Acadia Realty Trust (AKR) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Acadia Realty Trust fourth quarter 2007 conference call. At this time, all participants are in a listen-only mode. Later in the presentation, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference is being recorded today, Thursday, February 14th, 2008.

I would now like to turn the conference over to Debra Miley, please go ahead.

Good afternoon and welcome to Acadia's fourth quarter 2007 earnings conference call. Please be aware that statements made during this call that are not historical may be deemed 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 Form 10-K and other periodic filings with the Securities and Exchange Commission. 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. Please see the company's earnings press release posted on the Acadia website for a reconciliation of these non-GAAP financial measures with the most directly comparable GAAP financial measures. Please note that the FFO numbers for calendar year 2007 have been adjusted as set forth in the reconciliation.

Participating in today's call will be Kenneth Bernstein, President and Chief Executive Officer, Michael Nelsen, Chief Financial Officer, and Jon Grisham, Chief Accounting Officer. At this time, I would like to turn the call over to Mr. Bernstein.

Thank you. Good afternoon. Today we're going to review our fourth quarter results, update our key accomplishments during 2007 as well as discuss our outlook for 2008.

I'm pleased to report that 2007 was another strong year for Acadia. We made significant progress in all of the key components of our business. We achieved 9% earnings growth, driven by both solid portfolio performance, as well as strong contributions from our external growth platform. But most importantly, in reviewing our 2007 performance and outlook for 2008, we need to look at how our activities last year position us for this year in the context of a clearly challenging and volatile market that we're now in. While both concerns about the economy as well as illiquidity of the capital markets are presenting certain challenges to portions of the real estate industry, they're also presenting tremendous opportunities for those well-positioned.

So today we'll review our core portfolio, where last year we continued to drive property level performance but more significantly, continued to refine our portfolio through non core dispositions. While the sale of properties creates some amount of short term dilution, while we hold cash for redeployment, and this is going to impact our 2008 earnings, we view this type of dilution as positive event dilution. Second, we'll review our balance sheet where we continue to maintain very strong metrics and liquidity. As Mike will discuss, we have no on balance sheet debt maturities over the next three years. We have enough liquidity from cash on hand and lines to cover all of our foreseeable equity requirements for investing in both Fund II and Funds III. Thus, we could execute our growth strategy for the next several years without having to be overly dependent on the debt or equity markets. Third and finally, we'll review our external growth strategy. In the second quarter of last year, we formed Fund III with just over $500 million of discretionary equity and $1.5 billion of purchasing power, enough to almost double our assets under management.

We've been in the opportunity fund business for as long as we've been in business. While it's been a profitable platform during good times, the discretionary fund business is especially potent in illiquid markets where increased dislocations and well executed contrarian investments can result in outsized returns for investors and shareholders. So we go into 2008 with a solid core portfolio. Strong balance sheet and plenty of dry powder for growth, and while there's a clear drag on our 2008 earnings from our dispositions and cash liquidity, we're extremely well-positioned to capitalize on the opportunities that are beginning to surface.

With that, I would like to turn the call over to Jon, who will discuss our fourth quarter results. Jon?

Good afternoon. I'll briefly review our fourth quarter earnings and then outline our guidance for 2008. FFO for the fourth quarter was $0.29, and reflected in this result are the following items: The sale of two Fund I properties located in Ohio which generated $1.8 million of promote income for Acadia, leasing fees of $800,000 from our Fund II 2 16th Street project. A distribution from Albertson's, of which our share of income was $400,000 net of taxes. Additional non-cash amortization expense of a $1 million related to original RCP formation costs. We'll be amortizing the remaining balance of these costs over the life of our current RCP investments, which will total about $360,000 annually over the next three years. And then as part of our continuing non-core recycling program, we sold our residential complex located in Columbia, Missouri and declared a special distribution of $0.2225 related to taxable capital gains.

Year-to-date, our FFO was $1.30 which was consistent with our previous guidance. Turning now to 2008 FFO guidance, and while I'll walk through the details, in looking at 2008 there are two key initiatives which will mute our earnings growth. The first is our strategic decision to sell non-core assets both in the last quarter of 2007 and 2008 and then secondly, the earnings dilution from holding significant cash on hand. Similar to last quarter, I'll discuss our forecast in the framework of the five major areas of income of our business model, and as a reminder, these are one, core portfolio income, two, our pro rata share of fund income, three, asset based fee income, which includes asset and property management fees, four, transactional fee income, which includes leasing commission and development fees, and then lastly, our promote and our CPE income.

