Acadia Realty Trust (AKR) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter Acadia Realty Trust earnings conference call. My name is Janelle and I will be your coordinator for today. [OPERATOR INSTRUCTIONS]

The Company would like me to inform its listeners that, in addition to historic information, this conference call contains forward-looking statements under the federal security laws. These statements are based on current expectations and projections about the industry and market in which Acadia operates and management's beliefs and assumptions.

Forward-looking statements are not guarantees of future performance and involve certain knowledge and unknown risks and uncertainties as discussed from time to time in the Company's filings with the SEC, including those discussed under the headings Risk Factors and Management's Discussion and Analysis of Financial Condition[s] and Results of Operations. 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 operation income, which they believe to be meaningful and helpful to investors when discussing results in the REIT industry.

Please see Acadia financial and operating reports supplement postings on its website. For a reconciliation of those non-GAAP financial measures which most directly comparable financial measures calculated or presented in accordance with GAAP. Following management's discussion, there will be an opportunity for all participants to ask questions.

At this time, I'd like to turn the call over to Mr. Ken Bernstein, Acadia's President and Chief Executive Officer. Please proceed, sir.

Thank you. Good afternoon. Joining me are Mike Nelsen and Jon Grisham. Today we're going to discuss our second quarter 2006 results. All key components of our business plan remain on track and are performing as we anticipated. We'll walk through the key components and discuss their impact on quarterly earnings and, more importantly, long-term performance.

First, in terms of our core portfolio, as we discussed on the last call we anticipated that our quarterly same store NOI and occupancy growth for the latter portion of 2006 would be temporarily muted by the profitable recapturing and releasing projects that we're in the process of completing. We're seeing some of this in this quarter's same store results and we'll discuss that further today.

We've always believed that short-term occupancy and income loss in exchange for longer term gain is an important component of our business. Later we'll review these results and discuss the re-tenanting opportunities that we're working on in the portfolio.

In terms of our balance sheet, our discipline with respect to limiting our interest rate exposure has helped us to continue to maintain very strong financial ratios. We continue to believe that the minor short-term costs associated with reducing our exposure to floating rate debt is worth incurring. Also of importance, we continue to maintain high levels of dry powder both through our low leverage and our discretionary investment sums. Mike, later on, will walk you through some of these ratios.

Finally with respect to our external growth platform in the second quarter, we continue to plant the seeds for future growth. On the investment side, we continue to focus on our key external growth initiatives.

First, our New York Urban/Infill platform, where we have a seven-property, $350 million redevelopment pipeline. And secondly, our RCP venture, where in the second quarter we made a $21 million investment in the consortium acquisition of Albertsons.

Additionally in the second quarter, we also continued our periodic asset recycling, with an additional acquisition to our core portfolio and I'll discuss that briefly later as well. Both the value-added components of our investment business and the asset recycling are added to our long-term growth potential. While they're not contributing in the short term to our current year's earnings and, in fact in some cases, they are providing some short-term dilution, the long-term gains from these investments more than outweigh the short-term costs.

After Mike and Jon discuss our earnings and balance sheet, I'll update the status of these initiatives, as well as the status of Fund 1, Fund 2, and the potential for future funds.

Now I'd like to turn the call over to Jon, who will discuss the second quarter results. Jon?

Good afternoon. I'd like to briefly compare second quarter 2006 FFO of $0.30 with first quarter 2006 FFO of $0.28. The three key variables in this $0.02 increase were, one, a reduction in G&A and two, income from our joint venture investments, which were offset by an increase in net interest expense. G&A expense decreased approximately $0.02 between first and second quarter. And as I discussed on the last conference call, first quarter G&A included additional compensation expense related to the vesting of restricted shares.

Secondly, the income from our joint venture investments for the second quarter increased by also approximately $0.02 over the first quarter. During the first quarter we incurred our share of mortgage defeasance costs in connection with the Brandywine refinancing, which totaled about $0.01. Additionally, during the second quarter we collected our share of lease termination income from our Crossroads property of about $0.005.

