Acadia Realty Trust (AKR) 2005 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Acadia Realty Trust first quarter, 2005, earnings conference call. My name is Caitlin, and I will be your coordinator today. [OPERATOR INSTRUCTIONS] I would like not to turn the presentation to your host, Jon Grisham, Chief Accounting Officer. Please go ahead, sir.

Thank you, Caitlin. Good afternoon, everyone. Thank you for joining us for Acadia Realty Trust's first quarter conference call.

At this time, I would like to inform our listeners that, in addition to historical information, this conference call contains forward looking statements under the federal securities law. These statements are based on current expectations, estimates, and projections about the industry and markets in which we operate and management's beliefs and assumptions. Forward looking statements are not guarantees of future performance, and involve certain known and unknown risks and uncertainties, as discussed from time to time in the Company's filings with the SEC. These factors can cause actual results to differ materially from those expressed, or implied, by such forward looking statements.

During this call, management may refer to certain non-GAAP financial measures, including funds from operations and net operating income, which we believe to be meaningful and helpful to investors when discussing results in the REIT industry. Please see our financial and operating reporting supplement, posted on our website, for reconciliation of these non-GAAP financial measures with the most directly comparable financial measures calculated and presented in accordance with GAAP. Following management's discussion, there will be an opportunity for all participants to ask questions.

At this time, I would like to turn the call over to Ken Bernstein, Acadia's President and Chief Executive Officer. Ken, please begin.

Thank you, John. Good afternoon. Along with Jon Grisham, joining me this afternoon is Mike Nelsen, our CFO. Today we are going to review our first quarter results, as well as discuss our acquisition and redevelopment pipeline. We are quite pleased with the results, both in terms of our internal portfolio performance, our balance sheet strength and our external growth initiatives. Today, in reviewing our results, we will walk through the three key components of our business plan.

First, our portfolio performance. Our portfolio performance in the first quarter remains strong, reflecting the stability and upside within our portfolio, and the progress of our redevelopments. Second is our balance sheet. Mike will walk through our continued strong ratios and limited interest-rate exposure.

Third, and finally, our external growth program. In the first quarter, we continued to add to the external growth initiatives that we launched in 2004, when we formed our two new platforms -- our New York Urban/Infill redevelopment platform, and our retailer controlled property, or RCP venture. After Mike and John discuss our financial performance and our guidance, I will walk you through our portfolio performance and update you on the external growth initiatives. Now, I will turn the call back to Mike and John.

Thanks, Ken. Jon will discuss the Company's results of operations for the quarter ended March 31, 2005.

Refer to our press release issued yesterday, as well as our quarterly financial supplement, which we published on our website, for a full detail of our financial and operating results for the first quarter. The following is a brief summary of those results. Please note that all per share amounts that I discuss are on a fully diluted basis. FFO for the first quarter 2005 was $0.27 per share, which was up 12.5 % over first quarter, 2004. During 2005, we were successful in negotiating with our insurance carrier a $480,000 reduction in the deductible portion of the cost of the damage caused by a flood at our Mark Plaza property. As we had provided for the full deductible during the third quarter of 2004, this current reduction had a positive affect on first quarter, 2005 FFO of approximately a penny and a half. After adjusting for this recovery, 2005 FFO grew by approximately 7% over first quarter, 2004.

It is worth noting that first quarter FFO, on a per share basis, includes the short-term dilutive effect of our 4th quarter, 2004 equity issuance. Earnings per share for the first quarter, 2005 were $0.14, which was up from $0.10 against first quarter, 2004. 2005 same store NOI for the retail portfolio increased by 1.8% over first quarter, 2004. These results for the quarter were driven primarily by positive rent spreads on new and renewal leasing, partially offset by increased snow removal costs during 2005. After adjusting 2005 for these increased snow removal costs, same store NOI rose by 3.7%.

Mike will now continue the discussion of our financial condition and our 2005 guidance. Mike?

