Acadia Realty Trust (AKR) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the year end, 2010 Acadia Realty Trust earnings conference call. (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 and press release posted on its website for reconciliations of these non-GAAP financial measures with the most directly comparable GAAP measure -- 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 discussions there will be an opportunity for all participants to ask questions. At this time I would like to turn the call over to Mr. Bernstein.

Thank you. Good afternoon. Thank you for joining us. Today we're going to start with a discussion of the key drivers of our business. Then Jon will review our 2010 earnings, key operating metrics and our 2011 guidance. Finally we'll conclude with a more detailed discussion of our recent investment activity and other key trends. As a general overview, as we think about the key components of our business model which are our core portfolio performance, external growth platform, balance sheet metrics, we're seeing several interesting opportunities to drive growth.

First with respect to the core portfolio, we're seeing two potential drivers. One is the continued execution of our anchor recycling efforts and the other is the reinstatement of an enhanced asset recycling program. With respect to anchor recycling, as the leasing environment continues to improve, albeit with some potential speed bumps, we're seeing continued opportunities to recapture and profitably release underutilized space within our existing centers. This was the case last year with the successful recapture of Bon-Ton department store space in our new Latham center and looking into 2011 our team is working on one or more similar re-anchorings which Jon will discuss in further detail.

Now while these types of transactions often have a short term negative impact on occupancy and same store NOI, even when they are fully pre leased, as was the case with our New Loudon re-anchoring, the long term accretion resulting from these activities can be a compelling source of incremental growth. Within the core portfolio we also have the potential opportunity to drive growth through asset recycling.

In general the overall strengthening of the capital markets has provided an opportunity to reactivate our historic asset recycling initiatives. As you may recall in the past, we aggressively pruned our core portfolio eventually shedding the bottom half of our assets and rotating into higher quality properties. That has left us with our current portfolio which is primarily high quality but also of a smaller size. Thus while we have far fewer assets that are candidates for disposition than we've had in prior years, we can still periodically and opportunistically dispose of certain assets. But looking forward we ought to be able to supplement this activity with additional core acquisitions making us a net acquirer of properties in our core portfolio and making this more of an asset recycling plus growth program.

Now we're not going to do this in a way that would be immaterial departure from our current business model and we are not abandoning our discipline and focus that has served our shareholders quite well over the past 10 years. But keep in mind that even $100 million of annual net additions to our core portfolio on a leverage neutral basis and without using the significant cash we have on hand, even then it would contribute approximately 3% to 4% to our earnings. It would also add some stability to the overall portfolio while still enabling us to significantly move the needle through our value add and opportunistic investments.

So turning now to our external growth platform. Secondly along with the growth potential in our core portfolio, we continue to see opportunities for external growth via our fund platform. The first three quarters of 2010 were frustratingly quiet for our investment fund business as opportunistic acquisitions similar to our 2009 Cortland Manor transaction remained rare. Nevertheless during the fourth quarter our Fund III closed on one transaction and went firm on another with a collective gross asset value of more than $100 million for that quarter and that's a pace we are far more comfortable with and accustomed to.

Along with a re-acceleration of our new investment activity, our existing fund investments continue to both appreciate in value and bear fruit as evidenced by our continued progress within our urban portfolio. The recent sale of our Fund II Neiman Marcus investment at the Oakbrook Center which achieved a 16.5% internal rate of return on an un-leveraged basis and the fourth quarter distribution from our Albertson's investment which has now achieved an equity multiple of approximately 3.5 times.

Furthermore, looking ahead to a potential fund four, the fund investment community which was clearly shaken up over the past couple of years seems to have regained its footing, which is very encouraging as we think about future external growth via this platform. The third component of our business is the maintenance of strong balance sheet metrics which support these growth initiatives.

As detailed in our press release, Acadia continues to maintain a healthy and liquid balance sheet. At year-end we were saddled with the high class but highly dilutive problem of too much cash returning to our balance sheet primarily due to the repayment of one of our profitable mezzanine investments and in 2011 we're anticipating the potential return of additional capital from another mezzanine investment. If that is the case, these two investments will have collectively created approximately $38 million of profit on our $74 million equity investment resulting in a 1.5 times equity multiple and a mid to high teens IRR.

Now while this profit taking is impacting our short term earnings performance, we're highly confident that we can redeploy this capital into both our core and fund growth initiatives at highly accretive returns. So as we look at the three components of our business, we are seeing interesting opportunities to drive growth within both our core portfolio and our external growth platform during 2011 and beyond. Jon will discuss these drivers further as he now reviews our 2010 performance and our forecast.

Good afternoon. First I will recap 2010 results and then I will discuss our 2011 guidance. From an earnings perspective, recall that at the beginning of 2010 we initially provided an FFO forecast range of $0.95 to $1.00. In midyear we increased this guidance by $0.25, $0.15 of this was from our gain on the purchase of the balance of City Point and the other $0.10 was a result of the relative out-performance of our core portfolio and mezzanine investments versus the forecast.

We also discussed at midyear that if we received income from our RCP Investments during the second half of the year, we would expect to finish the year in the upper half of our re-forecasted range of $1.20 to $1.25 and, in fact, we recognized $0.03 from our Albertson's investment during the fourth quarter and as a result, we finished the year at $1.23.

