Acadia Realty Trust (AKR) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2007 Acadia earnings conference call. My name is Lauren and I will be your coordinator for today. At this time all participants are in a listen-only mode. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded for replay purposes. The Company would like to inform its 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 Acadia operates 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, including those discussed under the headings risk factors and management's discussion and analysis of financial conditions 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 nonGAAP financial measures including funds from operations and net operating income which they believe to be meaningful and helpful to investors when discussing results in the REIT industry. Please see Acadia's financial and operating reporting supplement posted on its website for a reconciliation of these nonGAAP 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.

Thank you. Good afternoon. Joining me are Mike Nelsen and Jon Grisham. Today we're going to review our first quarter results and update our key initiatives. In the first quarter we continued to make significant progress on all the key components of our business plan. As we'd outlined in the past, our focus is to first create a high quality core portfolio of properties primarily in high barrier to entry supply contained markets. We've done through through both aggressive redevelopment of existing properties as well as the asset recycling out of noncore properties and rotating into properties that are consistent with our long-term growth and value strategies. And then to marry this solid core earnings base with a strong external growth platform fueled by our discretionary investment funds and focused on the value-added and opportunistic areas that have so far proven to be quite successful for us.

So today after we review our earnings and our portfolio performance, I will walk through the progress we made in the first quarter with respect to the further enhancements to our core portfolio, as well as the progress on the external growth front, more specifically the addition of an important redevelopment to our pipeline, the monetization of some earlier investments, as well as the status of our contemplated Fund III. So now I will turn the call over to Jon who will discuss our first quarter results. Jon.

Good afternoon. I would like to briefly review the following three areas: first quarter earnings, full year 2007 guidance, and lastly, discuss net operating income for the quarter. FFO for the first quarter of $0.36 includes approximately $0.08 of income from our RCP investment in Albertsons. As previously reported Albertsons completed the sale of certain assets and refinanced the remaining portfolio. As a result we along with our fund investors received distributable proceeds totaling $44 million. Our 20% share of this cash distribution was $8.9 million which generated an after tax gain in excess of our invested capital of $2.9 million or the $0.08.

Turning to our 2007 full year forecast, our first quarter FFO excluding the Albertsons income was approximately $0.28. Annualizing this amount and then adding back the $0.08 from Albertsons results in FFO for the year of $1.20. For the balance of the year, we are forecasting additional income which is not reflected in the annualization of the first quarter results. This includes additional fee income most notably fees from Fund III and income from other external growth initiatives including acquisitions, mezzanine investments and promote income which we expect will get us to our annual FFO guidance range of $1.30 to $1.35 and EPS of $0.65 to $0.70.

Turn to go same store NOI, as we discussed in our press release, same store NOI was down 80 basis points during the first quarter. Keep in mind that in a portfolio of our size, $120,000 quarterly variance represents 100 basis points of NOI. As a result of this, quarterly results can be skewed up or down by relatively small anomalies as well as the timing of income or expenses. For example, CAM reimbursement income for the quarter was muted by 2006 year end CAM reconciliation billings in related adjustments which were completed during the first quarter of '07. This artificially reduced our expense recovery rate from what is usually in the 60% plus range to the mid 50%, and as such also impacted our a same store NOI during the first quarter. Importantly, we continue to expect that our core portfolio will achieve our originally forecasted 2% to 4% NOI growth for the full year. Now, I will turn the discussion over to Mike.

Thanks. Good afternoon. First, I would like to elaborate on the Albertsons income for the quarter. As Jon mentioned, our first quarter results included income from our Albertsons investment of $2.9 million net of tax. This income is characterized as extraordinary in our financial statements as a result of its flow-through character from Albertsons. GAAP purchase accounting requires the allocation of purchase price to assets acquired to be based on the fair market values. The assets which were sold by Albertsons, as John previously mentioned were treated as assets held for sale at the date of acquisition, and as such were valued at fair value or their disposition price. At the date of acquisition, the fair value of net assets acquired exceeded the purchase price. This excess was reflected as an extraordinary gain at the date of acquisition and not a gain on the date of sale.

Our RCP investments including our investment in Albertsons are private equity type investments and as such any income or gains derived there from should be treated as operating income and therefore FFO. Merely changing the character from realized gain to extraordinary gain should not change that result. Accordingly, after careful review, we are not excluding this extraordinary gain from our calculation of FFO for the quarter.