We included in our press release our general assumption as it relates to all of these key areas and I'll not recite them but I would like to point out the following key factors. The core activity includes interest income from treasury and mezzanine investment activities. For 2008, we anticipate a decline in treasury interest as a result of both lower rates and the deployment of cash on hand. We are seeing more interesting opportunities for mezzanine investments and anticipate that this may counter balance some of the decline. In addition, we anticipate additional 2008 non-core property sales of approximately $75 million. While we believe this is accretive from an NAV standpoint, together with the fourth quarter 2007 sale, this will account for approximately $2 million or $0.06 of short term FFO dilution prior to redeployment. Same store NOI growth of 1 to 3% is expected to partially offset these drags in FFO.

Turning to transactional fee income, we anticipate this will range from 15 to $16 million. The range is a function of the timing of construction activities and projected store openings, which determine the recognition of the leasing fee. For promote and RCP income, I would like to first recap 2007 before discussing 2008 expectations. For '07, promote income was approximately $6 million. $3 million of this was from the Brandywine transaction which we've discussed numerous quarters, and as we have previously discussed, it ended in the third quarter of 2007. The balance of Promote income was from Fund I distributions, following the recapitalization of the Hitchcock Plaza in South Carolina during the third quarter, and the sale of the two Ohio properties which I just discussed. In 2007, we also recognized $4 million, or approximately $0.12 of income from our RCP investments, primarily from the Albertson's investment.

In summary, Promote and RCP income net of taxes totaled approximately $10 million for 2007. For 2008, we're currently forecasting a total of 3 to $4 million of Promote and RCP income. Importantly, the variance in our Promote income reflects the fundamental characteristics of the opportunity fund business and the natural ebb and flow related to fund life cycles. It's not the result of any impact from current economic environment or other factors which go to the integrity of our fund business.

So to summarize, for 2008, we're currently forecasting FFO in a range of $1.25 to $1.35 a share, which is adversely affected by short term dilution of up to $0.06 from non core dispositions and up to $0.04 as a result of projected lower interest rates on short term investments. As we have discussed in the past, our earnings will vary quarter-to-quarter, primarily as a result of the timing of our transaction fees, Promote and RCP income and we recognize that as a result of the factors that I've covered, our range of guidance is fairly wide and we'll continue to keep you updated as to our progress during the year and its effect on our guidance.

Now I'll turn the call over to Mike.

Good afternoon. Given the uncertainty in the current state of the financial markets, liquidity and access to capital are of paramount importance. In light of this, we're in an enviable position of being able to meet all of our capital needs to fund our growth initiatives over the next two to three years, utilizing existing liquidity. At year end, we had approximately $200 million available in cash on hand, and under existing lines of credit. Since year end, we made the special capital gains distribution and funded our share of Fund III capital calls, which together aggregated approximately $18 million. And while as Jon discussed, maintaining high levels of cash balances is earnings dilutive, we believe this to be a positive position so as to be able to take advantage of accretive investment opportunities as they arise.

While the volatility in the debt markets continues, we have found that for quality collateral and sponsorship at reasonable levels of leverage, rationally priced debt is still available. Given our low leverage levels and the quality and stability of our unencumbered assets, we believe that we have additional borrowing capacity. As a result of managing our future debt maturities, we have no scheduled maturities in the core portfolio over the next three years. With regard to our share of JV debt, maturing over the next three years, the majority relates to construction debt, of which our share represents less than $40 million and is expected to be replaced with permanent loans.

During the quarter, we continued to maintain a low exposure to floating rate interest risk as evidenced by the fact that our core portfolio is 100% fixed rate. Including our pro rata share of JV debt, we're 93% fixed rate, primarily as a result of the floating rate construction debt. Although in the current environment there may be some short term benefit to floating rate debt, we believe that fixing rates at sub-6% is the prudent long-term strategy. Thanks, and now I would like to turn the call back to Ken.