Looking at our 2010 portfolio performance, at the beginning of 2010 we forecasted same store NOI would range from minus 2% to minus 4% and that occupancy would reach 93% by year-end. And by the middle of the year same store NOI was tracking better than this and our portfolio had already hit 93%. Accordingly we revised our same store NOI forecast upward to flat to minus 2% and we finished out 2010 at minus 90 basis points.

As we discussed last quarter, 2010 NOI was impacted by our re-anchoring activity at the New Loudon shopping center in Latham, New York. Following the completion of the pre leasing by our team of 65,000 square feet, Bon-Ton paid us to terminate their lease at the beginning of the fourth quarter. We're now completing the installation of the replacement tenants which includes the expansion of the existing Price Chopper supermarket. The temporary down time from this re-anchoring created 30 basis points of NOI drag during 2010, but when this space comes back online in the current quarter, the new rent will be at a 50% increase over the former Bon-Ton rent. And reported year-end occupancy of 91.5% when adjusted for the space at New Loudon coming back online would actually be at 93.2%.

So now turning to 2011 guidance, we've detailed on page 13 in our current quarter supp that our projected 2011 FFO range will be from $0.94 to $1.05. And consistent with prior years we divide our income into five categories; one, core portfolio and JV income; two, asset-based fee income; three, transactional fee income; four, G&A expense and then five, other income which includes promote, RCP and lease termination income. But different from last year's guidance which did not include any projected amounts for potential acquisitions and other income our 2011 forecast does include projected activity for both of these. As it relates to acquisition activity for 2011, we are projecting that we will redeploy up to $50 million of equity returned from our mezzanine investments into core and fund investments. The earnings contribution from this will vary depending on the amount, timing and how this capital is deployed, specifically whether it's deployed on balance sheet or as co-investment capital in Fund III.

So I'd like to now turn to the core for 2011 and drill a little bit more into our expectations. For the existing core we're forecasting same store NOI of minus 1% to positive1% and year-end occupancy between 93% and 93.5%, both of which are before any potential re-anchoring activity. Ken discussed that similar to the anchor recycling activity at New Loudon our team is working on other potential, similar long-term accretive re-anchoring opportunities.

One such potential opportunity is at the Bloomfield Town Center in Bloomfield Hills, Michigan. We're planning on re-anchoring 70,000 square feet which is currently occupied by underperforming tenants, but this plan is contingent on our being able to recapture this space which we're relatively confident we'll be able to accomplish. A significant portion of the pre-leasing has been completed with the execution of a 49,000 square foot lease with Dick's Sporting Goods, but the lease is contingent on recapturing the space. We anticipate pre leasing balance of the remaining space by midyear following which we would begin the process of installing the new tenants. Not only would this re-anchoring increase space rents by 70%, but Dick's would enhance the overall quality of the center adding to the existing strong anchor lineup which includes Best Buy, TJ Maxx, Home Goods and Costco.

Our current guidance does not include the impact of this re-anchoring as there are still a number of moving pieces that we have to put into place, but if we're able to accomplish this, this activity similar to New Loudon would create a short term drag on NOI and occupancy. For 2011 the downtime could represent an approximate additional 1% drag on portfolio NOI and 180 basis points of occupancy. And although the temporary impact that these profitable re-anchorings have on our reported portfolio metrics is a distraction, the accretion from these activities is significant. All other things being equal, the re-anchoring of New Loudon and Bloomfield will add an incremental 2% same store NOI growth to our core portfolio.

Looking at our mezzanine activity for 2011, Ken mentioned our expectation as to 72nd Street and consistent with this the 2011 forecast anticipates the $55 million midyear repayment of this investment. The significant profits we've made through our mezzanine investments is clearly more relevant than the FFO impact, but for 2011 we expect $0.10 of interest income from 72nd Street compared with the $0.20 earned from this investment in 2010.

Turning to our funds for 2011, Fund I, our expectation is that we will fully monetize Fund I during 2011 and 2012. From a 2011 earnings perspective this will be a net positive as the to promote income from any transaction will proceed any losses from NOI. For Fund II, Canarsie was brought online during the fourth quarter of 2010 with the opening of the BJ's wholesale club and for 2011 the continued lease-up for this project as well as the balance of the New York development portfolio is expected to contribute an additional $3.2 million of FFO at the fund level. And then for our remaining earnings categories for 2011 which include asset based and transaction fee income and G&A we're forecasting levels comparable with that of 2010.

So in conclusion, our 2010 results both in terms of our core portfolio and earnings exceeded our original expectations for the year. During the year we continued to see some level of recovery within the general economy, although we would hardly characterize it as robust, but nonetheless our portfolio on a relative basis demonstrated strength and resiliency. And given the quality of the core portfolio and the stability of our balance sheet, we're well positioned for 2011 and thereafter. I'll return the call back to Ken.

Thank you, Jon. I'd like to start with a brief update and discussion of some of the trends we're seeing in the supermarket industry and the potential impact and opportunities that it presents for Acadia. We'll follow that by an update on our new investment activity as well as an update on our existing fund investments.