Thanks, Jon. We continue to maintain a solid financial condition, as evidenced by the following ratios, all of which include the company's pro rata share of our joint venture debt and interest expense -- debt to market capitalization of 31%, an FFO payout ratio of 63%, a fixed charge ratio of 3.9 times, and 89% fixed rate debt with an all-in cost of 5.8%, which compares with 85% a year ago, with the blended cost of debt of 6.1 %.

We are currently completing a $62 million, 5 year line of credit to supplement our current availability. Borrowings under this line will be on a non-recourse basis, collateralized by first-mortgage liens on five of our properties with interest at LIBOR plus130 basis points.

Additionally, we have 11 unencumbered properties which we estimate could provide an additional -- in excess of -- $50 million of additional debt proceeds. This availability, along with our acquisition joint venture discretionary capital, is available to fund our future acquisitions. Now, I would like to discuss our 2005 earnings guidance. After adjusting for the settlement of the insurance deductible as discussed by Jon, our adjusted FFO for the first quarter was approximately $0.25.

Two of the transactions we completed during the quarter, which Ken will discuss in further detail, should provide an additional $250,000 of FFO on a full quarter basis, and thus, $750,000, or approximately $0.02, for the balance of the year. After factoring the affects of these transactions, and annualizing our adjusted first quarter FFO, we are already at the mid-point of our 2005 earnings guidance. Looking forward, our actual 2005 results will be driven to the upside by potential accretion from future acquisition activity, potentially offset by unforeseen pending credit issues, as well as unanticipated increases in G&A costs such as Sarbanes-Oxley expenses.

As such, we are maintaining our 2005 FFO guidance of between a $1.01 and a $1.09 per share. We remain very pleased with the fundamentals of our business model, and the prospects for our future growth, in terms of both our earnings and shareholder value. As the year progresses, and we gain increased visibility in the factors that I have discussed, we will keep you updated and narrow our earnings range. Ken will now continue the discussion.

Thanks, Mike. First, going to discuss our portfolio performance. As Mike and Jon discussed -- our NOI growth within the portfolio which, after normalizing for the [effect of] snow costs, would be 3.7%, continues to be at the high end of our expectations, and is driven by strong leasing and redevelopment performance. Our portfolio occupancy increased to 92.4%. The most significant contributors were new and renewal leases totaling 145,000 square feet, with average rent spreads of approximately 7% on a cash basis.

In terms of tenant exposures as Mike previously discussed, one of the key variables in our 2005 guidance is the amount of our internal tenant reserve that will actually be utilized. While there is little on our radar screen right now to cause us specific concern, general prudence causes us to maintain our more conservative outlook as part of our earnings range for 2005. In terms of actual tenant exposures on our radar screen, the only notable tenant -- with KB Toys, we gave an in-depth update on the last call, and the retenanting of our two remaining vacancies is proceeding according to plan. Separate to KB Toys, we don't see any current material exposures.

Most significant at this point is an anticipated recovery of a 32,000 square foot Acme supermarket in our Berlin, New Jersey shopping center. This property is also anchored by a K-Mart, and it is now right for redevelopment, and we are evaluating the different opportunities there, including a potential sale of the property. The annual revenue from the Acme is $400,000. The impact will be $270,000 for 2005, and it will have approximately a 70 basis point impact to our occupancy. This impact is [baked] into our guidance, and should be offset by other positive leasing events in our portfolio. So, to recap, our portfolio performance remains solid with strong normalized NOI growth, and occupancy gains driven by strong leasing and redevelopment activity. Turning to external growth.

In the first quarter, we continued to build on the expanded acquisition platform that we put in place in 2004, with the formation of AKR Fund 2, and the creation of our current two key value-added strategic areas -- the first being our New York Urban/Infill redevelopment program, the second, our RCP venture.

As an overview, our current goal is to -- each year -- to make investments, whether redevelopments or existing assets, that once stabilized, will approximate 200 to 300 million in gross asset cost or value. As we explained in detail in the past, every $100 million of gross assets acquired or redeveloped , upon stabilization, should contribute $0.03 to $0.05 to our earnings.