Counterbalancing these positive trends in G&A and joint venture income was a $0.02 increase in interest expense, which is inclusive of our share of unconsolidated joint ventures due to the increased debt levels. This increase was partially offset by additional interest income earned of approximately $0.01 as a result of increased mezzanine investments, as well as cash on hand.

As I discussed in the previous conference call, we now are required to consolidate our investments in Funds 1 and 2, as well as present our Brandywine investment on an unconsolidated basis due to the first quarter recapitalization of this investment. This all makes the comparability of our operating results with historical results more difficult. To assist investors and analysts in looking at these, we continue to provide a pro rata presentation of our results of operations and our supplement is posted on our website.

Earnings per share from continued operations for the second quarter, 2006 was $0.14, which compares to $0.15 a year ago quarter. Discontinued operations, as reflected in the press release, represent activity from our Soundview Marketplace on Long Island and our Bradford Shopping Center in Pennsylvania, both of which are currently under contract for sale. As we also reported in the press release, same store NOI increased 2.2% for the six months ended June 30, '06. This result was adversely impacted by re-tenanting activities at our Bloomfield Hills, Michigan property. After adjusting for this reduction, same store NOI would have increased 3.5% for the six months and 1.8% for the quarter.

Now I'd like to turn the call over to Mike.

Good afternoon. Consistent with our core business model, we've continued to maintain a solid financial condition as evidenced by a debt to market capitalization of 31%, as well as a 2.8 to 1 fixed charge coverage ratio, a 96% fixed to floating rate debt, and an all in cost of less than 6%. FFO and AFFO pay-out ratios of 59% and 63% respectively.

During the quarter, we paid down $15 million of Fund 2 floating rate debt and refinanced the Brandywine portfolio with a $166.2 million 6% fixed rate ten-year financing. In our continuing effort to reduce our exposure to interest rate increases, we are in the process of completing a $23.5 million ten-year 6.1% fixed rate refinancing of our Walnut Hills Shopping Center which, when completed, will push our fixed rate debt to 97%.

As a result of our conservative fixed rate weighting, we've been able to maintain a less than 6% cost of debt, despite an over 2% increase in LIBOR over the past year. We continue to focus on a debt profile to minimize our interest rate risk and maintain a balance/debt maturity schedule.

Now I'd like to turn to our 2006 earnings forecast. As we have announced, we are maintaining our guidance for the year of between $1.14 to $1.19 a share. The key variables, which Ken will discuss later in detail, that could impact our forecasted range include the temporary short-term impact of re-tenanting activities in the portfolio, dilution resulting from the timing of the redeployment of proceeds from the sale of non-core assets as well as from refinancings, and three, the initial dilution from certain of our investments, such as the Albertsons investment which we anticipate will provide significant long-term value and earnings accretion.

As a result of the foregoing, our expectation is that more likely than not our 2006 earnings will approach the midpoint of our current guidance. While we're always aspiring to reach the higher end of our guidance, these factors are short-term in nature and should, in the long run, provide for significant asset value as well as growth in earnings.

Now I'd like to turn the discussion back to Ken.

Thanks, Mike.

First I'm going to review our portfolio performance. As I said before, our portfolio is performing consistent with our expectations. Our same store NOI growth for the quarter was slightly negative, primarily due to the recapture and re-tenanting in our Bloomfield Hills property. Excluding Bloomfield Hills, same store NOI growth would have been 1.8% for the quarter and, more significantly, 3.5% for six months. Our occupancy is at 93.5% and new and renewal rent spreads were at 12%.

As I discussed on the last call, we're in the process of recapturing what could be as much as 90,000 square feet within our portfolio; and that could temporarily bring our quarterly occupancy to below 93%. We are seeing some of this impact in our second quarter results with the balance occurring over the next few quarters. We are re-leasing this space at very attractive lease spreads. And any short-term declines in occupancy is going to be offset by higher quality tenancies and higher rents.