Among grocers a host of factors are creating a further separation between the Haves and the Have-nots. Grocers that don't have effective control on costs, access to capital to reinvest into their stores and a compelling merchandising reason to bring shoppers into their stores will continue to suffer even when their locations are strong. An example of this is A&P Supermarkets. As you're probably aware, A&P, who is one of our larger tenants, filed for bankruptcy during the fourth quarter of last year. As we previously discussed, we have four A&Ps in the core portfolio and one in our Cortlandt Manor acquisition. At two of these five locations best and highest use remains as a supermarket while at the remaining three locations there are other more dominant anchors at the properties and therefore, multiple potential uses.

A&P has begun to initiate a plan that will likely include reducing their footprint in the coming quarters as part of their goal to emerge from bankruptcy. All of our A&P stores are located in the greater New York tri-state area which we believe will remain A&Ps core market and so far none of the leases have been rejected. That being said, the future of the company and any specific stores remains uncertain.

While we are in discussions to recapture certain locations where either rents are below market or the best and highest use is as a tenant other than A&P, we're hesitant to provide too much specifics at this time since these are ongoing discussions and the timing and outcome is uncertain. If we are able to successfully recapture certain leases, we expect that these re-anchorings will create long term value, but this could cause a short term disruption in reported metrics such as occupancy and same store NOI.

While we never look forward to the deterioration of one of our retailers, we've often focused on our acquisitions and development efforts on well located real estate saddled with weak operators where the recapturing and re-tenanting can create significant value. More often than not we've created value in these situations, but until there is further clarity on how this bankruptcy plays out it's premature to predict the timing or precise outcome.

When properties are saddled with troubled anchor tenants, the capital markets have a very hard time differentiating between strong and weak locations. If carefully executed, this lack of discrimination or distinction can create interesting investment opportunities and this thesis is also consistent with our most recent acquisition which is the White City Shopping Center in Shrewsbury, Massachusetts, so let's turn to that.

At year-end through our Fund III Acadia acquired a 255,000 square foot Shaws supermarket anchored shopping center located adjacent to the Worcester, MA city line. It's on Route 9 which is the region's main retail artery. It's a very densely populated trade area, 100,000 people within three miles, 200,000 people within five miles supplemented by 30,000 college students within 5.5 miles. Over the past several years an emerging life science and biotech industry has revitalized that local economy which has also been stimulated by the top ranked and expanding UMass Medical School that's located 0.5-mile from the property. The property was acquired for $56 million in partnership with our partner Charter Realty and Development Corp.

Fund III represented 84% of the joint venture equity and due to several factors including the underperforming Shaw supermarket, the property was acquired at an approximate 8.5% unlevered cap rate. Shaws, which is a subsidiary of SuperValu, has come under pressure recently. Fortunately we've already received strong retailer interest in the Shaws box in the event that we were successful in recapturing the space. And whether or not we're able to do so, we believe that the anchor uncertainty will be resolved during our holding period, thereby significantly enhancing the center's value.

Additionally, the property is in need of a facelift and we've targeted portions of the property for redevelopment. This coupled with the releasing of below market space upon lease expirations will also create additional value. The current occupancy is 93% and has historically remained at these high levels and we think it will continue to do so. We anticipate that our White City acquisition will be the first of several potential transactions targeting high quality, well located shopping centers that are anchored by underperforming retailers. We'll keep you posted as these additional investments unfold.

Along with White City in the fourth quarter we went firm on the acquisition of a high end street retail portfolio for a total purchase price of approximately $52 million. This acquisition and redevelopment opportunity is anticipated to close later this month. It's subject only to the assumption of existing debt and the properties are consistent with the street retail component of our business similar to our prior high end main street acquisitions and redevelopments including the one that we completed in Greenwich, Connecticut, as well as Main Street in Westport, Connecticut.

Turning now lastly to our New York urban investments, as you can see on page 25 of our supplement, we continue to make progress on our New York City development pipeline which upon completion of our downtown Brooklyn project will total approximately 2 million square feet. As Jon mentioned during the fourth quarter, Canarsie shifted from under construction to in operation. Given the level of tenant interest, we expect that property will achieve 100% occupancy and with respect to that asset as well as our overall New York portfolio, we're very pleased by the resurgence of interest in these urban high barrier to entry assets both from the tenant community and the capital market.

So to conclude, we're very excited by the prospects we are seeing in 2011 and beyond. As it relates to our core portfolio, selective re-anchorings coupled with asset recycling plus growth have the potential to create long term value at the core level and at the fund level the re-acceleration of new investment activity and the continued increase in value of our existing fund investments positions us to continue to execute on growth going forward. So with that I'd like to thank the team for their hard work in the fourth quarter and we will now open this call for questions.

(Operator Instructions) Craig Schmidt, Banc of America, Merrill Lynch.

Good afternoon. Beyond your two most recent acquisitions I was wondering if you could describe what might have changed in the market that you see the continue of that re-acceleration as well as giving guidance on acquisitions.