Thanks, Mike. First I would like to discuss our portfolio. In terms of occupancy, our portfolio increased by 40 basis points over the previous quarter to 94.2%. We achieved average rent increases of 22% on a cash basis on new and renewal leases, all healthy ratios, albeit benefiting from the law of small numbers. Looking at tenant defaults and collection trends within our portfolio, notwithstanding the scary headlines and legitimate concerns with respect to the economy, bad debt in the fourth quarter and for all of 2007 remained at very low levels. In fact it was about 0.5% of gross revenues.

In terms of lease maturities this year, we have two or three junior anchors in the New York area that we are recapturing, 25,000 square feet comprising two tenants in our Crossroads Shopping Center in Westchester, 16,000 square feet, a junior anchor in a Smithtown, New York property, and while these will cause some short term impact on quarterly NOI and occupancy, we expect the positive re-leasing spreads to more than make up for these disruptions. Turning now to asset recycling, over the past several years we focused on opportunistically disposing of assets that are inconsistent with our long-term portfolio growth strategy. Given the robust selling market for most of 2007, we continued this activity last year and in the fourth quarter we sold our wholly owned multi-family property located in Columbia, Missouri. Over the last five quarters, we've sold approximately 15% of our portfolio and in fact over the last three years we've recycled approximately 50% of our portfolio.

Generally, we have recycled the proceeds from asset sales using tax efficient transactions, recycling them into properties in high barrier to entry markets, including the Bronx, Staten Island, Manhattan. And where we couldn't find suitable replacements, as was the case at year-end, we sent the balance to our shareholders in the form of a special dividend. As Jon mentioned, we expect an additional one or two wholly owned asset sales this year 2008 and notwithstanding the tremendous volatility on Wall Street, patient sellers of single assets can still achieve what we view as very attractive risk adjusted pricing. And while we are absorbing this short term dilution in our 2008 earnings until we redeploy the proceeds, we believe that this continual upgrading of our portfolio to be an important part of creating long-term shareholder value.

Turning now to external growth, the key driver of our external growth is our investment fund business. In the second quarter of last year, we launched Fund III which will enable us to acquire or redevelop approximately $1.5 billion of assets on a leveraged basis over the next several years. That's a significant growth profile relative to our current size. But it's not just about having discretionary capital. One must have the ability to deploy that capital in the type of environment that we are now heading into. As you know, we have had two main focus areas for investing. One is our opportunistic platform, which includes purchases of distressed assets, distressed debt, restructurings. Examples include our Wilmington, Delaware acquisition, our Kroger-Safeway portfolio, as well as our highly profitable RCP initiatives. The second component is our value add platform. Where our main focus most recently has been our mixed use urban infill redevelopments in New York City.

In terms of fourth quarter activity, on the opportunistic side, we had additional positive events in connection with our retailer controlled property or RCP venture with the Klaff Organization and its long-term partner Lupid Adler, and while we've completed several transactions over the past few years, the two most significant were Mervyn's and Albertson's. With respect to Albertson's, during the fourth quarter we received a distribution of $3.2 million. This brings our total distributions from Albertson's to $53.2 million on a $20.7 million investment, that's a 2.6X on equity. Mervyn's has been a 2X on equity on our original investment, and in the fourth quarter, Mervyn's announced the sale of 43 assets, comprising about 3.4 million square feet, the first 39 were closed in the fourth quarter for approximately $400 million, and the proceeds of the sale were used to pay down debt. With respect to both Mervyn's and Albertson's, there appears to be significant additional embedded value and our consortium is pursuing several opportunities, but it's premature to discuss the size or timing of those events.

On the value-added redevelopment front, the key focus has been our urban infill program with our partners PA Associates. In the fourth quarter, we closed on our Sheepshead Bay acquisition. That's our tenth project with PA. Through our Fund III, we acquired this redevelopment and once it's completed, it will consist of approximately 240,000 square feet of retail. As of the end of the fourth quarter, we now have 10 projects, 2.4 million square feet of commercial space to be developed. Two are now complete, that's 216th Street and Liberty Avenue. Four are currently in the development phase or under construction. That's Pelham, Fordham Road, Canarsie and Atlantic Avenue. 161st street continues to be cash flowing and its full redevelopment will occur upon the relocation or expiration of certain leases, and then three are in design phase. That's our City Point in downtown Brooklyn, Sherman Avenue and most recently, Sheepshead Bay.