Turning first to our New York Urban/Infill redevelopment program. We continue to be excited about the opportunities we see in the urban retail redevelopments, especially in the New York area. As opposed to other parts of the country, national retailers are under-represented in this market, and we can use our redevelopment skills and our capital for attractive risk-adjusted returns. Earlier this month, we announced our third acquisition, which was the acquisition of 4650 Broadway, located in the Inwood/Washington Heights section of northern Manhattan, on the corner of Broadway and Sherman Avenue.

This property, directly across from Fort Tryon Park, is the home of The Cloisters, and has recently experienced a resurgence and strong interest from both retailers as well residential users. It is our plan to redevelop the current 140,000 square foot building to encompass 300,000 square feet, with approximately half remaining commercial use, including retail and parking, and approximately half being used for a new residential tower.

It is likely that we will not directly develop the residential portion. We plan on vacating the existing tenants and commencing the redevelopment of the property in the next 12 to 24 months. We acquired the property with our New York Urban/Infill partners, P/A Associates for $25 million.

While there is not significant income in place today, and it is our intention to fully redevelop the property, if we were to simply bring the current tenants to market, this would bring the unleveraged return to the mid to upper single digits before taking into account the expansion and redevelopment which we expect will bring our unleveraged return on cost to an excess of 10%.

If we sell all of our interest in the residential air rights, and simply redevelop the commercial portion, this redevelopment would be approximately $40 to $50 million of development costs, with the equity investment being approximately $15 million. The residential component, including FAR, hard costs, and soft costs could range from between $50 million to $70 million, depending on the total scope of the project.

As we have said, we do not intend to be in a first-loss position on the residential component. With respect to our first two redevelopments, Fordham Road in the Bronx, Pelham Manor in Westchester, both redevelopments are proceeding on plan as we previously discussed. We anticipate Fordham Road being a $60 to $70 million redevelopment, and Pelham will be a $30 to $35 million project. These redevelopments contemplate construction commencing within the next 24 months and, upon stabilization, we are projecting both these properties will generate unleveraged yields in excess of 10% and leveraged returns on equity should be in the mid teens.

From a short-term earnings perspective, with respect to our Fordham Road and Pelham Manor redevelopments and now our Inwood/Washington Heights redevelopment, there will be limited accretion in 2005. But upon stabilization, these three projects, that are totaling between $130 and $155 million, should start contributing approximately $0.05 of for every $100 million of development costs. And thus, they are helping building a nice pipeline for future growth.

While back ended, these redevelopments from a total risk-adjusted return perspective are far more exciting than the short-term accretive, but potentially long-term NAV dilutive acquisition, of stabilized properties that we are seeing. On our last call, we stated that, along with a northern Manhattan acquisition, we anticipate one this year in Brooklyn. That is still the case, and we will keep you apprised.

Turning now to RCP venture. Last year, we also launched the second component of our growth strategy, our Retailer Controlled Property, or RCP venture. As we previously discussed in detail, the venture is with the Klaff organization and its long-term partner, Lubert/Adler. The focus of the RCP venture is to acquire retailer controlled properties working with both financially healthy and distressed retailers to create value from their surplus or liquidating real estate.

Last year we commenced our first RCP venture with our participation in the acquisition of Mervyns. While we have been actively working on several other high-profile and low profile RCP opportunities, our consortium was not the high bidder for the most recent high-profile auction, and none of our lower-profile opportunities are ready for announcement at this time. We will keep you posted as to our progress with them.

In the first quarter, we made a $20 million preferred equity investment in real estate underneath 30 current or former Levitz stores. Our partners in our RCP venture are the majority common equity partners in this leverage transaction. The portfolio consists of 2.5 million square feet of fee and leasehold interests in 30 locations, the majority of which are currently leased to Levitz stores. The balance of the properties are in the process of being redeveloped, and Acadia anticipates taking an active role in the creation of value from these redevelopments.

The properties are primarily located on the east coast and west coast, with a majority of the value ascribed to six of the properties located in California, New York, New Jersey and Oregon. The properties are primarily in well-located, high barrier-to-entry markets and have strong redevelopment and value creation potential. The preferred equity investment will receive a return of 10%. These properties are encumbered by a senior debt of approximately $50 million and, thus, our preferred equity represents the 50 to 70% position in the capital structure.