Well, there are a few things that are continuing to play out in the marketplace. We are seeing more sellers come to market as they recognize that the period when it made no sense to sell has clearly ended and they either need capital for other problems or opportunities they're seeing. So in general deal flow in the fourth quarter and then continuing right now has improved for the value-add and opportunistic space, although it is nowhere near the levels of rising to the levels of flood gates opening in terms of the amount of debt that is still needs to work through the system in terms of the over-leveraging that occurred over prior years. So it's just enough deal flow, enough value-add opportunities and where we're focusing right now that we're encouraged by what we're seeing.

So in looking forward to future acquisitions, would they be more like White City or more like the free standing street retail that you did?

I hope they're both. We like both of those businesses. We think that the capital markets are going to continue to value supermarket anchored centers extremely highly when they're well anchored and I think they're going to struggle more if the anchor is not easily financeable and if they're strong locations where we're confident we can re-tenant, we think that's going to be a great arbitrage and a great way to make money. We'll see how many of those we actually get done, but we're working on several right now.

As it relates to the opposite side, the high end street retail, the affluent consumer has come back fairly aggressively and it's very encouraging to see our tenants, national and international, reemerging after a couple years of uncertainty, reemerging aggressively to be at those high end street retail locations. These are complicated deals, the construction and redevelopment and other components have some levels of complexity and so we think again we can play well in that space. It's not a huge market. You wouldn't build a multi billion dollar portfolio of it, but $50 million here and $50 million there adds up and these are great assets that when you look to exit at the right time can trade at the lowest cap rates that you see anywhere. So we like both of those businesses.

And a final question, had you looked at Atlas Park and what were your thoughts on that acquisition?

If we didn't look at it, we weren't doing our jobs, but I suspect somewhere in our offices there's confidentialities and other things. So I won't comment on it specifically. We like high barrier to entry urban retail. We are more than fine buying debt if that was the case or working through foreclosures and we obviously weren't the most aggressive bidders for that. We're very comfortable with what we know and what we don't know in transactions in general. So we wish the acquirers of that all the luck in the world.

Okay. Thank you a lot.

Sri Nagarajan of FBR Capital Markets.

Thank you. Ken, I think when you remarked on the White City acquisition, you talked about SuperValu and the chance of re-tenanting there on the Shaws location. Could you talk a little bit about your on balance sheet exposure in New England for the other three Shaws locations? Also on the same note, the occupancy in those three locations dropped a little bit, although it was non-anchor move outs. Was just wondering if it was just coincidence as well?

The shift in the occupancy was purely coincidental and there's nothing that material comes to mind and those happen to be strong locations for a strong supermarket operator. So we like those properties. Shaws has experienced under a few different owners the most recently being SuperValu has certainly, experienced its fair share of challenges and consistent with what I said before we never wish any of our retailers difficulty. Our hope is and our expectation is that the Shaws chain figures it out one way or another and I don't think I would be adding any unique insight to say which direction SuperValu chooses to take that, but our expectation is that there should be something done with the chain to reinvigorate it and to enable it to become again a Have versus Have not.

If it wasn't successful, then you can assume just like in our dialogue with A&P we would talk about the potential re-tenanting. I think it's premature and when we talk to tenants, they think it's probably premature. The distinction would be the underperforming nature in White City for an otherwise real strong location. So maybe we can pry that loose, but even there I don't want to -- don't want to mislead the discussion. We bought White City at an 8.5% unlevered yield. If it turns out that some other supermarket chain buys the portfolio or Shaws gets recapitalized and we don't get to that lease, I'm more than fine with that. So it's not that we're sitting here saying we expect to get to these stores. It's just if we do, we think we'll have good re-tenanting opportunities.

The second question, if I may, in terms of midwestern and mid-atlantic, obviously there was somewhat of occupancy pickup in the fourth quarter. Was it more a seasonality or do you guys think that you're hearing things on the ground that gives you more positive flavor on those geographic regions, if you will? Thank you.

A huge mistake would be ever to extrapolate from our regional performance anything other than with respect to our properties. In the mid-atlantic we have some very good properties that the team did a good job on successfully re-tenanting some spaces that got hit during the crash and in the midwest I think we just -- again our team did a good job. I don't see any macro changes. If anything, when we talk to our tenants we're hearing the continued separation of them wanting to reinvest into their existing stores or come into the high barrier to entry markets and in terms of the lower barrier to entry in some of the rust belt, et cetera, they remain somewhat cautious.

That's helpful color. Thank you.

Laura Clark, Green Street Advisors.

Hello, good morning. As you think about establishing Fund IV do, you anticipate that these funds will have the same structure as your current in place funds specifically in regards to the 1.5% asset management fee that you receive on committed capital?

The short answer is we think so. We generally don't like to pre negotiate our terms on a conference call like this, but in our discussions with our fund investors here's the dynamics that are going on. For those very large funds where there was legitimate concern that the fund investors were making significant profits on their up front funding, which in our case would be the 150 basis points, there's some pushback and legitimately so and for first time sponsors of funds, we have seen some pushback on that. For those managers like Acadia that have performed well over a very extended period of time that reinvest that capital and as you all know because we post what our G&A is versus our revenues, it's pretty transparent to them that we're re-investing this in the pursuit of transaction, we're not seeing as much pushback on that side.