Turning now to our recently announced addition to the self storage component of our New York portfolio, as we discussed on previous calls, over the past two years, we began to incorporate self storage into our New York urban platform. As part of this, we commenced four projects with our self storage joint venture partner Storage Post. We feel that the self storage business can be complementary to our urban redevelopments. In fact, three of the first four projects that we started incorporate storage either above or adjacent to a retail development. It's been through this process that we've grown quite comfortable with the self storage business in New York City, and with our partner Storage Post.

At year end we were presented with the opportunity to buy out Storage Post's previous institutional capital partner in 10 previously developed or acquired projects. The portfolio is located in densely populated infill locations throughout New York City and New Jersey. On page 41 of our supplement, we list the locations. Occupancy at the 10 projects is currently approximately 70% with significant lease-up opportunity. We expect full lease-up over the next three years. Our going in yield will be between 5 and 6% and we expect unleveraged yield upon stabilization to be between 9 and 10%. Additionally then just after year end we agreed to acquire an additional property. This will be the only project with a development component to it of the now 11 properties, and we expect to close on all 11 this quarter. Our key rationale for acquiring the portfolio is as follows.

First, the portfolio offers a unique opportunity to gain an even more significant foothole in the high barrier to entry New York locations. The portfolio totals 1.2 million square feet gross, 830,000 square feet of net rentable space, combined with our existing four storage developments it produces an overall portfolio of 1.6 million square feet gross, 1.1 million net rentable square feet in the New York Metro area. We're acquiring the portfolio for $160 million. That's approximately $135 a square foot or what we view to be approximately 70% of replacement cost. Finally, New York is a supply constrained market. The self storage supply in the New York metro area is less than 1.5 square feet per capita, well below the national average, which is approximately 6.5 square feet per capita. So we're very excited about the acquisition and we'll keep you posted as to its progress.

In the fourth quarter, we also closed on our second Fund III acquisition at 125 Main Street in Westport, Connecticut as we discussed briefly on our last call, we purchased and will significantly renovate a 30,000 square foot building in the heart of Westport. Total acquisition and development cost is estimated to be approximately $23 million, and we should have a property similar in style to our successful Greenwich Avenue redevelopment. In terms of our outlook going forward. We expect to begin seeing more opportunities in general to buy existing assets at attractive prices, as opposed to pure redevelopment, as buyers with real capital regain an upper hand. One of our goals has always been to be flexible enough as a company, both in terms of capital and talent, to be able to pursue opportunistic investing when it makes sense and value-added redevelopments when those make sense.

So to conclude today, while I'm sure we'll face our share of challenges from a softening economy and a choppy capital market and while the positive event dilution from a host of our prudent and strategic activities in 2007 will have short term negative impact on our top line earnings growth this year, our core portfolio is strong due to both re-tenanting and opportunistic dispositions. Our balance sheet is solid with plenty of dry powder. And third, our acquisition initiatives position us to take advantage of any unique opportunities that may arise.

With that, I'd like to thank the members of Acadia for their hard work last year, and I'd be happy to take any questions.

(OPERATOR INSTRUCTIONS). Your first question comes from the line of Christine McElroy with Banc of America. Please proceed.

Good afternoon, guys. Your same store NOI growth forecast of 1 to 3% seems like a pretty wide range. Can you talk about what kind of drivers would result in the low end of the range versus the high end and what are the biggest uncertainties there?

Great question. One, I think everyone has to keep in mind as I referenced before, the law of small numbers. As we sell more assets it becomes even more relevant so that some of the repositionings that I mentioned at our Crossroads Center, 25,000 square feet or in Smithtown, Long Island, they actually have a meaningful impact to NOI. As long as we are disposing of the right assets and holding onto the right assets, I'm less concerned about that movement than making sure everybody understands that a few minor changes could have that impact.