Now turning to our balance sheet, in 2007 we have continued our success in maintaining a strong balance sheet, as evidenced by our coverage, debt to market cap, and payout ratios. During the quarter we closed on the over allotment issuance of $15 million of convertible debt, bringing the total amount of convertible debt to $115 million. We paid down $21.3 million of floating rate debt. We refinanced a $15.7 million mortgage with a $26 million, 5.4% fixed rate loan, and we completed a $30 million revolving credit facility. We continue to focus on opportunities to minimize our interest rate exposure and maintain a balanced debt maturity schedule. Given our size and our fund structure, we believe our credit line availability together with cash on hand provides us with in excess of $250 million of available dry powder to fund future growth initiatives. Now, I would like to turn the call back to Ken.

Thanks, Mike. Thanks, Jon. First, I am going to review our core portfolio performance. Our portfolio performance consistent with our expectations as Jon discussed, same store NOI growth was down for the quarter, and this was impacted by timing, expense issues, that don't seem to reflect any notable trend other than the obvious law of small numbers. For the first quarter, new and renewal rent spreads were up 6% and 10% on a cash basis, and a healthy 16% and 15% on a GAAP basis. Our occupancy for the quarter remained solid at 94% which is consistent with our expectations and looking forward we don't see any material trends with respect to collections or pending credit, default risk, to cause us concern with respect to our previous core guidance. We do see some mid-sized tenant movement which might have some short-term occupancy impact, but we expect that positive lease spreads on the releasing will more than make up for any short-term volatility.

Turning to asset recycling, as part of maintaining a strong core portfolio, and in an effort to capitalize on the unusually narrow cap rate spreads between prime properties and subprime retail properties, we continue to focus on the opportunistic upgrading of our core properties by selling noncore or secondary assets and replacing them with assets located in higher quality in-fill supply constraint markets. Our thesis has been that the past year or two have been a great time to shed riskier secondary retail which we believe eventually will experience the potential double whammy of declining NOI and increased cap rates. And while we're seeing some anecdotal evidence of the widening of the risk premium differ differential so far, a much more significant shift is certainly possible. As we discuss on the last call, in the fourth quarter we successfully completed the sale of five noncore properties for $60 million representing almost 15% of the square footage of our core portfolio, and over the past few years we have sold over 50% of that portfolio.

Following these fourth quarter dispositions, we completed the asset cycling rotation with the acquisition of two properties for just over $54 million, for a wholly-owned core portfolio thus sealing our tax exchange requirements and more importantly the consistent upgrade of the portfolio. The first properties at retail, the retail component of a building on 7th Avenue between 53rd and 54th Street in midtown Manhattan. The property includes The Stage Deli as one of the tenants in that deli has operated there for over 70 years. The property is located three blocks south of Carnegie Hall and just north of Times Square. Upon leasing a few small vacancies, which we anticipate to get done by year end, this property will yield approximately 7% with future potential upside, and we consider that to be an attractive yield in a supply constrained market, especially in midtown Manhattan. The second property is a newly developed L.A. Fitness health club in Staten Island, New York, with a 15-year initial lease term. This property was acquired for a 7% yield, as well.

Turning now to external growth. In the first quarter we made important progress on our external growth initiatives, both in terms of our existing investments and new investments. With respect to our New York Urban/In-fill program in the first quarter, we made continued progress with our seven existing redevelopments and also added an important eighth project to our pipeline. As of the first quarter, three of the seven properties are now under construction. One is substantially complete. The seven projects should total 1.5 million square feet with total acquisition and redevelopment costs currently estimated to be about $400 million. Included on page 33 of our quarterly supplement is a schedule of estimated timing, costs, square footage, anchor tenants of this pipeline, and I will update you periodically and the quarterly supplement will be updated quarterly as we progress. On the last call I reviewed each project. We'll do that again on other calls, but in short the projects are proceeding according to plan with no significant changes other than the fine tuning of cost and scope at construction is bid out and the anchor leasing is completed.

The redevelopment with the most first quarter activity was our Porter Road project in the Bronx. In the first quarter we commenced construction. The project will include: Sears on the concourse level, Walgreens and other tenants on the main level, Best Buy will be on the entire second level, and either 24-Hour or L.A. Fitness health club will occupy the third level. We anticipate completing construction in the first half of 2009 and the costs are estimated to be approximately $120 million.

