Acadia Realty Trust (AKR) 2012 Q3 法說會逐字稿

Welcome to the third quarter 2012 Acadia Realty Trust conference call. As a reminder this conference is being recorded. At this time all audience lines have been placed on mute. We will conduct a question-and-answer session following the formal presentation.

(Operator Instructions)

I will now turn the call over to Amy Racanello, Vice President of Capital Markets and Investments. Please proceed.

Good afternoon and thank you for joining us for the Third-Quarter 2012 Acadia Realty Trust earnings conference call. Participating in today's call will be Kenneth Bernstein, President and Chief Executive Officer; and Jon Grisham, Chief Financial Officer.

Before we begin, 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. And actual results may differ materially from those indicated by such forward-looking statements. Due to a variety of risks and uncertainties, including those 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, October 24, 2012.

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 its website for reconciliations of these non-GAAP financial measures with the most directly-comparable GAAP financial measures. With that, I will now turn the call over to Ken Bernstein.

Thanks Amy; good afternoon. As most of you are aware, there are two broad and complementary components to our business. The first is within our core portfolio, where the key drivers are, first, the growth from our existing assets, and then coupling that with our core acquisitions, where we are selectively adding high-quality properties to our portfolio.

The second component is through our fund platform, where in the third quarter we continued to pursue new opportunistic and value-added acquisitions. We continue to develop, lease up, stabilize, and selectively monetize existing investments, and then most importantly, we completed the capital raise for our Fund IV.

I will begin today's discussion with our core portfolio activity and then I will follow it up with an update as to our funds activity. At that point, Jon will conclude with a more detailed review of our third quarter earnings and operating metrics. First, with respect to our core portfolio operating fundamentals, as is set out in detail in our press release, our third quarter same-store results were solid, even after stripping out the re-anchored properties from our 6.2% same-store NOI growth; our same-store NOI growth for the balance of the core portfolio was still a solid 3.2%.

In terms of our re-anchorings, the final significant moving piece is at our Crossroads Shopping Center here in Westchester, New York, and as you may recall we bought this lease back from A&P when they filed bankruptcy. The rent on the lease at the time was about half of market rent, and as we stated during our last call, we recently opted for a slightly more complex expansion of the existing space, so that we could add a more significant anchor tenant to the center.

During the third quarter, our teams made significant progress towards the signing of this anchor tenant, and we expect to have that lease signed shortly. And while this shift will push out the replacement rent commencement date to the second half of 2013, as this is the direction that will be much more long-term worthwhile.

As we discussed during our last call, once completed, these re-anchorings will have added an aggregate and incremental 3.5% to 4% to our occupancy, and you are already seeing that in our leased occupancy results. It is going to add $3.5 million to $4 million to our NOI and approximately 8% to our earnings base.

Now, the second and probably more impactful driver of our long-term core growth is from our core acquisition initiatives. Our core portfolio as it stands today has a value of about $1 billion. And I am very pleased with the overall quality of the properties. I am also very pleased with how this portfolio has evolved over the last decade through both aggressive asset recycling as well as aggressive redevelopments. I am also pleased with how it stacks up on a relative basis.

But I fear that if we simply stood still, if we did not continue to drive the quality and drive the profile of our portfolio forward, then as secular shifts in the retailing world continue to work their way through the system, we would probably regret it. And, more importantly, given our relatively small size, we can make these shifts, we can make them accretively, and we can do it in the normal course of business.

As we have previously discussed, our core acquisition goal is to selectively add about $200 million of properties a year to our core portfolio. And our goal is to have these additions be more consistent with the upper quartile of our portfolio than our overall portfolio. Now, while $200 million a year is a comparatively modest growth pace, given our relatively small size of our core portfolio, $200 million currently represents 20% of our portfolio.

And at this pace, our portfolio would double in size over the next five years, keeping in mind that every $200 million of acquisitions should be about 5% accretive on a leverage-neutral basis. Thus, this strategy enables us to move the needle both from an earnings perspective and a quality perspective, because more important than scale, more important than earnings growth or diversification, is the continued upgrade to our portfolio as the shopping center business evolves.

Our core acquisitions over the past year have been in the DC-to-Boston corridor, as well as in Chicago. These are all key supply-constrained markets with strong tenant demand. During the third quarter, we closed two transactions for $24 million. One was a street retail property in the heart of SoHo, New York. The property is occupied by Paper Source; it is on spring Street just off Broadway. This is a market where tenant sales and market rents just continue to climb.

And then the second one is in Bloomfield, New Jersey, leased to a Home Depot; this location densely populated with about 300,000 people in a 3-mile radius. It is a below-market lease, which should provide us with a safe and attractive yield going in and then long-term growth potential.

Year-to-date, we have added $135 million of acquisitions to our core portfolio, and 70% of them have been street or urban. And then 30% dense suburban. Additionally, in our core acquisition pipeline, we have approximately $175 million of transactions under agreement. While these potential transactions are still subject to various conditions and contingencies, including in a couple of instances completion of our due diligence, this pipeline should keep us on track to meet or exceed our acquisition goals. And also provide continued core growth over the next several quarters.

When we look at our portfolio composition, urban and street retail now represent over 40% of our portfolio, and the balance of our portfolio is a combination of value- or discounted-anchored centers and then to a slightly lesser extent supermarket-anchored centers. Our expectation is that we will add to all components of the portfolio, but that street and urban retail, like our SoHo or Lincoln Park acquisitions, will continue to grow over time as a percentage of the portfolio.

And the growth in our suburban centers in our core portfolio will be focused on dense, highest barrier-to-entry locations, preferably with below-market rents, as was the case in our recent Bloomfield, New Jersey investment, so that as the changes in the suburban box business evolve, we will be well-positioned and we will hopefully be well-protected.