So I think we're a year away from being able to give you specific guidance on where that comes out, but the fund investors seem to be returning back to a few points. They want to invest with managers who are committed long term to this business. They want to invest preferably more often than not with vertically integrated managers like Acadia. They like to see the large co-investment piece that Acadia can do. We invest 20% right now. So I think that, plus the fact that the markets are getting better, would lead me to hope that the terms would be more similar than not to what we currently have.

Okay. I appreciate that. As you think about external growth, how does development fit into your near-term plan?

You know, that's interesting. Finally in at least the high barrier to entry markets, so the New York markets and some of the others, our tenants are ready to pay rent that could make deals make sense. A year ago the challenge was getting the right tenants to step up in a financeable way so that you can responsibly build something but more often than not the landholders were not willing to accept that kind of price and more often than not it wasn't land holders, it was lenders who weren't willing to accept it. The landholder lender side of the business seems to be evolving through and we're seeing trades now that seem reasonable on that side.

The tenants for the right locations are coming back. So now the final two pieces of this will be construction costs and interest rates and if you think about the bias in both instances, we would need to make sure that we are adequately hedging both of those risks so that the long term yield would make sense on those deals. We're starting to see them. If the stars continue to align correctly, I would think that could represent a continued portion of our Fund III investments. It's certainly one of our core competencies and something we enjoy doing, but those stars would have to continue to align. Any major change in costs of steel, cost of labor, interest rates would cause us to pause a bit on that.

Generally you feel that rents in those urban markets are back to where they need to be for development to make sense?

Yes.

Or close.

Yes.

Okay. And then lastly there's obviously been a lot of discussion around the Centro portfolio that's on the market today. Do you have any interest in this portfolio and how does this fit into your external growth plan?

Well, again you could probably assume that we signed confidentialities for a wide variety of transactions that may or may not include this and it's no secret that we're very close to the folks at NRDC, et cetera. Let's start with in 2009 we bought Cortland Manor from Centro. We were hoping that there would just be a continual flow of assets from that $9 billion portfolio and I used to joke that we would just belong to the Centro of the month club.

That clearly wasn't the case and they stopped selling assets and now they are considering a variety of transactions that are in the press. We would not be a candidate to single handedly take down a $9 billion portfolio. We don't see that at this point as being anywhere remotely close to in our shareholders' interest. If there were specific assets or if there was a group of assets that whether it's that portfolio or another that we felt made sense, we would aggressively pursue it. Flip side is we don't have to do a $9 billion transaction. We don't have to a $900 million transaction. If we can do $90 million here and $100 million there, we can really move the needle and so I would love to see a great print on Centro without our name anywhere close to it over the next X number of years. I'm sure there will be assets that come from Centro, but if we never talk about Centro again, that's fine with me, too and we'll find plenty of other deals to do.

Okay. Thank you so much.

Quentin Velleley of Citi.

Hello. Good afternoon. Just in terms of White City, I'm wondering whether that asset was one that you considered acquiring for your own balance sheet or whether or not there was too much risk in that for your balance sheet?

And let's make the distinction, although risk is certainly something that you keep in mind, the way our funds are set up we're looking for opportunistic and value-add opportunity and when we find them, they go into the fund. We don't sit and cherry pick. So if it's an attractive investment that has moving pieces to it, you will see it show up in the funds. There are exceptions and you've seen us do it over the past for stabilized assets that as we sell off some, we do 1031's and rotate in and that's what I was talking about before in terms of growing our stabilized core.

But our hope and expectation would be those deals with moving pieces are best situated for us to put in approximately 20% of the equity and hopefully if things go well, we get approximately 40% of the profit. It's a nice business. The discipline of buying something, fixing it up and then selling it also we think is good for our shareholders. So expect to see the vast majority of our growth come from that, especially where there's moving pieces.

Okay. Then just following on from Laura's questions and your comments on Centro and sort of just thinking about M&A and the acquisition of larger portfolios, given the current Acadia platform, sort of what additional asset size do you think you could levy your operating platform into to sort of manage?

Interesting and we're spending a lot of time looking at this. We can debate which is a worse problem, being too large or too small. I know how to fix being too small pretty darn easily and I think at this point we would -- if you were to complain one direction or another, you'd say it would be nice to see our company larger. We could be twice our size without having any negative impact in our ability to move the needle. So that's several hundred million dollars of core assets added and that's the continued growth of our fund business. Without having to change our investment disciplines, our focus, our business strategies in any way.

We could probably triple in size without hearing any conversations of inability to move the needle and then you start getting to a different set of circumstances and then obviously -- and by the way, at triple our size we're still the smallest kid on the block, but as you get much larger than that, it is a slightly different business model. When you think about tripling in size, though, that's not $100 million a year of acquisitions. That's $200 million a year of acquisitions and that's several years out in terms of core growth.

So I would venture to guess that we remain on the smaller side aspiring for growth and finding economies of scale and building out our platform for the next several years. Whether it's through M&A, possibly. We certainly spend our fair time looking at it or whether it's due to the fact that in the shopping center world only about 10% of the open air shopping centers are currently in the public domain. So we can spend plenty of time focused outside of existing public stories, outside of Centro and find plenty of assets whether it's through OP unit transactions, cash transactions, a wide variety of transactions that can enable us to grow out this platform and that will be our team's focus over the next several years.