In terms of Bloomfield Hills, there are two key components to that. One is the recapturing of a car dealership on an out parcel and the other is combining 30,000 square feet of in line space. With respect to the out parcel, we have recaptured that space. We're in the process of building a free-standing out parcel and re-tenanting that with tenants including Panera Bread, Drexel Heritage. All of the leases are signed, the construction is nearing completion and we expect rent to commence by the end of this year.

In terms of the economics, the car dealership rent was just over $200,000; and that will be replaced with rent in excess of $500,000, with that $300,000 annual gain being at an incremental redevelopment cost of just over $1.5 million. Thus the out parcel redevelopment reflects a net return of approximately 20% on incremental costs.

In addition in Bloomfield, we're in the process, as I said, of aggregating multiple in line stores. And we intend to retenant approximately 30,000 square feet with one of the two national electronic retailers. We anticipate the economics, positive and negative, from that to be very similar to what I walked through before. And we will get similarly attractive returns on rent spreads on that piece as well.

Another example that's going to hit next quarter is that our Crossroads Center in Westchester, just outside of White Plains, where we successfully recaptured a Sizzler restaurant on an out parcel, that was paying approximately $120,000 in annual rent. We're in the process of negotiating deals on that out parcel and we anticipate the new ground rent will be well over two times the Sizzler rent. Now, while all of these examples are anecdotal for a core portfolio of our size, as you can see, they can have a significant impact.

Turning now to our external growth, in the second quarter, our external growth initiatives continued to make important contributions by laying the groundwork for future growth. We continue to focus on the key drivers of our external growth programs. First, our New York Urban/Infill program. As we previously laid out, we continue to see interesting opportunities in the mid-size, urban retail redevelopment arena, especially in the New York metro area.

We now have seven New York redevelopment projects, 1.5 million square feet, total acquisition and redevelopment costs slated to be approximately $350 million. As we discussed on our last call, we're now including on page 34 of our quarterly supplement, a brief status of the estimated timing and cost to this pipeline. On the last call, we did an asset by asset update on these seven projects and will do that again periodically on future calls. For now, the two projects that are under construction are on time, on budget, and otherwise there's been no significant changes to our forecast.

In terms of recurrence, we continue to anticipate our unrevealed returns on total cost to be in the 9% to 11% range. And from an earnings perspective, as we stated on the last call, the seven redevelopments, while providing little accretion in 2006, upon stabilization these projects should start contributing between $0.08 and $0.16 of FFO on an annualized basis, depending on the ultimate size and development returns that are achieved, with these earnings phasing in between 2007 and 2009 and thus they're helping us build a nice pipeline for future growth.

In terms of additional deals, we're working on several potentially exciting redevelopment opportunities. In the five boroughs, we're seeing that this will continue to be a major source of our growth with the deal flow in our niche being good and tenant interest remaining as high as ever. We'll continue to pursue those deals where we think that our skill set puts us in a unique position to create value.

The second key component of our growth strategy has been 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. In 2004 we commenced our first RCP investment with our participation in the Mervyn's acquisition. As we discussed previously, we've already nearly doubled our equity of $24.5 million on that investment. And we'll keep you posted as additional progress in Mervyn's continues.

In the second quarter of this year, Acadia, along with our Fund 2 investors, invested just over $21 million in the consortium acquisition of Albertsons. Along with our RC partners, Klaff and Lubert-Adler, the consortium included Cerberus, who is also a significant partner of ours in the Mervyn's acquisition, as well as having been an investor in most of the Klaff/Lubert-Adler prior retailer investments. The Albertsons consortium also includes the Kimco and Schottenstein organizations.

Given the early stage of this investment and given that the majority of the ownership is through private investment funds who are not accustomed to our high levels of disclosure, we're not going to discuss the current strategy or capitalization in detail at this time, other than to restate the consortium's prior announcement of closing approximately 125 of the 625 stores with the balance remaining as core operations. As was the case with Mervyn's, as progress continues, we'll keep you apprised.