Complementing our core growth initiatives is the second major component of our business, which is the value creation generated from our fund platform. In the third quarter, we completed the raising of our Fund IV. Fund IV was closed at $540 million, which is slightly above the high end of our range and it is with terms very similar to Fund III. Acadia will invest $125 million of the equity and this should give us about $1.5 billion of buying power. So, given the potential uncertainties and volatilities in the market, it could be a very opportunistic time to have this patient and dry capital.

On the fund acquisition front, during the third quarter we completed the Fund III acquisition phase. We added three investments for an initial investment of $32 million. One was a street retail redevelopment on M Street in Georgetown. Another was the acquisition of additional adjacent land next to our Cortlandt Manor Center in Westchester, and we plan to develop somewhere between 150,000 to 200,000 square feet of additional retail. And then the third was the purchase of a supermarket-anchored center in Glen Burnie, Maryland, with that deal having an attractive going-in yield and the opportunity to reposition the property, as well.

In the third quarter, we also activated the development of an existing Fund III investment. This was in Farmingdale, Long Island, on highly trafficked Route 110. This investment originated by our taking an opportunistic position as a first mortgage holder at an attractive basis. And we have now successfully converted this to a fee position, which we can now commence with development. This will be a 150,000 to potentially 175,000 square foot development and it is a nice addition to our pipeline.

These four projects, once completed, should have a cost basis of between $125 million and $150 million. And those will be the final Fund III investments. We will have utilized probably about 95% of the Fund III dollars, and going forward, our new investments will be through our new Fund IV.

With respect to our existing fund investments, many of our redevelopment projects are now approaching stabilization, and the demand for high-quality stabilized assets is strong. So we now have the opportunity to proceed towards monetization for many of these investments in Fund II -- Fordham, Canarsie, Pelham, Liberty, are all stabilized. And with respect to our City Point development, we recently announced that Armani Exchange will open in Phase I this year and then will join Century 21 department store in Phase II, as Phase II progresses.

In terms of Fund III, on the stabilized side -- Westport, Connecticut, last quarter we successfully completed the sale of that property. And given that that redevelopment was acquired at the top of the market in 2007, we are quite pleased with the profit we made on that transaction. And in terms of self storage, this quarter, our occupancy rose to 92.8%, up from 91.6% last quarter, and year-to-date the occupancy gain has been approximately 6%. The Storage Post management team is doing a great job with this portfolio.

As it relates to all of our existing fund investments, we are very pleased with the progress the team is making. And we will keep you posted as we proceed towards the monetization of these assets. And, in conclusion, in the third quarter, we made steady progress with our business plan. Within our core portfolio, we continue to push forward both our re-anchoring projects as well as our new core acquisitions.

And then combining this growth with our opportunistic and value-add fund platform enables us to create value through a broad range of investment activities. And finally, with the successful completion of our Fund IV, we continue to be positioned to take advantage of a wide array of opportunities as they arrive for many years to come. I'd like to thank the team for their hard work over the past quarter, and I will turn the call over to Jon.

Good afternoon. First, to touch briefly on earnings, FFO of $0.27 for the third quarter was consistent with expectations. A few noteworthy items. One, results included $500,000, or $0.01 of acquisition costs. Secondly, with the final closing of Fund IV, we are now earning a full asset-management fee of $1.5 million a quarter from the fund. And finally, in terms of our key re-anchorings, this was the first full quarter of Bloomfield Hills being online and contributing $400,000 to quarterly NOI.

As Ken mentioned, LA Fitness, which replaced the former A&P at the Branch Plaza, opened this month. So it will start to contribute to earnings during the fourth quarter.

Turning to our portfolio performance, the core portfolio continues to perform above expectations. Same-store net operating income for the quarter of 6.2% was driven primarily by top-line revenue growth of 7%. About half of this was from our re-anchoring activities, with the balance of the portfolio driving the other 3%. Based on our year-to-date performance, we continue to track above the high end of our full-year guidance for same-store NOI. We originally forecasted 2% to 3% growth. We now think we end up between 4% and 5% for the year.

Occupancy at September 30 was 92.9%, which was up 30 basis points over second quarter. And with LA Fitness at the Branch Plaza now opened and operating, as of October, we are 94% occupied. Small-shop occupancy at September 30 was 87.1%, up another 90 basis points from the second quarter, and up 540 basis points since the beginning of the year.

As we noted, we continue to make progress in our core property re-anchorings. Two of the three projects, Bloomfield Town Square and Branch Plaza, are now substantially online. And together, these represent about $2.6 million of the total $3.5 million to $4 million of aggregate annual income from our three key re-anchorings.

Now, turning to 2012 earnings guidance. Our core portfolio key drivers are all on-plan. Along with the re-anchorings and same-store NOI, we are also on track to meeting or exceeding our goal of acquiring $200 million of core assets for the year. Today we have closed on $135 million of core acquisitions, and we have another $175 million currently under contract. And on the fund side of our business, we met our 2012 goal for a second-quarter launch of Fund IV. So as a result of executing in all of these areas, we're on target for achieving our earnings guidance of $1 to $1.05.

Lastly, I would like to discuss our balance sheet. We have consistently and will continue to maintain a very safe capital structure. In managing our debt, which is about 30% of our capitalization, we have predominantly used non-recourse secured financing. And, given the quality of assets we typically finance, this has provided us with a very competitive cost of capital.

Case in point -- during the third quarter, we put new non-recourse secured debt on a core property located in the Bronx, and we have locked in 10-year money at 65% to 70% loan-to-value at an all-in rate of 3.65%. In general, we are seeing similar pricing for non-recourse financings that we have in the works. