Acadia Realty Trust (AKR) 2010 Q1 法說會逐字稿

Good day ladies and gentleman and welcome to the first quarter 2010 Acadia Realty Trust Earnings Conference Call. My name is Onika and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will facilitate a question and answer session towards the end of the conference. (Operator Instructions). Please be aware that statements made during the call that are not historical may be deemed forward looking statements within the meaning of the Securities and Exchange Act of 1934. Actual results may differ materially from those indicated by such forward looking statements. Due to the variety of risks and uncertainties which are disclosed in the company's most recent Form 10-K and other periodic filings with the SEC, forward looking statements speak only as of the date of this call and the company undertakes no duty to update them.

During this call management may refer to certain non-GAAP financial measures including funds from operations and net operating income. Please see Acadia's earnings press release posted on the website for reconciliation of these non-GAAP financial measures with the most directly comparable GAAP financial measures.

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.

Following management's discussion there will be an opportunity for all participants to ask a question. At this time I would now like to turn the call over to Mr. Bernstein. Please Proceed.

Thank you, good afternoon. Today I am going to start with a brief overview of the progress we made in the first quarter and the trends we are seeing. Then Jon will review our earnings, operating metrics, key drivers, and then Mike, Jon and I will take questions.

As a general overview while we feel we are still in the early stages of a recovery, in the first quarter we saw further strengthening of operating fundamentals as the economy continued to stabilize. We also saw a surprisingly robust improvement in the capital markets with increased availability and stronger pricing for both debt and equity. So today we will discuss how these improvements are impacting the key components of our business, most notably our core portfolio, our balance sheet and our external growth platform.

In terms of portfolio performance in the first quarter the improvements in the economy led to the portfolio performing at the higher end of our expectations. While same store NOI and occupancy did decline, these declines were driven by the two previously discussed vacancies and excluding them would have produced an otherwise positive result. Furthermore along with the leasing environment, the new space improving in the first quarter, we also saw improvements in the performance of our existing tenants in terms of defaults, collections, sales performance.

As we discussed on our last call, we originally expected to see our portfolio occupancy decline in the first and the second quarters of the year and then recover ending the year at flat to higher rates. Now one quarter into the year and barring any unforeseen setbacks it looks as though we bottomed out in the first quarter and the declines were milder than anticipated.

And while NOI growth will still lag occupancy increases by a couple of quarters, we see declines bottoming out this year as well and likely reversing as we head into 2011.

Second, in terms of our balance sheet and liquidity, the improvements in the capital markets also benefited our already strong balance sheet. If you review the financial ratios and data set forth in our earnings release and on page 23 of our supplement you will see that we continue to focus on maintaining a strong balance sheet with plenty of flexibility.

Third, finally, our external growth initiatives. In general in the first quarter we saw the continuation of the phenomenon that began at year end. For various reasons not withstanding an inevitable multi-year deleveraging process that our industry is going to have to go through, in the first quarter there remained a shortage of quality assets to acquire. This shortage is causing an imbalance where, albeit it on a very limited volume, there are more buyers than sellers, especially for higher quality assets and that is causing cap rates to compress significantly and in some instances actually return to almost pre-crash levels. While it is hard to tell how and when this imbalance plays out, on one hand we have a trillion dollar commercial real estate debt wall to climb over. And on the other hand capital is becoming more and more available to take down assets as they come to market, thus greatly reducing the risk that commercial real estate is the so-called next shoe to drop.

Either way the impact to Acadia is likely to be both positive in terms of our existing core portfolio and even more so our redevelopment pipeline. And then perhaps negative in terms of easy deployment of our dry powder for distressed opportunities.

But for reasons that I will outline we believe that we are well positioned or hedged irrespective of precisely how these competing forces play out. On the positive side existing inventory is clearly worth more than we feared a year ago. This appears to be true for most assets but even more so for higher barrier to entry assets in supply constrained markets where tenant, lender and buyer demands improved significantly. This is the case not only for our core portfolio but our redevelopment pipeline as well.

As Jon will discuss our redevelopments as they head towards stabilization and with the increased likelihood that we reach our projected yields, they can start to make meaningful contributions in terms of both earnings and residual value.

Furthermore as it relates to our fund redevelopment, as we shift from contemplating potential losses or reserves to contemplating potential profits, the structure of our promotes or profit participations add additional incremental value to our stake in these investments. And while we are not fans of counting chickens before they have hatched, redevelopment in dense markets like Canarsie, Brooklyn or affluent markets like Westport, Connecticut can become important drivers of our value.