Turning now to asset recycling, in the second quarter, we closed on two properties on Germantown Avenue in the Chestnut Hill section of Philadelphia as part of our ongoing asset recycling program. These two properties with strong Main Street locations, have tenants including Borders Bookstore, Talbot's, Limited Express.

This on-balance sheet acquisition was for $16 million with a going in yield in excess of 7% and is a continuation of our initiative of replacing non-core or lower growth assets with high quality cash flow from infill and supply constraint properties. The Chestnut Hill properties complement our other Main Street properties, which are the Clark and Diversity property that we recently acquired in Lincoln Park, Chicago earlier this year and our Greenwich Avenue redevelopment in Greenwich, Connecticut.

In addition to the properties that we previously listed as discontinued operations and with which we expect to conclude transactions this year, there are other properties that may be opportunistically disposed of as well. While there may be some short-term dilution associated with these transactions prior to redeployment, this short-term impact is more than offset, in our view, by the benefits of continually repositioning our portfolio. As we've done consistently over the past several years, we're continually looking to refine our portfolio both through redevelopment, releasing, and asset recycling so that we can maintain a portfolio of high varied entry properties with strong growth potential.

I'd like to talk briefly about our preferred equity in mezzanine investments. During the second quarter we had some activity in our preferred equity investments, most notably our mezzanine investments in the Levitz portfolio was increased by $13 million to 31.3 million as a result of our taking out the first lien lender and Acadia stepping in as the consolidated lender for what we anticipate to be a relatively short-term loan. This consolidated loan is at a rate of 10.5%.

Also during the second quarter we received a repayment of $17.6 million of bridge financing related to the Brandywine recapitalization. So far this year, there had been a few other small transactions and repayments, but overall the mezzanine investments have remained generally constant. And while our program is not a significant portion of our business, we are working on several interesting opportunities and would expect some activity in this area over the next few quarters.

Finally, I'd like to touch briefly on our fund status. As we've discussed before, Fund 1 has been fully invested and, in fact, all of the capital has been returned as a result of our Brandywine Wilmington recapitalization.

The anticipated IRRs on Fund 1 are projected to be in excess of 30% to our investors and significantly higher to Acadia as a general partner. In terms of Fund 2, over half of the $300 million has been committed on deals already announced. And based on the pipeline that we're working on, Fund 2 could be fully invested or committed at some point in 2007, but probably not earlier than midyear. In terms of a potential Fund 3, it could be a 2007 event. And while it's too early to determine the precise size or timing, the asset management fees alone on a fund of similar size to Fund 2 could contribute towards our operating costs an additional $3 to $4 million or approximately $0.10 on an annualized basis. We'll keep you posted as Fund 3 progresses.

So to conclude, we continue to be pleased with our second quarter performance and our business model. All components of our business plan are on track. Our core portfolio remains solid with short-term costs of re-tenanting being outweighed by the long-term upside. Our balance sheet is strong, as we continue to maintain our strong ratios and keep our floating rate debt to a minimum.

And third and finally, our acquisition initiatives are laying the foundation for strong future growth. We're investing our time, resources, capital in value-added opportunities that, while more back-ended from an earnings perspective, appear to us to be very attractive on a risk-adjusted basis.

I'd like to thank and congratulate the members of Acadia for their hard work and accomplishments last quarter. And at this point we'd be happy to take any questions.

[OPERATOR INSTRUCTIONS] Our first question comes from the line of Ross Nussbaum from Banc of America Securities. Please proceed.

It's Christy McElroy here with Ross.

Hi, Christy.

Hi. Can you give a bit more color on how we should be looking at the trend of occupancy in the back-half of the year and into '07? Ken, you talked about below 93% potentially. How long do you think it will take you to get through of all the re-tenanting activities that you talked about?