The other thing is, I pointed out our collections have been rock solid. So far, so good. But there are a lot of headlines out there that cause everyone or should cause everyone to be cautious. I'm not seeing any data internally but that doesn't necessarily mean that our portfolio is a leading indicator and I think we ought to be prepared for certain tenants having collection issues, bankruptcies, anything like that, that could cause it to go to the lower end.

To quantify that, I mean, our bad debt expense for '07 in total was less than $0.5 million, which represents less than 0.5% of tenant revenues for the year. Our experience has been extremely positive for '07, facing some economic headwinds, potentially n '08 and beyond. That number if it increases, obviously, Ken mentioned would have an impact on that same store growth.

As you've been gradually selling non core assets and investing more in infill areas, what do you see as the longer term same store NOI growth potential of the portfolio?

Great question. Our hope would be that on a relative basis 100 basis points higher than the national average. And so fa we see that in the infill locations of Westchester, Long Island, certainly New York City, where you're able to because of supply constraint really demand stronger rent growth, both contractually and as the tenants roll. That's the relative answer. Absolute terms, I think I'm inclined to again hedge because so much of it for the next year or so could be based on how do the next several quarters play out for the economy.

Okay. And then just lastly, I'm sorry if I missed this, but what volume of non-core asset sales are you projecting in 2008? I think you said one to two assets. And what kind of cap rates have you been selling at?

Jon, you said $75 million.

$75 million is what we currently have in the forecast.

And that's probably a couple assets. But again, if the right opportunity comes for almost any of our assets, we would consider it, albeit they become far less dilutive as you start moving into the high quality. In general, we've seen the cap rates range from 6.5 to 7.25 and for some of the assets, it's less about the actual cap rate than the value, depending on some of the risks that we either might see or some of the opportunities that a buyer might see.

Thank you.

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

Thanks, good afternoon. What should we expect in terms of liquidations out of Fund I over the next year or two?

We have remaining in Fund I at this point, it's about 1.2 million square feet. It's primarily the Kroger Safeway portfolio, a little bit more than 1.2. Plus we have three or four more redevelopments. You may see potentially one or possibly two over the next 12, 16 months. Kroger Safeway, we can't do anything with that really until 2009 when the primary terms in that portfolio expire, at which point you'll start to see some movement related to that portfolio, 2009 and thereafter.

When you say movement, will those be simply sales or redevelopments?

Could go either way. I think more likely sales, Paul. Kroger Safeway, we bought extremely opportunistically. When I talked about opportunistic acquisitions as opposed to redevelopments, the view there was we got in at extremely low price per square feet and a mid-teens unlevered yield with a view that in 2009 we could selectively dispose of those. The other piece to Fund I is half of our Mervyn's investment is in Fund I as well and we never like to forecast exactly when the future embedded components hit, but as you can see just by the amounts that we have recognized over the past couple years, it keeps contributing very nicely.

And looking at the stores that Mervyn's sold, I realize it was very much a mixed bag but did that portfolio have any appeal to you?

Well, the whole Mervyn's transaction had huge appeal to us. If you mean did we want to bid on it, the short answer is no. And while we're not opposed to stepping on the other side of partnerships where we've invested in and buying out our partners, we've done it before, we'll do it again, there is often better strategic buyers or people willing to pay more than we would and keep in mind, when Mervyn's was acquired, our purchase price was $1.2 billion for over 22 million square feet. We were in about $50 a square foot. We, a couple years ago, announced the first transaction of 25% of the portfolio for over 50% of the purchase price. And have continued on that pace, which is a doubling on a gross basis and when you do that, the equity return multiples on a leveraged basis are even significantly higher. So the ability to make these kind of profits is extremely attractive to us, our investors, our shareholders, so we're very happy with it. On the other side, it can be a real win for the strategic buyers as well.

Switching to the storage portfolio, who were the sellers and why did they sell?

It is an institutional investor, I'm not going to mention the specific capital. They had various needs and desires for capital or reallocation of real estate exposure as I understand it. And we've been partners with Storage Post, originally, this was something that was going to market at a much higher price and when it was offered to us at a price that we view compelling, because keep in mind, four of the assets are stabilized of the 70% occupancy. The other six either were relatively recently acquired and being repositioned and leased up or recently developed and leased up. And the ability to buy existing assets again, no new development, minimal construction, at 70% occupancy and drive this into the 85 to 90% occupancy, is very compelling relative to the amount of moving parts in development or the yields that we were forced to bias et cetera as short buy assets as sort as a year ago. It's very attractive. It blends very nicely with the balance of our New York urban infill portfolio and we're excited by it.