Now on the negative side the increased liquidity in the markets may make it less likely that there will be the wholesale liquidation of high quality real estate at distressed prices like we saw in the early 1990s. Nevertheless as the real estate capital markets recover we still think that there will be several speed bumps in the road, especially on the private side, and that should create more than our fair share of opportunities. But the days of 1990s RTC-like portfolio acquisitions may not occur this cycle.

And while it is generally a lot of fun to shoot fish in a barrel, our Cortlandt Manor acquisition was probably as close as we have recently gotten to that, our company structure and competencies have never limited us to bottom fishing. In fact, our most profitable deals of the last cycle, whether you look at our Wilmington, Delaware turnaround, our Kroger/Safeway acquisition, our RCP venture which include Mervyn's and Albertsons, they were done in 2003 through 2006 which was well after the so-called bottom.

Furthermore, given our size and discretionary fund structure, we don't need the floodgates to open to create value. We have about $350 million of Fund 3 equity left to deploy and that gives us about $1 billion of buying power. And keep in mind that every $100 million of that $1 billion deployed can contribute approximately $0.02 to $0.03 of FFO to our earnings and more significantly can be a major source of value creation.

So for those companies who need to put significant dollars to work very quickly in order to move the needle, this transition period is likely to be frustrating. And for us we recognize that increased competition for stabilized assets may mean that going forward the best acquisitions will look less like our Cortlandt Manor acquisition and more about fixing broken properties or broken capital structures or being opportunistic, and those are things that we are good at. But, in any event, even a moderate amount of opportunities will enable us to significantly move the needle.

So to wrap up my potion today as we look at the improving climate in the first quarter, both in terms of the capital markets and the property level fundamentals, we still think that it is prudent to remain prepared for a bumpy road ahead before we are in a full recovery. But however this recovery takes shape we do feel strongly that we are well positioned -- well positioned to capture value in our existing inventory and well positioned to capitalize on new opportunities as they arise.

So with that I would like to thank our team for their hard work in the first quarter and turn the call over to Jon.

Good afternoon. In general first quarter results and the performance of our core portfolio were at the higher end of our expectations. And to briefly recap earnings which we discuss in detail in our press release, FFO for the quarter was $0.25 per share and from an earnings perspective it was a relatively straight forward quarter with no significant anomalies or unusual activity.

Turning to the core portfolio, we are encouraged by what we have seen so far in 2010 in terms of the operating metrics within the core. So far our performance in general has exceeded expectations. Recall on our last call in February we forecasted minus 2% to minus 4%, same store net operating income for 2010 and that minus 2% of this alone would be attributable to the re-anchoring at two locations, the Marketplace of Absecon and Chestnut Hill in Philadelphia. In fact, same store NOI for first quarter 2010 came in at a better than expected minus 1.3%. And excluding the impact of these two re-anchorings, the balance of the portfolio experienced positive growth of 1.2%.

Also in our last call we talked about our expectation for occupancy and that it would be flat to slightly up by the end of the year with the trend being down in the first half. And in fact it didn't dip in the first quarter as we anticipated, given the fact that the departure of Borders at the Chestnut Hill location was offset by leasing gains at other locations in the portfolio.

Turning to our 2010 guidance, given these strong first quarter results we have advised towards the upper end of our range which as you recall is $0.95 to $1.00. And also recall that our current guidance is before any contribution from external growth, potential acquisitions, or from other, what we call our other income category which includes promote income from our funds, income from our RCP investments and/or lease termination income.

So, and to also reiterate what we discussed in our last call, this doesn't suggest that we don't expect any of this activity to occur in 2010, rather that the timing and the earnings from these types of transactions has much inherent variability and therefore making a specific prediction is obviously difficult. So we opted to keep the guidance clean.

That being said, we have as much as $7 million of promote income based on the current value of Fund 1 assets and when that is monetized will obviously depend on various factors including asset specific factors as well as general market conditions.

And then furthermore our investments in the RCP platform, Albertsons and Mervyn's still include a significant number of locations which we expect could also be monetized in the near to mid-term future.

And lastly while Ken discussed the acquisition environment, it is important to note that we also had embedded earnings growth in our current Fund 2 redevelopment pipeline. Our expectation is that upon stabilization these projects will generate incremental net operating income of $20 million to $25 million at the fund level which after debt service translates into additional FFO to Acadia of approximately $2.5 million to $3.5 million or $0.06 to $0.09.

This alone represents 6% to 9% earnings growth before any additional earnings contributions from any of our other earnings components. In addition, the promote income from Fund 1 represents an additional $0.16 to $0.18 of future FFO. So in total we have embedded FFO growth of $0.22 to $0.27 from existing investments.

So to conclude, we are seeing continuing signs of recovery in our sector and this is translated into positive first quarter results for us. That being said, it is still early in the recovery process and we are still early in the year but our outlook is favorable as it relates to our earnings guidance, and again a bias towards the upper end.

So at this time we will be happy to take any questions.

Thank you. (Operator Instructions). Your first question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed.

Hi, good afternoon, I'm on with Jordan Sadler as well. Ken, as you think about acquisition opportunities today and based on as you indicated the improvements in leasing activity, the health of retailers and even some sense of a bottoming in fundamentals I guess later this year, perhaps if you had to characterize what type of opportunities you suspect you will see first -- maybe RCP type investments or value add or other redevelopment opportunities -- just the way you are seeing the world today and looking at deals come across your desk, how do you think this will sort of play out?

Probably the most likely area is where there is still the most stress and that is on the private side from developers, owners that are over levered. Because if you are running the risk of being foreclosed, losing the asset, getting kicked out by your investors, you are going to be a lot more motivated than if you own an asset with very little leverage on it that is highly stabilized and you are putting it to market and we have seen some of those trades go at very aggressive prices. So we are seeing, notwithstanding this recovery and notwithstanding the fact that the public markets have been able to de-lever, a need for de-leveraging and that is going to include low quality assets but also high quality assets. You know we always have a bias towards the higher quality so that is where I suspect our focus will be.

Okay, and are you still optimistic or even hopeful that there will be other RCP type investments to be made or has that sort of changed given the improvements we have seen in the economy.

So let me be clear, I was picking the ones that I thought first [shows up] which is where is the most stress right now and it is over-leveraged assets and working through the de-leveraging process. I think that redevelopment, I think that even developments especially in unique areas will eventually start coming online and being attractive. And the same thing for RCP. We have made a lot of money with our partners, Klaff Realty and Lubert-Adler and some of the other members that joined us in Mervyn's, Albertsons, etc, and we would be happy to entertain whatever the next version of RCP 2.0 might look like. It still feels a little bit early and I'm not going to spend this call, because I could spend the balance of the time looking at what attributes we look for in retailer-owned real estate to make it actionable for us. It still feels a little bit early on that side but I bet there are opportunities there, too, just may not be as fast as some of the others.

Okay, and then looking at your core portfolio and the shop space, the occupancy was up about 100 basis points sequentially, should we expect at this stage in the cycle to really start to see a pick up there -- is that where you think there is also some additional growth that is going to take place over the next couple of quarters?

Certainly occupancy in general and leasing activity in general has picked up and we feel fairly good about it. In terms of the small tenants, another metric to look at that perhaps provides good color as it relates to the condition of our small tenants is if you look at items like defaults and/or bad debt expense for the quarter, defaults are down 50% from the high in 2008 and bad debt expense as well was about $120,000 for the quarter versus an average of $250,000 each quarter in 2009. So in general small tenants in the portfolio are doing much better than last year and are holding up well.

In terms of net occupancy gains, it wouldn't surprise me to see it pick up in that area given the improving health of that category of tenants. Hard to come up with an exact number obviously, but wouldn't be surprised to see some net occupancy gains on the shops space.

Okay, that's helpful. And then, this is Jordan. I just had a question regarding the investment side. Ken as you were answering, talking about private owners, would you look to participate in a debt structure or mezz structure to the extent you were partnering with an over-leveraged private owner? I mean is that still of interest, maybe mezz interest?

So the good news is we have done just about every different structure over the past ten or twenty years, whether it was we come in and take control and issue OP units like we did up in Burlington, Vermont when it was a bankruptcy we needed to work through to some of our, what I will call non-participating, non-control mezz which we felt on a risk adjusted basis made sense. So we would do anything. What I would say is we are leaning much more towards if we come in having a high enough level of control because even though we are seeing recovery, both in terms of the capital markets and recovery in terms of the fundamentals, I would not be surprised to see some bumps in the road and we feel much better when we are in control in those situations. So, yes, wide variety of structures, but probably higher levels of control than during other points in the cycle.

Are you seeing mezz deals out there?

You are seeing a need for them and you are starting to see capital step up for it. We are certainly seeing people come to us and say, "Hey, why don't you take 100% of the equity risk for a mezzanine return." And our response is pretty clear -- we are happy to take equity returns for equity risks. This will work its way through the cycle. It has moved very fast in the public markets. The private guys are still getting over the shock of the past year and now figuring out where do they in fact have value and where don't they.

Okay, thank you.

Thanks.

Your next question comes from the line of Christy McElroy with UBS. Please proceed.

Hey, good afternoon guys. Ken, just following up on some of your comments, if I understand you right you expect most of the opportunities to be among distressed sellers or distressed properties redevelopment opportunities. But just thinking about high quality infill centers specifically, what is your view of the cap rate compression that has occurred. Do you think it is sustainable or maybe we pull back a little bit as more product comes to market?

I think the cap rate compression for assets like the ones we are developing in the five Burroughs has been tremendous. And I think it should stick. But that's wishful thinking. So do I think that there are some bumps in the road? Yes. Here is the thing -- I was dead wrong in thinking that debt maturities were going to be a catalytic event for wholesale flooding of real estate or creating huge opportunities. The lenders have effectively kicked the can down the road and I think it has worked to the benefit of the industry overall. So I don't think that simply debt maturities will do it. And the question then would be what would be the next catalytic event. Certainly if there was a move in interest rates, that could create it. Or, what we are seeing now is high quality assets are not being forced onto the market, they are not being pushed, but they are being enticed out to the marketplace. And we may see some more of that.

The final piece that we are seeing right now, irrespective of whether it is a high quality asset or a lower quality location, retail real estate requires a fair amount of TI dollars to stabilize. It is a capital intensive industry. And so a shopping center can last a year or two or three without capital being put in for re-tenanting, but as you get through with the final parts of this cycle we are seeing enough assets irrespective of the debt level that are going to need contributions of capital and/or the skill sets to fix them. You are seeing that in Midtown Manhattan office buildings and you are seeing that in high quality suburban shopping centers and you are certainly seeing it in low quality. So we think we will also see opportunities that way that we will be able to deploy our capital and skills.

Okay, and then regarding the Georgetown mezz investments and maybe to a lesser extent 72nd Street because it doesn't mature until next year, but I know that you have said in the past that you expect the borrowers to exercise their extension options. Given the improvement in the capital markets, what are your expectations today for those and have you had any discussions about their plans to extend?

Sure. I won't get into huge detail but you asked about Georgetown and that is an interesting example. The capital markets have improved which is a huge sigh of relief for all of us. And in Georgetown because we really like street retail, it opens up a wide variety of potential opportunities in the future, but back to your specific question on the debt. Our mezzanine loan matures after options in 2012 I believe, but the underlying first mortgage which is really the key driver of what a borrower would choose to do, it is an attractive interest rate, fixed rate, maturing in 2016.

So, it makes it that much less likely that a borrower would choose to prematurely refinance the entirety just to take out mezzanine. And even though I guess theoretically you could go through the brain damage to gain a couple hundred basis points taking out existing mezzanine with new mezzanine, I would be surprised if they do that.

Now if they do, free country, and considering it was only a few calls ago everyone was saying should we cut your position by 50% or more, if we get paid back we will find good places to redeploy that capital. But I would for our own internal budgeting, etc, I am assuming that they exercise their options, and while we would be more than happy and assume we do explore the opportunity to own this or turn a finite life investment into an infinite life one, so we are also more than prepared to take the capital back and redeploy it.

Okay, and then just lastly, Jon, the additional episode that you expect from Fund 1, the $2.5 million to $3.5 million that you spoke about, how much of that is from incremental lease up of the completed redevelopment projects in Fund 2 and how of that is from new development?

And that is promote, I think you mentioned form Fund 1, it is from Fund 2, right?

I think I said Fund 2, I meant to say Fund (inaudible).

Oh did you? Okay, the $2.5 million to $3.5 million incremental FFO in terms of the existing completed portion of the pipeline, probably about half of it, specifically the completion of lease up at Fordham office, Pelham and Canarsie and then the balance, approximately the second half is from the projects that are in design phase, from an [avenue] City Point, etc. So about 50/50.