As I stated on the last call, along with the seven projects we were pursuing two larger transactions. The first of these is our announced redevelopment of Albee Square in downtown Brooklyn, which we entered into the purchase agreement in February, and we're now waiting for certain municipal approvals in order to proceed with the acquisition. The property currently consists of a mall called The Gallery at Fulton, and an adjacent parking garage. Both of those will be demolished as part of the development. The project when complete is anticipated to consist of approximately 1.6 million square feet of which approximately 600,000 square feet will be commercial. The project is a three-acre parcel fronting on both Flatbush Avenue and Fulton street.

Fulton Street is the number one retail corridor in Brooklyn with over $1,000 of sales per square foot from the retailers, and over 100,000 shoppers per day. The project sits adjacent to the DeKalb Avenue subway station. It is seven blocks from the Atlantic Yards development, which will be the home to the New York Mets, and across the street from Metro Tech Center. This project will be a key part of the ongoing renaissance of downtown Brooklyn. With a retail foot footprint of up to 120,000 square feet per level, this project is going to provide a unique opportunity for both larger national anchor tenants and smaller and local tenants who will thrive off of Fulton street. The proposed development will be environmentally friendly. It will be built to lead silver standards. The residential portion will be up to 1,000 units and will include both affordable and market rate rentals under New York City's 80/20 program.

The closing as I said before is subject to certain municipal approvals by the city of New York which we look forward to completing this quarter. The development team consists of Acadia and our long-term partners P/A Associates as well as Paul Travis for the 600,000 square foot commercial component, and MacFarlane partners which is the leading minority-owned real estate management firm with over $10 billion in assets under management as the owner of the residential component. Of the 600,000 square feet of commercial, 475,000 approximately will be retail which Acadia P/A will develop, and MacFarlane partners will be a 25% investor on terms substantially similar to our fund investors in the retail portion. The 125,000 square feet of office space will be developed jointly and owned jointly by Acadia MacFarlane. Acadia P/A does not plan on participating in the ownership of the residential component of the project. That will be owned by MacFarlane Partners. The total cost of the commercial portion will fluctuate significantly based on the final scope of the project, but it is currently slated to be approximately $300 million.

So assuming the closing of this downtown Brooklyn project, we'll then have eight projects, 2 million square feet in total, approximately $700 million in costs, and hopefully an excess of $60 million of NOI. So at today's pricing that should be a portfolio that's valued at in excess of a $1 billion, on an equity investment that we're current approximating to be approximately $225 million.

The second large project that we reference on our last call is at a much more preliminary stage, and we would not normally disclose it at this time, but we're going to briefly discuss it, because we're going to be displaying and marketing the leasing of it at the May upcoming ICSC shopping center convention. So in order to address any issues of selective disclosure, after a full multimonth RFP process, Acadia P/A has been designated to negotiate exclusively with the Port Authority and complete its due diligence for the opportunity to act as the redeveloper of the retail complex at the George Washington Bridge bus station in northern Manhattan. The project consists essentially of the retail redevelopment of two components on each side of Broadway between 178th and 179th Street.

On the western side of Broadway is the current GW commuter bus station with about 30,000 square feet of existing retail that has the opportunity to be updated and expanded to up to 100,000 square feet of prime retail space, fronting Broadway and also feeding into an upgraded New Jersey transit bus commuter station as well the New York subway station. On the eastern side of the block is property that's not currently utilized for commercial use. This portion of the property runs the full length of Broadway from 178th to 179th Street and has a footprint in excess of 55,000 square feet, which could potentially support multiple levels of retail up to 250,000 square feet. The project total could provide up to 350,000 square feet of retail providing a unique opportunity for both again larger anchor tenants who are aggressively pursuing New York City, especially Manhattan, as well as smaller and local tenants who can feed off of the heavy foot traffic on Broadway.

While this project is still in its preliminary stages, if the due diligence and negotiations proceed successfully, this could be a very exciting project. Northern Manhattan is significantly under served from a retail perspective, and with 1 million people in the trade area, it is a unique opportunity for tenants to penetrate a market with newly developed product. We will include our ICSC marketing materials on our website later next month, and we'll keep you posted as this progress -- as our progress continues.