Just in term of the shopping center exposure and I know you've sort of spoken about this in the past, but it seems like there's maybe some better initial return metrics in the west coast and some value-add opportunities out there as well. Have you been looking closely on the west coast or are you sort of sticking more to the northeast still?

We're sticking to the eastern seaboard more. With a focus Washington DC through Boston, that's what we know best, but we've been all the way down the seaboard in the past and we still are. We've been in Florida in the past. We look at that. That has some similar attributes if you're talking about housing bubble markets and other things and we said this in the past. We have looked at a wide variety of other high barrier to entry markets and coastal California would fall into that, but we're very thoughtful about making sure that the [dump] tax that a management team has to pay going someplace else that, that dump tax is not significant.

A couple years ago there were some opportunities on the west coast that we looked at very significantly because there was a distress in pricing. A lot of that seems to have worked its way out of the system. There are some very, very competent companies, private and public, that are spending a lot of time on the west coast. So I don't want to ever say never and when we've had six feet of snow here in New York over the past few weeks, sunny Southern California certainly sounds appealing, but it may be better place for us to vacation than to take our shareholders.

Okay, thank you.

Mark Lutenski from BMO Capital Markets.

Good afternoon. A quick housekeeping question here. The $50 million of equity that you're hoping to deploy in 2011, I was wondering if that $52 million asset under contract is included in that number.

No, no. And -- no.

And I'm sorry if I missed this. What is Fund III's ownership in that asset expected to be?

Fund III, you caught me slight -- I think 95% of the equity.

Okay. Thank you. And sounds like you're becoming more aggressive on acquisitions. I'm wondering how much of that is more opportunity popping up and how much of that is just your becoming more comfortable with the operating environment?

There's some increase visibility. I -- and that's a part of it, although there are plenty of speed bumps still out there and just look at the bond market and you can see some of that and you can read the front pages of the newspaper and get fairly concerned there, too. So I don't think that it's anywhere near saying clear sailing ahead. We came close to several transactions in 2010 that then did not play out to our satisfaction and that led to a few quiet quarters. No one was more frustrated about that than I was because our company is built for relatively aggressive and consistent growth and we've delivered on that.

Some of this was due to the fact that when the financial crisis hit and when you looked at the trillion dollars of commercial mortgage debt out there, I came to the conclusion that we were going to see more high distress opportunities present themselves. Now whether or not that occurs in the future, there's still a lot of debt out there and in the private world where they did not and have not had the ability to significantly re-equitize we're past the liquidity crisis for commercial real estate, but we're still not past the solvency crisis, if you will. So whether or not this occurs down the line and how severe it is, I don't know, but I think it was Barton Biggs who said being early is the same as being wrong.

We waited for several quarters or spent a fair amount of time pursuing a host of those somewhat significant distressed transactions and they still haven't sorted themselves out. So we have directed some of our time and energy. We've doubled up our efforts and our ability to do the kind of value-add transactions that we've been talking about today is something that we think we can consistently roll out while we still keep our eyes on the significant amount of distressed debt that still has to be reckoned with and other potential transactions and we'll see how those play out.

Okay. Thank you for that color.

Sheila McGrath of KBW.

Hi. Good afternoon. Ken, I was wondering if you could tell us what other tenants might be in expansion mode like Dick's or SuperValu and also the tenant appetite level of interest for City Point you see as one?

I'm not going to comment specifically on City Point, but let me talk about a few trends we're seeing. For the urban markets the fast fashion retailers, the Forever 21's of the world and a wide variety of others are stepping up aggressively. So not at our City Point location, but in the past six months you've seen Aeropostale come to Fulton Street in Brooklyn. H&M just announced their opening and then with that energy comes a wide variety of tenants. Shake Shack just announced they're opening at Fulton Street as well.

There is a fairly long list of tenants that are not in the downtown Brooklyn market and you can a assume that we're working with several of those on the fashion side and then there are a handful of very successful discounters who remain interested in penetrating the boroughs. We're working with those. What we're seeing on the high end retail side is that the national and international soft good retailers have come back aggressively in the past three to six months.

Again, I'm not going to name specific names, but Greenwich Avenue a year and a half ago froze shut and we could not attract any national, international retailer interest to consider new opportunities there. In the past three to six months whether it's Greenwich Avenue or Westport, Connecticut, we're very encouraged by the trends we're seeing there and that's also been translating through to some of the other projects we're looking at. So at the high end ranging from the aspirational shopper on up there are a bunch of new tenants that you will see popping up in those major markets. Does that answer your question, Sheila?

It does. One other quick question for Jon. You may have mentioned this, but is there promote income in your guidance?

There is. For 2011?

Okay.

Yes, there is.

How much?

If you look at the supplement, it's there on page I think it's 13. We give a range and it's anywhere from -- well, it's in the $2 million to $3 million of RCP and promote income. Of that $2 million to $3 million, the majority is promote. It's a little bit of other stuff but mostly promote.

Okay. And did you -- should we backend weight that you think or do you have any sense on timing?

You know, as to specific timing, I guess if I had to pick, I would pick the second half of the year.

Okay. Thank you.

Michael Mueller of JPMorgan.