And it's a mixed blessing. The short answer, Christy, is we see it going to 92% and taking a few quarters to start ticking up. But the reason I say it's a mixed blessing is if we're successful in recapturing more space, in Crossroads where I touched on the Sizzler, we have the benefit of three significantly below market anchors. We never know exactly when we can recapture them. But if we could it would be a fantastic benefit.

For right now, we're taking the view that what we see so far will take us down to, let's say, 92% for another two to three quarters; and then we'll start seeing that turn around.

So 92% as soon as next quarter.

It could be, yes. Or slowly gradually getting to 92 at some point this year.

Okay. And then with regard to your Philadelphia acquisition in Q2, is there any redevelopment or value-added potential there?

We think so. The going in yield was attractive. And we'll probably have to be satisfied with that for a couple of years until some leases turn and then there are some things that we're looking longer term. But the 7% yield for a mainstream property in great demographics is pretty compelling in and of itself, especially when we think there will be growth potential going forward.

And then overall for your on balance sheet capital recycling acquisition strategy, geographically what other urban areas have you identified that you could potentially expand into?

We like the D.C. market. We like Chicago. And we love New York City. And every time we think it's time to get on a plane and go further, another opportunity shows up in New York City that's just a train ride away. So we're continuing to see better opportunities in New York. And I think most of our resources will be focused on New York. And then as we're seeing opportunities in Philadelphia, we'll weigh them against the type of yields we're getting in New York City where the density is two, three, four times the amount in some of these other cities.

Great. Thank you.

And our next question comes from the line of Jon Litt with Citigroup. Please proceed.

Hi, this is Ambica with Jon Litt. I'd like to know if you can give me some color of your two assets that are under contract for sale. What are the expected cap rate and proceeds from the disposition?

We haven't disclosed that yet, Ambica, and so we'll probably hold tight until we have those transactions closed. What you'll see, though, is unless focused on the exact cap rate, and I wouldn't read too much into it because in each of those deals there's always a story about specific tenancy issues or otherwise. Long-term, we're comfortable that we'll be able to take those proceeds, redeploy them, and have it be long-term accretive.

Just stepping back on a bigger picture perspective, how many dispositions do you see happening a year just through culling your portfolio?

In terms of non-core?

Yes.

I always expect it to be two or three assets per year. And we're always looking in where is there going to be less growth and where potentially are there some tenanting issues, just as the world turns?

The other side of it is periodically there's assets that we really like. But if the marketplace is going to offer us returns higher than we think we can create by holding onto the asset, we'll also opportunistically - not often, but opportunistically - sell some of those assets. We're at that point in the cycle where it continues to be a seller market and so we're seeing some interesting opportunities on that side that we'll also have to consider.

I know it makes it hard for modeling purposes. As we get a better sense of what's for real and what's going to actually close, we'll certainly keep you posted.

And then you mentioned a robust pipeline for a New York City acquisition. Should we expect any acquisitions prior to the year-end?

We're working on a host of deals. The joy with New York City, as you'd never know, unlike the rest of the country, you sit down and you either sign a contract or you don't have a deal. So there's not a lot of advance preannouncement. What we are seeing is the levels of tenant interest from the tenants we run with, which is the obvious national tenants, remains extremely high.

And we're finding sites that fit the Home Depots and Targets and Best Buys of the world, and their interest is there. If we can put all the pieces together, then it could be acquisitions this year. And it very well may not. So I don't want to make promises that we can't keep, but we are working on a host of things that are very exciting.

And then just backing into the information that you gave on Fund 3, you said 3 to 4 million of profitable asset management fees. Is that based on your 1.5% of implied capital that you earn on Funds 1 and 2?

Exactly. Assuming that the 150 basis point fee that we receive annually, once a fund is launched based on the equity size of the third party investments. So you back out Acadia's amount, which historically has been 20%. That would be the $3 to $4 million depending on the size of the fund.

Right. So 3 to 4 million is approximately another $300 million fund. Correct?

Correct.

Thank you.

Thank you.

And our next question comes from the line of Paul Adornato from BMO Capital Markets. Please proceed.