Is there any performance contingency in the price, either with the lease-up properties or the one development property that's going to come in?

Not vis-a-vis the seller. Storage Post is both investing or reinvesting capital back in and they have clear performance hurdles that I am expecting them to achieve.

And finally, looking at the apartment that you sold in Columbia, what was the price of that and what was the gain?

What was the gain, Jon?

The price was about $16 million, and the gain from a taxable standpoint, I don't recall.

From a taxable standpoint was something in the neighborhood of -- might have been as much as 4 to $5 million.

Cap rate, once you put in reserves, again, probably low sevens.

Thank you.

Your next question comes from the line of Ambika Goel with Citi. Please proceed.

Hi, it's Michael Bilerman here with Ambika as well. Ken, just had a question on the retailer front. You talked about how good the Albertson's and Mervyn's transactions have been and how that there's still more to go. I guess what's happening in the credit markets and also what's happening in the economic back drop, is that business dead for now in terms of buying out retailers?

Very interest question. In some ways the business was most dead from my perspective, because we invest institutional capital where we can only use certain amounts of leverage. It was most dead when the LBO market was most alive because people were fully financing the investments. What I think will be interesting to see now is, one, as there's a lot less debt capital available for buyouts, and as retailers have more challenging times in front of them, buyers like our consortium and potentially others I think are going to be in a better position to either assist retailers or the reason we got into this business originally was associated with the bankruptcies. If bankruptcies occur, we'll be well-positioned to do those, although we'll have to use a lot more equity than some of the transactions that you saw over the past year or so.

Are you aggressively seeking out situations? There are a handful of retailers that are having their fair share of issues, cap rates are settling out, there has to be some real estate value relative to the operations. Are you trying to seek out those opportunities or you're just waiting for them to find you?

I like to think we -- anything we do, we do aggressively without being overly obnoxious about it. No, we don't just wait and right now you're going through a huge transition. It's not just in the retailer business. It's with buyers and sellers, main street versus Wall Street. People are still in a certain level of shock and denial on some levels and grasping back towards well, couldn't I get that type of pricing that was there a year ago. And I think that you're seeing that across the board and there's no reason to think that retailers and their boards aren't struggling with those same realities. I would suspect the next quarter or two, that will play out and those smart retailers who have meaningful real estate will start viewing that as a potential way for them to recapitalize their company. But there has to be a better sense as to where the values come before people -- before you start seeing significant transactions in what I'll call the new paradigm.

That's helpful. Ambika had a bunch of questions.

Can I get some color on the specific investment opportunities and your infill markets. I know you mentioned there's increasing opportunities but I wanted to get some more color on what types of opportunities are, who the sellers are and if you've seen any significant change in pricing that's making these opportunities look more attractive.

Right. And those that we don't yet have under contract I think you could appreciate why we probably won't tell you, if for no other reason I don't want 20 people changes them. Here's the landscape as we see it. For stable, single assets, I'll talk about shopping centers, in good locations, cap rates have not moved that much and have not moved enough for me to think that's where we're going to be spending a lot of our time. And frankly, they may or may not move that much, because for those type of assets, a seller or borrower says I can go to a bank and borrow at between 150 and 200 over LIBOR. If I'm concerned about interest rates, I can swap in and my five year cost of debt will be between 5 and 5.5% so why should I sell it to you at eight? So I wouldn't back up the truck in anticipation of those and that's not necessarily where our focus will be.

Conversely, those borrowers and developers who were very used to high levels of leverage and have made commitments based on the anticipation that they could refinance 80, 90, sometimes 100% of the value and are now facing various different types of capital costs, are going to be in need of meaningful transactions and we're starting to see that activity kick in. We've been active in those businesses before and if you looked at how we structured Wilmington, Delaware, where we bought a fabulous portfolio at a going in close to 9% yield because we then worked with the existing owner as to the lease-up of the balance of it. Other deals that were structured and very complicated, Kroger, say Safeway, some of the debt we bought. I think it might be more along those lines, than the traditional buying of one shopping center.

Of the Storage Post assets that you recently acquired, is there mixed use opportunities at those assets or are those really going to be just free standing storage properties.

For the short term they're staying as they are in terms of the outside. And that's okay from my point of view as I think I mentioned before. Being able to buy existing assets at a discount to replacement cost is a good thing and we're finally able to do that at attractive, not only acceptable going yields but more to the point, attractive yields going forward. In New York City, anything at some point can be reinvested and the benefit of self storage is it's all short term leases. Anything is possible. Don't put it into your model.

Okay. And then just on the retailer front, in general have you seen any change in retailer sentiment towards your infill locations?

No. What we certainly have seen in our conversations, and I spent a fair amount of time talking to our retailers, I was up talking to TJX Corp. which operates -- owns TJ Maxx, Marshall's, those retailers as it relates to the urban markets are still committed to these locations and very interested in them because they know that if they pass this year, that it could be five, six, seven years before they can get into that sub market and they recognize that they can't be that opportunistic. Conversely, in secondary markets where there are either counting on housing growth, population growth, they're certainly changing their commitments there and across the board the well capitalized, well run retailers are recognizing that they can be somewhat more opportunistic. So we are watching carefully to make sure we are not the victims of their opportunism. For the New York market we have been very pleased with the strong tenant response and the realization that if you want to be in downtown Brooklyn, if you want to be in the Bronx, you have to pay a full rent.

They're not saying or giving any push back on rents on the infill markets at this point.

No more than they always do.

Okay.

Always been a negotiation, but there has not been a change, fortunately.

Okay. Great. Thank you.

Your next question comes from the line of Michael Mueller with JPMorgan. Please proceed.

Hi. Few questions here. First in terms of dispositions and acquisitions, is it your expectation that you'll be able in 2008 to redeploy the money from the asset sales?

Yes.

Okay. And the $75 million, that's all consolidated, right, so that's 100% owned?

Right, that's wholly owned assets, exact.

In terms of the storage investment, are you 100% owner in that or are you part -- does Storage Post own a portion of that as well.

They own a portion, Mike. In almost all the deals we structure, we have our partners, especially when they're the day-to-day operating partners, put real skin in the game so we had them reinvest real capital. We own the majority of it. We have all of the appropriate control rights that the majority partner would have. But they have real skin in the game and we're expecting them to do a great job.

Okay. And then one last question. I know you haven't put anything out with respect to 2009, but promotes this year, you put out guidance of I think the number was 3 to $4 million or 4 to $5 million. Directionally, can you give us a sense as when you begin to thing about 2009, what should happen directionally there, does your gut tell you the Promote number stay about the same, should it ratchet up dramatically?

The 3 to 4 million is promote, plus RCP.

Right. That's what I meant.

As we put out in the sup, we have estimated about $8 million of promote left to direct from Fund I. We already collected $11 million to date. And over half of that $8 million pertains to the Kroger Safeway portfolio. So as I mentioned, there may be a couple, one or two one-off sales in '08 and '09 there may be something related to Kroger Safeway but you know, it will be '09 and probably '10 until Kroger Safeway is fully realized.

Then we have Mervyn's, the half that's in Fund I and before we know it we'll have to start focusing on the monetization of Fund II. But we're not, yet, Mike, ready to give you guidance how much hits '09, '10, '11. We will work real hard at giving better visibility out into those points as the deals make sense. The fund business is a somewhat lumpy business and that's fine, especially when the lumpiness has been the amounts of profits we recognized for instance, last year from an Albertson's or a Mervyn's and keep in mind the Albertson's profits we're recognizing aren't even Promote. That's a different category. That's just our pro rata share.

Next question comes from the line of Rich Moore with RBC Capital Markets. Please proceed.

Hello, guys. Good afternoon. On G&A, could you talk a little bit about that. It was up in the fourth quarter and then as I look at your guidance for 2008, it seems to be higher than we had anticipated and also higher than it was in 2007.

Yeah. Rich, for the fourth quarter, and we mentioned this on last quarter's call as well. That there were additional one-time costs associated with some management changes. That was probably a couple of pennies, at least. And then fourth quarter also included some additional compensation expense. Year-end comp expense. So for 2007, G&A came in at about $25 million. For 2008, we're forecasting 26 to 27. So that represents, you know, give or take, midpoint is about a 5% increase year-over-year. Which we think is a reasonable growth rate.

And Rich, keep in mind, only at Acadia does $1 million G&A swing have a meaningful impact on our earnings and we recognize that and we probably have to do a better job of putting out the right metrics to make everybody comfortable that we're running a very efficient company, but also one and most importantly, that's correctly staffed for the opportunities we have at hand now, the opportunities we're working on, and the fact that we have significant growth potential. And we need to make sure that we're -- we have the right people here, focused on those, so we'll provide the good data but I also promise you, I want to make sure we have the right team and that they're motivated and that they continue to do the job that is necessary to create the kind of profits we created.

Okay. So Ken, is the extra million or two, is that probably associated with new hires, you're thinking?

Well, a certain amount is just cost of living and since the majority of our G&A is compensation and there's a certain cost of living and here in New York it's real, you get X percent just there alone. And then we're adding people, periodically we're subtracting people too but we're making sure we got the right people to handle not just the several billions of dollars of assets that we deal with now, but the other 1.5 that we expect to see come on line over the next few years.

Okay. Very good. Thank you. And then on the Mervyn's transaction, it sounded like that was a transaction that was marketed. It was 43 assets, or maybe 39 and then four more that were marketed as kind of a portfolio. Do you know if that true? And B, is that kind of what's happening with Mervyn's? Is it more of a -- are we getting to a point where there's more of an urgency to kind of get portfolios out there and get them sold?

First of all, I would say our experience in -- we've been actively involved with the whole Mervyn's team to everyone's credit, everything that they do is with urgency. But it's very deliberate and there's been portfolios in the marketplace since shortly after we closed. The first one was to McCorey for 25% of the portfolio and we sold it for 50% of our purchase price. So they're in -- in all of the RCP transactions, there will always be sale leaseback effectively portfolios that our partners and we are looking to monetize, because that's a big part of how you make money in that. There's nothing unique about last year. There's nothing unique about this year, next year, but in general you'll see a focus on those assets that are best in someone else's hands be marketed and sold. Sometimes they're acquired transactions, sometimes they're marketed.

Okay. Very good. And then on the self storage assets, kind of going back to what Ambika was asking, I've always thought of your work with self storage as being part of a broader project and now these sound like they're more of a pure play, the ones you just acquired with Storage Post. Are you thinking more in terms of the geography is what's important to you, so we might see you buying maybe small office buildings and warehouses and other kinds of things. Is it just this is so unique you just had to do it?

Great question. Any time we depart from exactly what we do, we think long and hard about it. Yes, it's geographic. We have a much higher tolerance for mixed use in New York City than we do just about anywhere else. So if you see the redevelopment we did on 216th Street, it's effectively a single tenant to New York City, 15 year non cancelable lease. It was in conjunction with know project. We were happy to have that cash flow, especially at the yields we got.

The self storage, you're absolutely correct, started as being complementary to mixed use development. Here we have a partner, who we know, trust and like, who had an institutional partner highly motivated if we could move quickly, which we can. So it fell more into the opportunistic bucket but we would not have done this to buy a self storage portfolio in the Midwest or Southeast, operated by someone else, just because the yield looked attractive. This was attractive yield, right location, right partner.

Okay. So are there other property types that might be interesting?

Oh, well we own office. We like it. Albeit we really like the urban office where New York City agencies are a tenant because I think that they're an underserved class in New York and you can get attractive rents and attractive yields. We love retail. We really are afraid of residential condominium. So there's self storage, I guess there's warehouse and that's -- and we're not in the hotel business.

Okay. Super. Great, thank you, guys.

Thank you.

I show no following questions. I would now like to turn the call over to Mr. Ken Bernstein for any closing remarks.

I'd like to thank everybody for joining us and we look forward to speaking to you again soon.

Thank you, sir. Ladies and gentlemen, this does conclude the Acadia Realty Trust fourth quarter 2007 conference call for today. Thank you for your participation. Have a wonderful day. You may now all disconnect. Good day.