As I have discussed on our previous call, we will make periodic selective mezzanine and preferred equity investments where the transactions are compelling both from a strategic and financial perspective. We are seeing opportunities to invest capital at attractive risk-adjusted returns in assets that we would be thrilled to own at our level [inaudible] capital structure. This will not be a major portion of our growth strategy, but it enables us to further enhance our capital recycling capabilities, such that the repayment of mezzanine investments should coincide nicely with our anticipated 3-year, Fund 2 co-investment requirements.

In addition to this recent preferred equity investment, our relationship with Klaff and its institutional partners continues to progress and mature very nicely. In the first quarter, we acquired the remaining balance of Klaff's interest in Klaff Retail Management Services , which is the asset management arm of Klaff. This follows our 2004 acquisition of the first 75% of that entity.

Also, as part of that transaction, we acquired Klaff's rights to certain potential future revenue stream. The consideration for the acquisition was $4 million, in the form of 250,000 common OP units at a price of $16 per unit, with a 5-year restriction on the sale of the stock. We anticipate earning approximately 15%, or roughly $600,000 per annum, on our investment. However, while there will be certain ramp-up costs this year that should bring the contribution net to us closer to $300,000, or $0.01, in 2005.

In terms of our general acquisition outlook for the balance of 2005, we are going to continue to focus on our RCP venture and our value-added redevelopments. We recognize that these investments tend to be more back ended in nature, but we believe that planting these seeds is a very productive use of our resources, and that there will continue to be sufficient opportunities to move the needle of a company of our size.

We are going to continue to remain disciplined and focused on creating real estate value that,whether accreted in 2005 or not, will translate into long-term shareholder value. In terms of dispositions, we continue to explore the opportunity to sell certain assets. Either those that are non-core to our long-term growth strategy or, when we can do so, very opportunistically as part of our long-term capital recycling philosophy. We have the typical tax and redeployment hurdles, but we do anticipate continuing to dispose of properties each year without a material disruption to our earnings or tax data. We are currently in discussions with respect to a few properties, and we will keep you apprised.

To conclude, we continue to be very pleased with our business model. All three components of our business plan are on track. Our core portfolio performance remains strong. Our balance sheet is solid, with limited exposure to rising interest rates. Our dividend payout is one of the strongest in our sector. And this puts us in a position to provide our shareholders, not only with a safe dividend, but also one that can grow as our earnings growth continues. Third, and finally, our acquisition initiatives are laying the foundation for strong future growth.

Both our New York platform Infill platform as well as our RCP venture enabling us to make attractive investments in a very competitive market place during a period where capital is readily available and worthwhile acquisitions are extremely difficult to complete. We are very excited by the investments we are making. If, and when, the cycle shifts, our strong balance sheet, dry powder, and accretive acquisition structure should be that much more valuable to our shareholders. I'd like to thank you for listening today and would be happy to take any questions.

[OPERATOR INSTRUCTIONS] Sir, your first question comes from Michael Bilerman of Smith Barney.

Good afternoon. John is on the phone with me as well. Ken, I was wondering if you could talk about some of the hurdles for the three big redevelopment projects that you have on going in terms of any zoning or approvals or permits that you would need to get, if any, to start those projects?

The deals that we have purchased are all zoned retail, or for the appropriate uses that we have discussed. So, we don't have a zoning process, but we are talking about New York City, and so nothing is certain and nothing is simple. The biggest hurdles, as I see them, and each one has a different timing sequence, but on Fordham Road, for instance, Sears has a lease until July, 2007. And those discussions, negotiations, how that plays out with Sears will probably be the significant driver as to whether that's a 2006, 2007 or 2007, 2008 redevelopment.

In Pelham Manor, the property was rezoned by the town of Pelham Manor from warehouse to retail prior to our stepping in. So, the zoning process is complete, but there is a host of other moving pieces, including existing warehouse tenants, that could also cause a 12 to 24 month process. And that is also why we built in that timing in that transaction. Sherman, similar kind of issues in each instance.