Hey, good morning -- or good afternoon, a couple questions. First of all, on the guidance for $50 million of AKR equity being deployed in terms of acquisitions, I mean should we think of that a as being levered one to one or two to one so we're looking at $100 million to $150 million of investments at your share?

Yes. Depending on whether it's on balance sheet through the core or through the funds. Obviously historically through the funds we've placed a little bit more leverage. So it's somewhere between fifty and two thirds in term of leverage.

I would assume one to one.

Okay. And I missed the beginning of the call, I apologize, but I understood you were talking about seeing more activity on the core side for investments and can you just talk about obviously seeing more deal flow across the board at this point. Are you seeing more that falls into the this is right for the fund bucket or more that this is right for our balance sheet bucket?

I think we're seeing more that falls into this is right for the fund bucket. That's what we do. That's our main focus and my point was and our goal is to grow the core portfolio judiciously and not significantly. So all we're saying is as we see opportunities to sell off core assets in an asset recycling basis rather than doing a 1031 tax free exchange for the bare minimum, it's time to grow that portfolio some. We have recognized that our core that we allowed to shrink, we shrunk it very profitably, but that we allowed to shrink through opportunistic sales that it's time as we sell assets to buy larger amounts of assets and to grow that and if we do that, that can be an additional driver of growth without being a spectacular component of our business. I don't want to overemphasize it. It's time to grow that piece.

Got it. And then you talked about the Fund I monetization. I think you said 2011, 2012. I wasn't sure if you said during 2011 and 2012. So it's a multi-year process or it's going to be more of a one shot deal and either this year or next year.

Our expectation is the majority is this year, but some of it could go into next year.

Okay. And then last question, any color on the economics of the street retail portfolio that you can provide at this point?

This one is more of a turnaround, a lease up and turnaround/redevelopment opportunity. So the going in yield will be lower and we're hopeful that the ultimate yield will be similar to a bunch of others including the White City one. So less about the going in and more about some of the opportunities we see over the next three to five years.

Okay. Got it. Thank you.

Rich Moore, RBC Capital Markets.

Hello, guys, good afternoon. How much capital is left -- equity capital is left in Fund III at this point?

Assuming that these deals close as we've articulated and assuming that some of the redevelopment opportunities that we see within those existing investments play out the way we expect, even with that we think we have about half of our fund equity or $250 million left over the next year and a half to deploy. Now sometimes new funds get started a little earlier and you roll through. Other times you spend it all, but I would say about half or 250, $250 million of equity and then whether we use one to one leverage on that 250 or two to one will be very specifics on the transactions.

Okay, Ken, so I want to make sure I understand. You were mentioning that you would probably do something like $50 million of Acadia's share of investments this year of acqusition-type investments which would equate to $250 million of fund investment. Are we assuming that we'll probably use the rest of Fund III this year, rest of the equity in Fund III this year?

What Jon was saying and correct me if I'm wrong. That $50 million may go into the funds exactly as you just walked through, Rich, or half of it may go into the funds and the other half may go into core acquisitions or any combination. We don't want to be overly beholden to saying it has to go into just the fund business. What we have said in past, for instance, as it relates to mezzanine investments is we don't see growing that book, but if a compelling mezzanine opportunity came around, we'd probably consider that as well. It would have to be compelling. Now in retrospect 72nd Street and Georgetown were very compelling in term of the returns. So we'd have to see. My best guess is more of the dollars go into Fund III co-investment than into any other alternatives.

Okay. I got you, Ken, and then if you think about continuing this pace into next year, it looks like you'll probably use up all the equity of Fund III before you start a FundIV is what it sounds like.

That's our focus. It's predicated on there being investments that we're excited about, doing bad deals in a fund structure really stinks. Doing bad deals in any structure stinks. So I don't think our focus is just putting dollars to work, but based on the deal flow that we're working on now, the $100 million that we did in the fourth quarter feels like a good pace for us and our team is very energized by the deals they're working on now and that we're looking forward to. So that would be our ultimate goal would be over the next 12 months to 18 months getting those dollars responsibly and profitably put to work.

Okay. And then did I understand I'm not sure if you really said this exactly like this, but it sounded like you'd start marketing Fund IV about a year from now? Is that right or would it be earlier than that or how do you see that?

It's somewhere in the next 6 months to 12 months. There's certain parameters and when we talked abut marketing, there's conversations with existing investors that you should assume already are occurring. The formal marketing you have to be a certain percentage through your fund and we'll even see how much formal marketing we end up choosing to do. Historically it has been a very informal process and one that we've been very pleased with.

Okay, good. Thank you. And then the last thing for me, the Albertson's, what exactly was the $11.1 million distribution? What was that related to? I realize it came out of the Albertson's venture, but for what exactly?

Basically it was a sell on a lease back at the Albertson's level. It was one large transaction at year-end and a couple of smaller ones, but basically that's what it came from.

Okay. So I'm just trying to think. Would we think in term of more of this occurring -- more of this being available to occur of this size?

At a 3.5 equity multiple which brings us to one of our most successful investments that we've participated in I'm hesitant to give too much additional guidance. There are additional assets there. We feel good about those. So our expectation is sooner or later we'd see more, but I don't want you putting those in your 2011 numbers.

Okay. I got you. Good. Thank you, guys.