The second key component of our growth strategy is 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 venture investment with our participation in the highly profitable acquisition of Mervin's. Last year we invested approximately $25 million in the consortiums acquisitions of Albertsons as well as smaller investments in ShopKo and Marsh Supermarkets. Turning to Albertsons as Mike and Jon discussed, in the first quarter we received distribution that is brought us to just under a 2X equity multiple already on our fund investment. This distribution and the FFO does not include our future profits from remaining Albertsons investment, nor does it include Acadia's potential future 20% promote or profit share which will be recognized upon the return of all investor capital. The February distribution was from the sale of a Northwest portfolio Save Mart, some other smaller transactions, as well as the refinancing of the balance of the assets, and while we do expect future profits from both Mervyn's and Albertsons, it is premature to forecast timing or amounts of those future profits.

Turning now to our investment fund status, the investment community is beginning to recognize the potential power of the fund management or private equity financial structure which has been a key component of our business model since we began the turn around of Acadia. In terms of our first fund, all the capital has been returned, the IRR is projected to be in excess of 30% to the investors and obviously significantly higher to Acadia as the general partner. In terms of Fund II, upon the closing of Albee and perhaps one smaller transaction we will have completed the investment and commitment phase of Fund II, and thus we'll be in a position to launch Fund III shortly. In terms of Fund III, given our track record and our value-add focus, investor interest has been very strong, thus we expect Fund III to be at the upper end of our initial range of $400 million to $500 million. Acadia thus would co-invest 20% or $100 million. We expect the fees and structure to be similar to our previous funds, but we do anticipate the hurdle rate or preferred return to be 100 to 200 basis points lower than in Fund II which we consider to be a very attractive but fair deal. We expect to close this fund sometime this quarter.

A $500 million fund would enable us to acquire or develop approximately $1.5 billion of assets on a leveraged basis over the next several years, and that's a significant growth profile relative to our current size, thus assuring strong, but rational growth without having to be overly dependent on raising capital in the public markets, nor demanding us to unnecessarily change our focus or our discipline.

Finally as our company progresses, talent, human capital, become an even more critical component of our business. We have made it a top priority to ensure that we have the right talent to handle our projects at hand today, as well as the opportunities for the future. We are fortunate to have been an energized and talented team who continues to grow with the company as well as the ability to attract new talent to complement our existing team.

In the first quarter we had three important promotions. Joel Braun, who has been our Head of Acquisitions since the formation of Acadia was promoted to Executive Vice President in recognition of his significant contribution to this company over the past several years. Jon Grisham, who has been also with this company since the formation and is our Chief Accounting Officer has been promoted to Senior Vice President. And Joe Napolitano, who has been a Senior Vice President for several years has also achieved the title of Chief Administrative Officer, and he will be spearheading our continued focus on driving human capital as a means to continue to ensure our success. I would like to thank all three of the team members of Acadia for their contributions and congratulate them.

So to conclude, we continue to be quite pleased with our first quarter performance and our business model overall. All components of our business plan are on track to enable us to create high single digit and low double-digit earnings growth and more importantly significant value creation. We are continually upgrading and strengthening our core portfolio and rotating into extremely dense and supply constrained properties such as our recent 7th Avenue and Staten Island acquisitions.

Our balance sheet is solid as we continue to keep our ratio strong, our floating rate debt to a minimum with plenty of dry powder to fund our external growth platform. And, third, our acquisition initiatives through our highly profitable investment fund business are are laying the foundation for strong future growth, with the anticipated completion of the investment phase of Fund II with our downtown Brooklyn project, and the launching of Fund III, hopefully including our northern Manhattan GW product. We should be able to continue to drive growth while remaining disciplined as to our investment activity and focused on the value-added areas that have become a key part of our franchise and driven our company growth over the past several years. I would like to thank the members of the Acadia for their hard work and accomplishments last quarter and at this time I'd be happy to take any questions.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Jonathan Litt with Citigroup.

Hi. This is Ambika with John. Just a question on the Manhattan acquisition. Could we expect more Manhattan acquisitions in the pipeline?

Sure. We like Manhattan. Our main focus, Ambika, especially on the fund level is to be able to find large enough transaction to say bring the national tenants that we work with, Targets, Home Depots, Best Buys to New York City, and that has led to more often than not what we call the 4.5 bureau strategy, north of 96th Street of Manhattan, but as we find opportunities bellow 96th Street that we think make sense either for our core portfolio or even more significantly on the redevelopment side we would love to continue to do it.

And what's the current vacancy in the asset that you acquired in Manhattan?

Too small, one small retail vacancy and around the corner there is the medical offices that we're going to retenant.

So the going in cap rate is close to a 7%, then?

Once we lease those two up.