And based on discussions that you are having currently, what would you anticipate to be the timing of the redevelopment lease up?

Well as it relates to the first three that I just mentioned, in the next year or two. As it relates to the in design phase, later, three/four years-ish.

Okay, that's helpful. Thank you.

Your next question comes from the line of Sheila McGrath with KBW. Please proceed.

Good afternoon. Ken, I was wondering if you could give us an update on the leasing progress at both Canarsie and Pelham.

Sure. Start with Canarsie. We signed one lease and another lease in the first quarter that brought us to a pre-leased 86%. That was with Planet Fitness and we are excited about that deal. Pelham, the big event there first quarter was the opening of Fairway Foods right adjacent to Pelham Manor and they had a strong opening and they are going to act even though we don't own Fairway Foods, they are going to act as a very positive additional anchor. So we see some nice activity. I'm not going to detail it right now. But what I will say is there has been a shift both in my sentiment and our leasing team's sentiment, a year ago if a tenant was willing to step up, we were signing those leases. You saw that in terms of Best Buy in Bloomfield Hills, Michigan when we lost our Circuit City, you saw that in a couple of other cases, the lease we signed with Cortlandt Manor where if you had a good tenant ready to go you took it and you didn't quibble over a dollar here or there.

We are seeing enough improvement in the market place that we can afford to be a little bit more patient especially in places like Canarsie, Brooklyn -- we are at 86% pre-lease. I am less focused on whether we get to 96% pre-leased but I am making sure that we get the best deals. So it will be very interesting to see both there, Pelham and elsewhere now that the economy is improving, not just the speed with which we sign leases but also hopefully seeing better and better terms.

Okay, and just going back to the funds in terms of the promotes, I wonder how you might walk through to maybe a new investor today looking at the prospects of promotes for like Fund 2 and 3, walk them through understanding that versus what you might have a couple of months ago.

Yes, and thankfully what a difference a couple of months make. I would start with any investor by saying the two obvious things. We don't count chickens before they have hatched, and past performance is no guarantee of future performance.

That being said, if you look at our Fund 1 performance and in general our goals which is mid-teens plus returns over a three to seven year period which depending on exactly how they are structured ought to be able to get you pretty darn close to a 2X on equity. That has been more so the case Fund 1 which we are already north of that. If you look at RCP which is a sub-component of both Fund 1 in terms of Mervyn's and then Fund 2, that is already at 2X. And so then when we look at the balance of Fund 2, the vast majority of it is our urban portfolio which on a macro level we are very bullish on and now that the markets are stabilizing we feel better that we can get to that 8% yield that we have been talking about, un-levered and that residual values now should enable us depending on whether you value it at an 8 cap in which case, obviously, our profit is limited to just our profit in RCP. If you view it at a 7 cap then we are much closer to meaningful promotes and as you get below 7 it starts to be a lot of fun to talk about.

So you could do the math yourself, or Jon maybe you want to throw out a few numbers?

Just to put a number to it, if you look at the RCP investment, the equity that has been put to use in that area has been about $50 million. We have gotten a 2X on it so there is $50 million of profit there. Presuming -- and the balance of the equity has been invested in the urban redevelopment platform. So presuming you get your equity back on the urban, no better, you just get your equity back on the urban platform then obviously there is $50 million of profit that is promotable, if you will.

And then to the extent that we get better than equity back on the urban platform, then obviously that is incremental income that is eligible for profit, it is eligible for promote, as well as on the RCP platform there could be an additional turn or profit as it relates to that platform as well given the fact that there is still a significant number of locations that is owned by the RCP ventures. So just some quick numbers, but gives you some sense of the potential out there in terms of promote income.

Okay, that's helpful. Thank you.

The next question comes from the line of Michael Mueller with JP Morgan. Please proceed.

Hi, Jon when you look out over the next few years at management income, leasing income, does anything change dramatically one way or the other?

As it relates to the next couple of years given the fact that there is work in the pipeline I think that stays relatively stable. Obviously going out four or five years it is a function of what else is in the pipeline. But I think for the foreseeable near future I think it is a relatively consistent number.

And I guess the other question just following up on that, about going out four or five years, it depends on what is in the pipeline, it seems like the focus has shifted more, at least in past quarters, to not the redevelopment-oriented acquisitions but something that is a little more along the lines of not necessarily stabilized but pretty darn close to it. Do you expect that to shift again so once we get to the end of this pipeline you are working on now we are not going to see a significant drop off in the income?

