated with the non-core asset sales and the strengthening of our balance sheet and now that this dilution will be fully absorbed by the third quarter of this year we are now in a position to provide consistent and sustainable earnings growth going forward. So not withstanding a volatile economy and a difficult retailing environment, we think we are in a strong position. We have shed our non-core properties. Our current portfolio is strong. It is comprised of necessity-based super market and discount or anchored shopping centers in high barrier entry markets. We have a solid balance sheet, which will continue to strengthen even further. And in addition to a strong core portfolio and a solid balance sheet, we also have strong access to capital through our acquisition joint venture, which will fuel our external growth program going forward. This puts us in a strong position to capitalize on the success of the turnaround that we have accomplished today and create continued shareholder value. I would like to thank our team for the excellent job they did in the first quarter and I thank you for taking the time to join us this morning. At this point, we will take any questions.

Thank you sir. Ladies and gentlemen, at this time if you have any questions, please press the 1 on your touchtone telephone. You will hear a tone acknowledging your request and your questions will be taken in the order that they are received. If your question has already been answered, you may remove yourself from the queue by pressing the pound key. In addition, if you are using a speakerphone please pick up your handset before pressing the button. One moment please, for our first question. Once again ladies and gentlemen, if you have a question, please press the 1 at this time, and if you are using a speaker phone, we do request you to lift your handset before doing so. One moment please. And gentlemen, we will take one last second while people register for their questions. One moment... Gentlemen, there appears to be no questions at this time. Please continue with any additional comments.

I thank everyone for their time. Hopefully we have answered any questions and additionally with our quarterly supplement that comes out next week, if you any questions with that feel free to contact us. Thank you for your time.

Thank you sir. Ladies and gentlemen, this does conclude our conference call for today. Thank you for your participation. You may now disconnect.