Good afternoon. I was wondering if you could give us an update on the residential component of 216th Street. What type of position will you take and how will you dispose of that?

Good question. I'll just point out the -- and it gets confusing. The residential component is on Broadway at Sherman. And if it's not clarified in our supplement, we will make sure that that's clear. The interest remains there, Paul, for the residential. We continue to think that that's not our forte. And so we would bring in a partner and we would look for that partner to take the majority of the risk and above what they pay us take the majority of the upside.

We're in the process of evaluating a few different directions ranging from market rate condo to affordable housing, both rental or condo, and there's a tremendous demand in New York City for affordable housing and this could be a prime location for that. We're also working with the national retailers who have expressed interest in figuring out the precise amount of square footage we want to retain for the retail component of Broadway and Sherman.

Okay. Great. Thanks. And will you have PA Associates as your partner in everything that you do in New York? Do you have an exclusivity agreement with them?

The short answer is yes. And more, less about the exclusivity agreement, because those kind of agreements come and go, but the fact that they have been fabulous partners and are adding value, both in terms of them helping find the deals, which is first and foremost what we set up with them.. But just in their overall execution of these deals, they've been great partners, and it's been a great team.

So we would anticipate that all of our New York City redevelopments, and that's different than some, for instance, in Staten Island, on balance sheet, as part of our asset recycling, we bought a shopping center. They did not participate in that. In terms of the value-added redevelopments, we expect them to be our partners.

Thank you.

[OPERATOR INSTRUCTIONS] Our next question comes from the line of Michael Mueller from J.P. Morgan. Please proceed.

Hi. Just one question. I know you're guiding the street to the midpoint of the range, but it seems like if we look over the past couple of years around this point in the year, maybe the second half of the year, you usually talk about how bad debt expense hasn't been up to the level of expectations and that's contributed a little bit to earnings. Can you just talk about the bad debt situation this year? Is that still something that could push you a little higher, do you think?

Mike, bad debt has been remarkably low this year, consistent with previous years. So we're guardedly optimistic that that continues for the balance of the year. But as Mike went over on the call, bad debt is really not the factor that we're looking at when we're guiding to the midpoint of our range here.

Sure. I mean, how significant of a swing factor is bad debt, out of curiosity? Is it $0.01 or $0.02 in the range?

Somewhere between $0.01 and $0.02 is fair.

Great. Thank you.

And our next question comes from the line of Rich Moore from RBC Capital Markets. Please proceed.

Good afternoon, guys. Just out of curiosity, Ken, if you didn't have the recapture of tenants that you're going to have, what do you think would happen to occupancy? I guess what I am trying to figure out is have you got positive news on the occupancy side net of the spaces that you're going to lose that you know about?

Yes. We were at 93.5 before we started some of these recapture. And we probably would have positive traction, and I've always said I felt that this portfolio could get to 95%. I did not think that we would be able to achieve on a sustainable basis 97% or 98%. I just don't think that's realistic over any extended economic cycle. There would have been positive traction.

Now we're bringing it down plus or minus a couple of hundred basis points. And you almost need to. If you think about the shopping center business, it's a 1% to 2% same store NOI growth if you don't aggressively harvest periodically and try to recapture these spaces. So there would have been positive trends, but long term it would have led to more anemic growth that you see elsewhere in portfolios.

Similar to the occupancy, Rich, is if you look at the NOI impact, we brought NOI down by about $300,000 year-to-date because of Bloomfield. And we'll take it down another 200,000 for the balance of the year related to that project. But then in 2007, it's going to swing and we're actually going to end up with a net increase of 300,000 as a result of the redevelopment. So along with the occupancy going down and back up, as important, the NOI is going to follow that trend as well.

So are you pretty comfortable, I guess, that the retail environment, the retailer environment remains pretty conducive to the long-term plans you have here?

Yes. Well, there's two parts to that. There's nothing in what we're doing right now that I think is reflective one way or another as to retailers, consumer spending, et cetera. These happen to be very micro events.