But, we believe that the timing that we have set forth is realistic, and that the zoning hurdles are not going to be the major redevelopment zoning hurdles of taking a residential component to retail or down-zoning or anything like that. We could probably spend a couple hours talking about it in detail. But I think, hopefully, that gives you a general overview.

And then, how do you think -- I mean, I guess your comment on we can spend a couple hours talking about it means that it is probably taking up a lot of your time. How do you think about -- these projects are 90% owned by the fund, you own 20% of the fund. So, your net interest is 18%. And so, when you talk about the total development cost of 130 to 155 million, you are talking about a net to Acadia of about 20 million. Are these sort of involvement -- in terms of your time and effort and potential delays, because it is New York -- is it worth it?

Yes, the short answer is yes, absolutely. I think again what we look at is how we are leveraging our time, resources and equity. So, the $100 million of growth acquisition that I outlined which, again, you can run through the numbers and, well gee, that doesn't take a lot of Acadia's equity. We are still making a very nice return on that equity and very attractive fees. We are also not incurring the typical type of dilution that if we did these wholly-owned. We are also leveraging, not just our equity, but by using our partners, P/A Associates to handle a lot of the political groundwork. We are very actively involved in this. But we have very strong partners who are also doing a lot of the heavy lifting.

So, again from my view, it is the correct use of our resources. We watch our resources very carefully and say, gee, we could go buy wholly-owned $100 million portfolio, or a billion dollar portfolio, and I don't know, where are they trading now? 6, 6.5 cap? Is that in our shareholder's interest relative to what we are doing now? And, when we weigh it out, we like how we are allocating our capital and our resources.

I just had a question on guidance. I think you had said that, effectively, the run rate out of this quarter will take to you the mid-point of guidance. What sort of level of acquisitions, and what level of G&A and tenant credit expense, would take to you the high end of the guidance as we sit here today?

Let's pull out acquisitions for a second because, as you are very quick to point out, our acquisitions aren't the main driver of '05 accretion. So, that component of it, while we may have another penny or so of incremental acquisition activity, maybe $0.02, the acquisition component of it is really the seeds we are planting for '06, '07, '08. In terms of our tenant credit range, Mike, Jon, do you want to walk through where that plays out?

Sure. Mike, do you want to do it?

Mike, as we had discussed at year-end, our forecast for 2005 was stable growth of about 3% to 4% within the existing portfolio. However, that could be offset by an increase in tenant credit problems which could range anywhere from $0.01 to $0.03, effectively wiping out most of the internal growth. So, that is our stance on the tenant credit issue. Now, for the first quarter, tenant credit was not a problem. I think we had total expense of, maybe, half a penny which is well within our experience for the last couple of years. But, we remain cautious as it relates to this. So, that's our stance for the balance of 2005.

As it relates to G&A, we think that first quarter is fairly representative on a run-rate basis for the year, but there may be unexpected, or unanticipated, increases in G&A. Sarbanes-Oxley comes to mind. We are still -- and, I think, the rest of our industry is still trying to figure out where that all settles in as it relates to G&A.

So, from a -- in terms of G&A increases, and in terms of tenant credit loss, Mike -- it would be the unanticipated, not the things that are on our radar screen, but the kind of things that you come into the office on a Monday morning and say, oh, crap. Otherwise, we feel very good about those components of it. And, what we have seen from the acquisition side is -- we have got plenty of dry powder, and we are working on a host of things. Some may be immediately accretive. If they are not, as long as they are long-term accretive, we think it will play out nicely in terms of '05, '06, '07.

The high end of the range, does that assume the 3.1 million quarterly run rate, about $12.4 million of G&A for the year?

A little bit more than that.

That, effectively, is an 18% increase over 2004?

Right. But then, also, remember we have had significant ramp up in terms of Fund 2 revenues, and other things, that coincide with that nicely.

Keep in mind as our fee income increases, there is gong to be some corresponding increase in the infrastructure to generate that fee.

Well, the fees in your class portfolio went up significantly this quarter, to 5 seventy-five. How much of that was attributed to you buying it in -- which I thought happened, maybe, after the quarter, versus the actual fees that are being generated?