Right. Okay. And then is the retail project at Albee Square going to be competing with the Atlantic Yards development?

I don't think so. I think it is going to be more complementary based on the layout and leasing that we've seen in Atlantic Yards, it isn't going to have the same type of box tenant potential that we're going to be providing. And we're going to be feeding off of Fulton Street which is really the dynamic retail piece, not that dissimilar in some ways in terms of sales per square foot, etc., to Fordham Road, so we will be on that main Fulton Street corridor.

And what yield are you expecting on that project?

We've been shoot willing for all of these projects between 8% and 10%, and I would like to see this project come in that area. I suspect that this asset will be more valuable or have a lower residual cap rate than some of the others, so we could probably tolerate a lower end of the spectrum on it, but you got to be careful as you dip below 8% in general depending on where the future holds the interest rates and residual cap rates, so that's kind of our view.

And the timing of the development?

Still a little early to tell. I think in the next quarter we'll be able to get a lot better guidance as we see how the approval process goes.

Okay. And then on the promotes, given that the Albertsons promote was lower because you recognized more taxes, are you still maintaining your full-year guidance for promotes of, I think $5 million to $6 million or $5 million?

Well, let's clarify one thing. Jon, why don't you.

Zero promote. Just --

Sorry.

That's okay. The income from Albertsons was our pro rata share, our 20% pro rata share of income, so there is no promote in that Albertsons income, and it certainly gets us closer to an overall promote being it was a 2X on the Albertsons investment equity, but -- but we're obviously not quite there yet. In terms of income for the year, we discussed that this was baked into our guidance, but whether we get additional promote income or not, we'll see. I don't think we at this point are expecting or have forecasted a significant amount of additional promote income.

So our -- our earnings anticipated the tax payment or headroom for that so our earnings remain in tact.

Right.

Okay. Thank you.

Your next question comes from the line of Paul Adornato with BMO Capital Markets.

Hi. Good afternoon. Good afternoon. On Albee Square, wonder if you can spend a minute and tell us how you expect to reposition the retail portion of the project, that is kind of cater to the existing traffic on Fulton Street or potentially attract a different clientele.

Good question, Paul, and I can answer part of it. I think we'll be able to accomplish both because the area is changing dramatically. There are several thousand units of residential, either rental or condo housing being developed all around including our development, and we do expect some positive changes in the overall area, but the retail on Fulton Street is thriving today, will continue to thrive, and my guess is you will see potentially up to four levels of retail, the upper two levels ought to be a large single box anchor. That would be one of the many national anchors. It will not be Wal-Mart. And then several smaller mid-sized potential boxes, but then could also include a variety of tenants that are either currently on Fulton Street, currently on 125th Street, currently on Fordham Road and then currently in midtown Manhattan because there is enough density, and there is enough shopping traffic to accommodate all of that.

Yes. And were there any tax incentives other than the 80/20 program in Albee Square or George Washington Bridge?

The GW Bridge, it is still early to see what potential financing opportunities may exist. There are some -- there is always a quid pro quo, putting aside the residential 80/20 program. There is always a give and take on these in terms of what types of financing and empowerment financing that we would choose to take. We are assuming at this point for the retail portions that we are going to not receive other than potential real estate tax abatement incentive, that there is not going to be any other incentive financing, but we're exploring a whole wide range of options.

So that's kind of your decision as much as the city's?

Correct.

Okay. And any movement on Mervyn's at this pointed?

We continue to make progress on it. There is no additional distributions, but we've always -- we've already just like in Albertsons got to a 2X on equity with a significant portfolio left that we're working both in terms of retenanting and disposing of some of the noncore or the Michigan assets, and there is some interesting opportunities out on the west coast, but it is a little too early to talk about it on this call.

Okay. And finally, in the past you talked a little bit about private equity's impact on your business. Could you -- could you comment on what you're seeing these days in terms of private equity cash in the market?

Private equity cash as it relates to the retailer business?

Sure.

Well, it is no secret they have fully discovered the retailer business. They would argue that the real estate guys discovered it, that they were always there, so you've seen in recent deals a high level of confluence of both private equity operational capital and real estate capital, and I expect that to remain the case unless there is some kind of dislocation in the retailing business and things go back towards the 19 -- late 1990s early 2000 bankruptcies, and that does provide another layer of capital, another layer of competition. We keep it in mind as often as not we benefit from it because they've been great partners of ours, and then it is part of our business plan to acknowledge that the opportunities may be fewer, so we just need to pick our spots and make sure that we have the right partners.