Yes, and by the way I don't view, we don't wake up and say we are going to do an investment because we are going to do a redevelopment because it creates construction fees. Let's keep in mind, and I'm sure the next question from someone will be G&A, because it is not cheap to do a turnaround and especially to do it right.

We have always tried to remain agnostic as to whether or not it is the right time to be developing new assets or acquiring. And hopefully we get it right such that we develop high quality assets and make sure that we can exit them profitably and when we have opportunities to acquire at discounts to replacement cost we do that. So we don't view ourselves as purely a development company, nor do we view ourselves as purely an acquisition company. And if you think about the types of deals we have done over the 20 years we have been in business or the 12 plus years we have been a public company, it has had a nice balance, Mike.

A year ago a lot of companies said that they would never develop another property again. We didn't say it. We may have felt like it at times, but we didn't say it. And conversely we don't feel like we need to just buy Cortlandt. When we bought Cortlandt everyone was running for the hills and we said wow here is an opportunity to buy an asset close to a 9 cap, had a vacant Linens, we signed one lease, not a lot of fee income but I loved the deal and obviously things have worked out very well there. But we will just have to see where the opportunities present themselves. Our focus is going to be creating a high risk adjusted total return and then if it brings on fee income, great, chances are it will. And if it just brings a lot of profits I think that works fine too.

Okay, and you may have touched on this earlier, but for the components of the $0.06 to $0.09, the marginal drivers of FFO, and what are the main projects that are going to be driving that?

I did touch on it. About half of it is the lease up of the existing constructed portion of the urban pipeline, i.e., Fordham, Pelham, Canarsie, and then the other half is the in design, the City Point, the [Sherman] components.

Okay, anything new on City Point?

We are making continued progress. I think what we said last quarter still holds, other than obviously everything in the world is feeling a little bit better.

Okay, that I think is it. Thanks.

Thanks Michael.

Your next question comes from the line of Quentin Velleley with Citi. Please proceed.

Good afternoon. Just going back to the core portfolio, you talked about things obviously getting better from the occupancy side. You were previously expecting a dip in occupancy through the first half but the down 2% to down 4% same-store NOI forecast. Are you still back into guidance, I am assuming. Just wondering why you didn't improve that same-store guidance projection -- is there something that you are still concerned about in the portfolio?

There is nothing specific that alarms us. We are into the first quarter here and we think it is probably a prudent thing to get one more quarter under our belt and then we will re-examine guidance and revise it if need be. But we just felt it was a little bit early both in terms of the year and even in the economic recovery process. We have been through one heck of an economic storm here and we think it is the right course of action just to be, again, prudent and take this slowly and at the right pace.

Okay, and then looking at the new leases, you saw in the spreads, the cash spreads were down, (inaudible). I think it was only four leases, but can you just talk about what leases drove those spreads down?

Spreads? It was really driven primarily by, for the most part, one lease. We re-tenanted a, it was a former Cost Plus at our Brandywine Town Center. We put in hhgregg and there was a roll down in the rent there. And then a couple other locations were essentially flat as it related to new leasing. So that was the primary influence on that metric.

So for the rest of this year you would expect that your new [leasing] spreads would be much better than the [15]% [negative]?

It's hard to say. Obviously the tenants still have a lot of negotiating power. So it certainly is getting better. We will say that in terms of leasing spreads. But it will take time for the power, the pendulum to swing back the other way.

And Ken maybe if you could just talk about potential retail acquisitions in the Northeast and who some of your main competitors are. Are you looking at acquisitions at the moment?

Our main competitor is our self in that if we are not interested in the deal I find that we are not even remotely close to being the winning bidder. There are a broad enough group of private and public companies that are capitalized and talented and able to pull the trigger and some of them have stepped up. Others are probably gearing up to step up. But what I would say is compared to other points in the cycle or over the past ten years if you will, the number of all cash buyers here in the Northeast is far thinner. So even though there is plenty of competition today, and there always will be here in the Northeast. There are a lot of well respected companies here. Even though there is competition, right now the issue has been less about whether or not there was someone who beat us out, we haven't come in second place in anything in a long time. We are either in fifth place or we win. So I worry less about that than I do focusing on a bunch of the different issues that we are facing which is improving fundamentals but nowhere near as quickly as let's say the capital markets and debt spreads have moved in.