No, the acquisition was done on February 15th. So, we had a month and a half in the quarter. And the fee stream from that was about 2, $300 thousand for the month and a half.

Okay. All right. Thank you.

Great.

Your next question from Jay Lobb of RBC Capital Markets.

Good afternoon. You are with David Ronko. In terms of the activity which you described, obviously a lot going on and we know you are doing a lot of it in the joint venture structure, but what can you tell us about your plans to expand your management team to assist you in getting these projects completed, and managing the risk with all of this new activity? What have you done so far, say in the last quarter or 2, and what are your plans for this year?

In terms of additional hiring as -- certain areas, leasing for instance, we made one or two important additions last year in anticipation of the ramp up. And, thankfully, they are in place now absorbing a host of the activity we are doing. We may have one or two additional hires in the leasing and redevelopment arena over the next year or so. In construction as well.

I don't want to make these sound easy, because they are not. But, they are not nearly as time intensive as they may sound. And, we want to make them sound complicated enough so that we don't have a whole host of competitors trying to do it. But, for instance, the acquisition of the Sears building is effectively a single asset -- single tenant asset right now. Over the next year or so, we hope to convert it to multi-tenant, and that -- a wide range of conversation is being handled. My guess is it is taking less than 20% of one person's time.

When it becomes a true redevelopment, then the construction kicks in et cetera, and there is the -- comes the ramp up. But, the real hard work is finding these acquisitions because they are generally off-market transactions. These are not deals that we are bidding at auction. And on that side, we have a full in-house acquisition team. I spend a fair amount of time, and then our partners spend a fair amount of time. My guess is we will continue to staff that and may add an additional person there.

But, my hope is that most of our ramping-up, with respect to the different ventures we are doing, has occurred. The other area though, Jay, that is always an unknown, is Sarbanes-Oxley and reporting. We are fully staffed and, knock on wood, we made it through 404. If the SEC and company decided to ask us to double our efforts, and turn 404 into 808, then we have additional staffing there, and we would sit there and say, gee, are we going to need to add more staff on that side? So far, I think we feel okay, but we will probably add one or two more people over the course of the next or so in the accounting reporting area as well.

Okay. And then, in terms of cap rate. If you were to put a big chunk of your assets on the market today -- a random selection, say of 200 million worth of assets -- what kind of cap rates do you think you could be realizing in your portfolio today? And also, just on the subject of geographic expansion, we bring this up every few quarters -- is it safe to assume you have got plenty enough to do in the northeast, that we won't be expecting you to move beyond that in terms of your core portfolio at this point?

Okay, handful of questions. In terms of geography, what we have recognized in our ongoing redevelopments negotiations with tenants et cetera, is we really want to own in the high barrier-to-entry markets. And, while it grossly oversimplifies it to say this, where we see the highest barrier-to-entry is in the urban markets, primarily east coast and west coast, with a few exceptions. If you look at where we have been making our investments over the past year or so, the ones that require significant heavy lifting have been here in the northeast, because we think the barriers to entry are the highest. But if you look at the Levitz portfolio, Jay, it also had have some very well-located west coast assets.

We don't feel confident competing in the open market to bid for existing shopping centers in those market places, but we are very happy to have ownership exposure in those high barrier-to-entry markets as well. But elsewhere, going into the sun belt for instance, in the general midwest, we are in the greater Chicago area successfully, but as we venture out further into other areas, the barriers-to-entry are not there, and we are less excited about them. So our focus for the heavy lifting will be in the northeast, and then we will look at other high barrier-to-entry markets, but probably less aggressively than we do here in the northeast. In terms of value and cap rates, I am shocked, surprised, every day as I see them continue to compress.

My guess is that they range from 6% to 8%. We always like to think if we own it, it is worth 50 basis points more than the market. But that's really more of a Donald-Trump type of view than ours. We recognize that a host of our assets are in the New York, urban, high, high barrier-to-entry that could garner better than a 6-cap. And then, some of them, legacy assets from Mark Centers trust, although we have disposed of most, are probably the 8, maybe north of 8, cap.

Thanks.

Your next question from Ross Nussbaum of Bank of America Securities.