Okay. And what was the -- how did you source the 7th Avenue Manhattan acquisition?

That was brought to us by a breaker who we had a longstanding multi-multi-year relationship with, and my guess is that almost 50% of the deals we look at we're seeing someone is spotting them and is seeing an opportunity that gets us to focus on it.

Okay. Thank you.

Thank you.

Your next question comes from the line of Christy McElroy with Banc of America.

Hi. Good afternoon. It is Ross Nussbaum here with Christy.

Hi, Ross, how are you?

Good. A couple of questions. Starting over at Fulton Street, can you tell us a little bit about who Paul Travis and Washington Square Partners are?

Sure. Paul has been an adviser to our company and more importantly to P/A Associates for many years. Paul was involved, for example, in their development on the Bronx Manhattan border right off of the major [deegen] of that Target anchor center, and, Ross, I think you're probably familiar with it.

Sure.

It has been involved in both New York City, in administration, as well as I think he was previously with Forest City, and has been a very helpful partner in keeping these pieces together and keeping this deal on the right track. He owns a small piece of this deal, but if it is as profitable as we all hope, I think everyone will be very happy.

That's where I was going next. In terms of the ownership breakout, so what percentage of the deal will Acadia P/A Travis own and what piece does Travis have?

What I -- I am not sure. It is not material enough, Ross, that it would impact our numbers one way or another. And since he doesn't have to live in the same fish bowl we do, I am not going to give the exact percentage, but it is enough that he is incentivized to help us succeed on this project, but it doesn't dramatically or materially impact our deal.

Okay. Maybe I will at that attack is a different way then. What percentage of the retail does MacFarlane have?

MacFarlane is going to own 25% -- and that's a very good question. I probably wasn't clear enough. On the retail piece, the 475,000 square feet, MacFarlane is going to be an investor, for 20 -- own 25%. On the same terms, same promote as our fund investors, so when you're trying it figure out the Acadia P/A piece of the puzzle, MacFarlane's involvement should also not have any material impact.

I think I am with you. In terms of the decision making, who is controlling leasing? Who is controlling major capital decisions?

For leasing we have a very broad control. For major capital decisions then we have the more typical mechanisms of joint approval, etc., but we are the -- we are taking the lead, and we are the developer of the commercial piece.

Okay. On the George Washington Bridge, I just pulled up the overhead on Google. Looks like there is a parking lot on a platform over the cross Bronx, is that right?

That is correct.

Who -- so, who owns the dirt?

The Port Authority forever. This would be a very long-term ground lease, and then -- how does it look on Google, by the way?

It is pretty cool.

Not to make it overly complicated, where you see that parking, it is not a commercial parking area. That's the bus terminal where commuters from New Jersey who come into New York City, they take the bus over the bridge, and that's where they get off to get on the subway. On the east side, that would be restructured and built both above and below the terminal to provide for an anchor tenant on the upper levels and then the more typical mid-size or smaller tenants on the street level. And then on the western side of what you see which is where the bus terminal is and right now there is 30,000 square feet of retail that needs to be significantly upgraded, that's where the other 100,000 square feet of retail could potentially go on Broadway.

Okay. Got you. Finally, the 7th Avenue project, this is a condominium interest?

Correct.

Who owns the office condo?

No, it is residential.

It is residential.

So who -- it is a residential condo.

Yes. Fully sold out residential condo.

Okay. Stage Deli. What's the remaining term of their lease?

They have about eight years left on their term without options, and so we'll be in discussions with them right now.

I am assuming they're massively below market?

No. I am just looking forward -- they're a great tenant, and we think -- we think we can structure a very nice deal with them.

So they've had steps -- I mean, they've been there for decades, right?

70 years. Their lease has expired and they've come to market periodically.

They have. Okay.

I guess, Ross, my view is less about kind of huge upsides, then if we can get a 7% yield in midtown Manhattan with Times square that's moving north, with 57th Street and Carnegie Hall area that's kind of turning around the corner, this is a great little core asset to add to Acadia's portfolio. We're selling Northeast Pennsylvania properties at all-time high occupancies and rotating into what we think are core assets that will continue to deliver over the next 5, 10, 20 years.

And you get good pastrami on top of it.

That's right.

Thank you.

Thank you, Ross.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Michael Mueller with JPMorgan Securities.

Hi. Good afternoon.