And finding that right balance so that we don't find ourselves rushing to do a deal for the sake of doing a deal and then waking up two years from now regretting it.

Okay, perfect. Thank you.

Thank you.

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

Hi, good afternoon. I was wondering if you guys have looked at other urban areas besides New York City. I know you obviously have a presence in Chicago but are other metro areas attractive during this period when New York City might be a little bit slower than anticipated?

Yes, we have in general preferred to pursue high barrier to entry markets, and as often as not that really means urban. Sure, Greenwich Avenue, Greenwich, Connecticut is a high barrier to entry market but that is the exception to the rule, etc.

So we have looked at and you could probably come up with the right list of those urban markets that have the appropriate metrics in terms of employment, in terms of population, in terms of shoppers, in terms of retail density. In general, as we go into those markets we want to make sure that we are right several different ways. One is anytime you get into a new and complicated market you have got to be very thoughtful about what is the dumb tax that you potentially are paying for getting into those markets. And that tax goes up and down depending on where the market cycle is. So we spent a fair amount of time looking at several other markets, waiting for opportunities to come, because depending on how much opportunity hits a given marketplace it may be compelling because there may be a lack of capital there.

Whereas in New York there may be more competition than in Chicago but then there are other benefits to New York including it is here in our backyard, including it is one of the few markets in my view that still remains under retailed and it is a very intimidating market for most people to penetrate so we do like playing here. It has not been slow in New York, it has been slow. It is not as though we are seeing deals that make us say, "Oh, I wish we were based in another city." It is the fact that most sellers have been on the sidelines because most lenders have enabled them to do so. I think that is going to shift. Whether that creates opportunities in New York City or from DC through New England we are extremely well covered or whether or not that takes us to other markets we will see. We can make a lot of money in our existing footprint. We can also step up and make money elsewhere if the opportunity is there.

Okay, thank you.

Our next question comes from the line of Craig Schmidt with Bank of America. Please proceed.

Thank you. I am wondering the deals your leasing team are talking about now and say maybe talking about at the spring ICSC, what is the timing of the stores to be open?

It really varies. I'm hesitant to give a specific date. I can't think of too many deals that we are working on new where they are saying we will sign now but we don't want to open through another entire season. For the most part it really depends on who the retailer is because different retailers, different types have, as you know, different windows of when they are not willing to open, etc. We seem to be facing more of that than people saying, I'm all full up for 2011 so this is a conversation we are willing to have now but it is 2012. And that is to a large extent because just as perhaps we were wrong in terms of the amount of products we thought would be there to acquire, a bunch of our retailers came back and have said, "Yes, we thought we would be able to do Circuit Cities and Linens 'n Things forever. So after we filled up our plate on vacant Circuit Cities we then fill up our plate on vacant X or Y." And obviously that hasn't occurred either. So they are coming back; they are realizing especially for the high barrier to entry markets that they can't just wait for Chapter 7 and they have to step up and negotiate. And those who have open orders to buy are stepping up and saying, "I want to get this done quickly and I will open it when the next window period occurs."

So I apologize I can't give you specifics but it is really going to be property by property dependent.

Okay, and I know you have talked a little bit of the pick up here in the leasing market. Is that both junior big box and the smaller inline tenant space?

Yes it is. The junior and bigger box is more consistent with what I was talking about in terms of the lack of inventory coming from other failed retailers. And in terms of inline we are starting to see tenants and entrepreneurs stepping up. More to the point the number of mom and pops who outright failed during the last cycle was much fewer than we feared.

And the fact that the access to small business loans hasn't opened up quite to the degree as other avenues, does that present a problem this summer?

It does. So I suspect that will be later in the improvement of the cycle when they can access capital. But for a lot of the mom and pop retailers this is their sole source of business. If they shut down they have to go into a job market which is not friendly yet. So they are staying open and we see them turning the corner. And then some of them are doing well enough that they are ready to open a second or a third or a fourth store. And I don't want to extrapolate too much on that but we are seeing them step up and they are coming up with capital in one source or another even if it is not the traditional bank lending that historically enabled them to expand.

Great. Thanks a lot.

Thank you.

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

Yes, hello guys. Ken, on the storage front, where are you guys with that. Is it still as exciting a business as it has been to you?