Hi, Ross.

Hi, Ken, Good afternoon. On your earnings guidance, I guess I understand the conservatism with respect to potential trouble spots on the tenant front. But, assuming that doesn't materialize, is it fair to say you are going to be at the upper end of your guidance?

If that doesn't materialize, and if unforeseen Sarbanes-Oxley-like G&A, yes, we feel good.

And, what else are you working on in terms of the urban redevelopment front at this point? Are you kind of full on capacity,or is there more deals that are going to be done with your partner?

There is more deals. There is one in Brooklyn that we are trying to get done. New York-style deals mean that you don't have an inspection period where you can say, hey gee, I have this deal under contract. So, we have to be fairly vague about it. But, we are working on each of the boroughs, and there are opportunities throughout there.

It is gratifying to see the level of interest from the national retailers to reconfigure their footprint in order to get into these areas and pay very full rents because they see the type of sales that they are doing. And we are going to continue to try to exploit that for as long as we can. I don't see a -- issue of overcapacity -- meaning too much on our plate. I hope we are faced with that problem, but right now we feel we can handle 2 to 4 more per year if the deals ripen.

Considering that these are developments and redevelopments, and the benefits aren't hitting your P & L until, let's call it at least 2007 -- what can you tell shareholders in terms of how you are going to grow earnings over the next 12-24 months if you have got an increased focus on these redevelopments?

Well, this year is a decent example where we said it is very limited accretion from the redevelopments that we are doing and, if you are right and we are being conservative with respect to our tenancy concerns, then hopefully continue to drive our redevelopments, make some opportunistic preferred equity and mezzanine investments --- ought to be able to create attractive, single digit growth. And then, as some of the other deals kick in, and my guess is they won't all hit at once and some may hit sooner than we expect and others may take their time. I think it puts us in a position to create safe, rational and superior earnings growth.

Thank you.

Your next question comes from Paul Adornato of Maxcor Financial.

Hi, yeah, thanks. Good afternoon.

Hi, Paul.

I was about to ask why you seem to be avoiding Brooklyn, but I am glad to hear that something may be in the works there. But I guess in the 3 plus years that I have been following the Company, your strategy of kind of recognizing value in retail real estate has gone from being below the radar screens, or niche strategy, to being front page on the Wall Street Journal. And so, I was wondering how you see the overall competitive environment, both from other financial investors as well as the retailers themselves, that now recognize that they are sitting on potentially valuable real estate.

We prefer not to see it on the front page of the Wall Street Journal. Are you there, Paul?

Yes.

Okay. We got some feedback on this. If you are referring to our RCP venture, a year ago when we announced it, a little over a year ago, everyone said, gee, that business is over, and it had only just begun. My sense is, right now, that there is too many people going through the over-simplified process of assuming just because a retailer is sitting on valuable real estate that they can immediately convert that, monetize it.

That is not the case. It certainly has caused a few instances and a few conversations we have had and deals we have looked at to get overblown initially. The good news is that there is a very limited group of people who can actually execute on these type of transactions. The group we are affiliated with I think is the best, but obviously I am biased. Even objectively, there is only two or three, maybe four groups who can execute -- not only the large ones, but also, I anticipate more of the fun and profits to be is in the midsize and smaller ones.

And so, we are making sure that we are well situated as different opportunities may present themselves in the not-the-front-page-of-the-Wall Street Journal-type, maybe somewhere on page 5, 6 or 7. And, there are a host of those companies that are sitting on great real estate that probably should consider other alternatives besides their retailing. And remember, at our size, Paul, it doesn't have to be a $7 billion transaction. It doesn't even have to be a $700 million transaction. We are fully prepared, our partners are fully prepared, to do deals of all different sizes And that, I think, also puts us in a positive, unique position.

Okay. Thank you.

All right. Thanks.

[OPERATOR INSTRUCTIONS] Sir, I'll hand the call back to you. That was your final question.

Great. I'd like to thank everybody for listens and we look forward to speaking to everybody in the near future.

Ladies and gentlemen, that conclude the Acadia Reality Trust first quarter earnings conference. You may now disconnect.