Good afternoon.

For the $300 million for Albee, is that the fund levels investment? Is that the overall ventures investment?

Probably, again, trying -- the distinction of the fund versus the venture, the MacFarlane dollars versus the fund dollars probably do not have a material impact on our projections, your projections of Acadia's piece since the retail piece at least MacFarlane will be paying the similar fees and promotes. So it is on the overall, Mike.

Okay.

I am not sure it has a huge difference as you pencil things out.

So at the end of the day your stake in it not the fund is going to be ballpark $60 million on those numbers if it comes out to be like that?

Yes. That's a fair way to look at it.

Okay. And then on the extra -- the additional $0.10 to $0.15 of promotes, or whatever else was thrown into that bucket that's going to surface in the balance of the year, can you give us any more details on how we should be thinking about that, modeling it, for example, is it Q4, is it spread out? Where is it coming from?

Well, a chunk of it is fee income which we discussed at year end related to Fund III, asset management fees, as well as, we think there is additional construction fees, property management, etc,, in the balance of the year, and then in terms of other external initiatives, there may be some more income from mezzanine-type investments. There may be some more promote income depending on what occurs within our Fund I, as well as there might be an additional core investment or two.

But most of those, Mike, if what we said in our guidance is we expect to close Fund III, for instance, this quarter, but if you assume most of that is going to fall into Q3, Q4, and most of the activity that Jon mentioned is Q3, Q4, I think that's how you probably spread it out, evenly amongst those two and then a little bit in Q2.

Okay. That's good. Thanks.

Great.

Your next question comes from the line of Rich Moore with RBC Capital Markets.

Hi. Good afternoon, guys. So just so I understand exactly, the one acquisition, the Albee Square fills up Fund II completely?

Yes. And here is where it gets a little confusing. One of the real benefits, Rich, of having the discretionary funds is we call for the money only as we need it, and we actually get paid while we're waiting to call for it. It is kind of the opposite of if someone were to raise equity in the public markets and have to sit on it dilutively. We expect to use the balance of Fund II in those eight projects, but we won't draw that money until we're into construction phase on all of those projects. The first four that I mentioned before we bought -- before we've started construction, we're drawing the equity on those, but the remaining four will happen as we need it, and we try not to call it too soon, because then that lowers the returns for the investors and for us. So it does get a little confusing from a -- when you look at the supplement, you say they haven't taken a good chunk of the money. It's a matter of identifying the assets, being confident we will put that money to work, then we close out that fund, and then start the next fund.

Okay. I got you.

That's the position we're in.

I see what you're saying, Ken. Once you put this asset in there, you have all the assets you need going forward, and you can start Fund III.

Exactly.

Okay. And then as far as Fund III goes, have you already approached the partners with the specifics and so you're pretty much done with the whole selling process if you will?

Yes. We're fortunate. It doesn't hurt when we've had 30 IRR plus for both our Fund 0 which was the Acadia turn around, Fund I, and very high equity multiples as well. So fortunately we have a great group of investors. It looks as though all of them will reup from Fund II into Fund III, and then we've had a few other great investors join in, so now it's up to the lawyers to get it all signed up and done.

Right. I can certainly see why they're interested. So -- so, then you're still looking for $0.10, basically, of fees up front from that fund roughly?

No. What we would expect is 150 basis points of asset management fees on the -- of the 4 -- of the $500 million, $400 million of it is from outside investors, so we get 150 basis points on that $400 million per year, thus if we closed it as of July 1, we would get $6 million. The balance that Jon was referring to is other promote income we might receive, other opportunities that we have within our first several funds and other business opportunities, but if we told you exactly what they were now you wouldn't listen in on the next call.

That's right. Exactly. Okay. So then that's spread out over the year, is that right?

Correct.

It is. And as Mike was asking, I think kind of -- I see what you're saying. I got you. Good. Thank you, guys.

Rich, just to be clear on one thing, $6 million is an annualized number, so if we launch mid year for Fund III it's hall of that. It's $3 million. Right?

Right. Yes. I got you Good. Thank you, guys.

Thanks.

There are no further questions. I would now like the turn the call back over to Ken Bernstein for closing remarks.

I would like to thank everybody for listening. Those of you who will be out at the ITSC shopping center, please come visit us, and those of you who can't make, take a look at our website, and you will have a better sense of what's going on both in Albee and on our GW Bridge project. Thank you, everybody.

Thank you.

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