Yes, probably more exciting than it used to be. If I was 20 years younger I would probably say I am going into the self storage business rather than retail but we are a retail company and that is where our main focus will be. And what still excites me from Acadia's perspective is the focal point that got us into this which was in the New York markets, and it may be true in other urban markets, but especially for New York. If you are going to do urban you are going to go vertical. And that means almost by definition mixed use. And we still believe there is a great niche of when you do redevelopments and when second, third, fourth levels, best and highest use is not retail, doesn't lend itself to office or residential, self storage complements the retail development very nicely and there are very few companies, storage companies willing to do a retail development in order to get a storage location and vice versa.

So we like that thesis. We like that niche. And to the extent we are doing developments and urban redevelopments here, we think we are going to continue to exploit that.

In terms of -- I'm sorry.

I'm sorry, go ahead.

In terms of the self storage portfolio overall what we have seen and it is outlined in our supplement is the stabilized properties are doing what they are supposed to do. They lost a little bit of occupancy during the seasonality of the first quarter, but same store NOI for that still went up. While our retail went down, self storage stabilized, went up, and those that built and we're putting online, we're gaining nice occupancy on.

So our goal is to have this million plus square foot portfolio, not to own it forever, but to stabilize it, and we think it will be in very high demand at the right time.

Okay, so as you look forward are there more opportunities in storage do you think or was that sort of a one-time or a one-era kind of investment?

I think that the self storage industry is ripe for consolidation, especially here in the Northeast. I don't think we will be a direct consolidator. It is not our main area of focus. I don't think we need to do that. I do think we and our stakeholders could benefit from the consolidation and we are working on some interesting and exciting ideas on that front. And we are not going to be renaming our company Acadia Self Storage Company. And, again, I think that there are other very talented people who we may align with that can play in that and I think it will be very exciting for them and I think it should be profitable for us. But our main focus and our main growth will be in the retail and then the urban mixed use and to the extent that mixed use incorporates it, great.

Okay, and on the retail front could that include individual retail assets say in the city, in Manhattan, the single tenant type retail assets that you see?

If it is profitable and if it is something that we can make sense of, absolutely.

Okay, okay. I got you. And then you kind of mentioned that it is the troubled guys you are looking for, those in trouble with debt. Are you talking to the special services? Is that very fruitful at this point or has that gotten so much better too that you can't really find anything going that route?

So yes, we speak to special services and we speak to the companies that own the special services and we speak to the various different tranches of debt holders to see where deal flow may come from. What I would tell you is the special services are still ramping up in terms of their deal flow. They are spread so thin and the number of assets that are going to be referred from master servicer or the special servicer, that number is going to increase exponentially and the staffing won't.

So it is going to be fascinating to see how they run their process. I wish it were as simple as taking them out to lunch and getting the great inside track. They are going to run a very formal process as these things play out. We are going to have to be prepared to understand the real estate, underwrite it, prepared to buy the debt, bid the assets in foreclosure, however it plays out. But the special servicers will be at the center of a bunch of it.

Okay. Great, thanks. And then you talked about defaults getting better and collections getting better and you kind of quantified those. And you also mentioned sales performance is getting better. Do you have any, and it may not be exact because I realize it is tougher in the community center business, but do you have any thoughts on the improvement in sales by your tenants. I think that is what you were talking about.

Yes, and it is not something that we publish so these are just in my anecdotal conversations with our top ten and twenty tenants saying how was last month, how was last month at our property, how is this region, etc. And a lot more happy conversations than a year ago or even a few months ago.

Okay, very good. Thank you guys.

The next question comes from the line of Andrew DiZio with Janney Montgomery Scott. Please proceed.

Yes, thank you. I just have one question. You talked a lot about different ways that you could be acquiring property, be it through debt or equity. But I wanted to see if you have seen any interest in your units of currency to acquire centers?

Yes, we often have those conversations. Anyone who has followed us over the past ten years or so knows that we have done that in the past but we also treat our currency as a valuable item so we are not just going to spread it around without being very thoughtful of the assets. I think you may start actually seeing more of it interestingly enough as REIT prices improve than you did a year ago when stocks were cheap. So we will see where that goes but it is a nice tool for a public company to have.

Thank you.

At this time there are no further questions. I would now like to turn the call back over to Mr. Bernstein for closing remarks.

I would like to thank everyone for joining us and we look forward to speaking with you again in the near future.

Ladies and gentleman, this concludes the presentation and you may now disconnect. Thank you and have a good day.