On a macrolevel, we have not yet seen any indication of the type of normalized defaults that we're used to over the past couple of decades. So I wouldn't read too much one way or another. I wouldn't read, for instance, Bloomfield Hills is in Michigan. Their occupancy is falling off. It's a Michigan issue. It wasn't. It was that we were able to get back a car dealership and put in a more appropriate out parcel tenant.

So I wouldn't read too much into it yet. We're watching the same data you are in terms of when will retailers take a breather. Perhaps we're seeing a little of it in secondary markets or where the consumer is more price conscious.

But again it's very anecdotal within our portfolio and we're all struggling at the same data on a national and international level that you're looking at.

That's good information. Thanks. And then, going back to Mike's question to kind of weave all this together, is there anything that gets you, do you think, Ken, to the upper end of the guidance? Are there any sort of unknowns? Mike mentioned one, obviously, with bad debt expense. Is there anything else that might be a positive driver?

With a Company of our size, and Jon talks about $[300,000] in Bloomfield, remember, that's just shy of $0.01 with us. Doesn't take a lot one direction or another. We're guiding to the middle of the range and that's where we're guiding towards. And we're always working on things that might be immediately accretive. And when they occur, we certainly let you all know.

Our goals have never been to make immediate accretion at the expense of long-term growth, and that's worked pretty well, I think, for our shareholders. So we're much more focused when we look at deals not as to their immediate accretion but the long-term gain. That being said, sure, Rich, there are things that we're working on every day that, if they hit, immediate pop and then we either revise, et cetera.

But probably more importantly is we're trying to make sure that our business model has sustainable high long-term growth over multiple years. And we think we'll be able to achieve that and there's nothing that we're seeing that's causing us to think otherwise so far.

Very good. I appreciate that. When you look at starting a third fund, just for my own edification, is there any particular reason that you would start a third one as opposed to just, say, trying to increase the size of Fund 2?

There are a bunch of reasons. One is that as you shut off a fund, it makes it that much easier to start to achieve the back-ends. If you had an infinite fund, it makes it that much harder to return all the capital in that infinite fund.

I got you.

So there's a good closure point from that perspective. Also different investors have different views over time, different pension funds want to increase or decrease, and so this gives everyone a chance to say, I love what you did in Fund 2, and I want to double down or I want to lighten up. We've been very fortunate that our institutional investors have been supportive and repeat customers, but we also want to make sure we have the opportunity to meet some new people and have them join the group as well.

Should we read that as you have some likely interested parties beyond the parties in the current funds?

The short answer, Rich, given that our first fund looks like it's a 30 IRR with all the money returned back, given that a host of institutional investors have done quite well as shareholders and they all seem pretty excited about Fund 2, sure.

But before we pat ourselves too much on the back, there is so much institutional capital out there that we're seeing funds being formed by people who have not been in this business of fund business for as long as we have. We've been in the fund business before we were public. So, yes, we're very comfortable that the money's there. We want to make sure we have the right kind of investors that understand what our focus is, that are patient, that appreciate our opportunistic focus and that are giving us the discretion that, to me, is essential in the fund business. So when we find those right investors, often we're able to bolt them into our funds.

Very good. Thanks, guys.

And our next question is a follow-up. It comes from the line of Jon Litt from Citigroup. Please proceed. Mr. Litt, your line is open.

Hi. This is Ambica. I just have a quick follow-up. Are there any specific drivers for the earlier construction start dates at Tom Manor and Fordham Road?

Those just have to do with the approvals as they're setting forth. We're making continual progress on those. And then our hope is, with Fordham Road, not this quarter but by next quarter, we're going to be able to lay out a much more concrete game plan for those.

Thank you.

Sure.

And at this time there are no further questions. I would like to turn the call back over to Ken Bernstein for closing remarks. Please proceed, sir.

I'd like to thank everybody for their time listening and hope everybody enjoys their summer and we look forward to speaking with all of you again soon in the fall.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.