Todd Thomas, KeyBanc Capital Markets.

Hi. Good afternoon. I'm on with Jordan Sadler as well. Ken, in terms of your comments about recapturing boxes, it sounds like you're looking a little more closely at some of those opportunities today and if I recall, you recently felt that there may be less opportunities today versus several years ago just because the pool to backfill those boxes wasn't as deep as in the past. Can you just comment on what's changed in just the last couple of months to really give you more confidence about re-tenanting those spaces?

Yes. And the pool is still not super deep. So we are doing this in a more cautious fashion. If you think about what Jon discussed at Bloomfield Hills, in the olden days we'd recapture the space and hold an auction and two or three tenants would show up and then we would sign a lease and now for the second time in a row in the case of New Loudon, and now Bloomfield Hills we're pre-leasing the space, so we're thrilled to have Dick's Sporting Goods is going to be a great additional anchor to this, and the part of it is, getting the right tenant, signing the lease with them and then going through the process because the pool is thinner. The good news is the economy is getting better. The consumer seems to be on more sure footing, but the list of retailers is still thinner than it was five years ago. So my guess is you'll see us continue to do it in this fashion.

Okay. And then on your external growth I guess the core asset recycling that you might move towards, should we expect that the sales that you would entertain might be in markets sort of on the peripheral of your footprint today?

Probably. We believe that being a disciplined seller of any assets, if someone hits a price that you think is well in excess of where you are holding that value or where it's valued in the overall company, that you should be entertaining selling all assets, but certainly the discipline of selling assets on a regular basis is something that we think REITs should do and unfortunately there's a lot of complications, so a host of REITs are less active in that. It's been something we've done. We'll always do it. It tends to be assets that are not consistent with our long term growth strategy, but sometimes it's assets that we just think have more downside than a upside or the market is over-valuing. Assume that more often than not it will fall into the category of those in the periphery and then assume we rotate into high barrier to entry assets.

Okay. What do you think the pricing differential is between those two markets?

You know, it varies depending on the occupancy of the asset you're selling and a whole bunch of other pieces. The discrepancies can be significant, so the good news is we don't have a lot of periphery assets. We don't have a bunch that we need -- we don't need to be a seller of any of them. So I don't really want to guess. It should not -- the differential should not have any material impact in how we grow this portfolio and how we grow those earnings because again at our size as long as we make some smart additions, we really should be able to move the needle.

Okay. Great. Thank you.

Christy McElroy of UBS.

Hello, good afternoon, guys. You talked about 72nd Street. Sorry if I missed this, but with regard to the rest of the mezz investments that you have, Georgetown and the other stuff, what's your expectations with regard to repayment of the other stuff?

So the balance of the portfolio is about give or take $30 million and for 2011 our expectation is that continues. So as it relates to earnings, that interest income would continue.

Okay. So you would expect -- so Georgetown matures in November, but you would expect them to extend that?

72nd is the big one and I think we've assumed the midyear repayment.

Right.

Okay. But for the rest of it you would imagine that it extends through 2011. What about 2012?

It's hard to know and then it's also hard to know whether there will be other new opportunities. Our mezzanine book will on a net basis shrink over the next couple years. It probably will not get back to the size it was at its peak. We like the business. If you think about 72nd and Georgetown, we made those investments before the crash because we were concerned about where pricing had gone for acquisition of assets and this was a safer place to park some money. It turned out to both be safe. No one is worried about us not getting paid back and very profitable mid teens plus returns. So that business can be a good augmentation to our overall business. It just has created a lot of volatility and noise. So it's not something we would grow, but I wouldn't just assume that it just shrinks away to zero.

Okay. The rest of the mezz invest, Georgetown and the other stuff, that represents the bulk of your interest income right now, right?

That's right.

With regard to the potential acquisitions this year, the $100 million that you talked about, what kind of yields are you targeting? What are you seeing in terms of acquisition opportunities right now? And is it sort of are you looking at stabilized stuff in addition to value-add?

Yes. So on the stabilized it seems like the market's in the 6.5 to 7.5 range depending on specifics and then for redevelopment for value-add or distressed opportunities, it's in the 7.5% to 9% range meaning you may or may not be having any yield going in, but if you don't have any yield going in, it better get up into that range in the foreseeable future. The 8.5% yield that we did up at White City would fall into kind of the distressed or turnaround opportunities, although in the White City case we see the 8.5% holding and we think we can actually firm that up and grow it. So that would -- we think that's at the higher end and somewhat more of an exception. We would expect to see that normally be in the 7.5% to 8.5% range.

Okay.

Does that answer your question?

Yes absolutely. And then just lastly on A&P, any sense for timing of when you would know whether or not you're going to get the space back?

No. There are some very technical specifics as to their timing in the bankruptcy court and whether or not they're successful in getting extensions and I think it will play into that, but I don't want to -- I don't want to project onto those at this point. These should be a 2011 process would be our expectation.

Okay. That's helpful. Thank you.

Ladies and gentlemen, that concludes your Q &A session. Now I'd like to turn the call back over to your CEO Mr. Kenneth Bernstein.

Great. Well, assuming we got everybody on the call, thank you for listening, appreciate your questions. We look forward to speaking to all of you again soon.

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day.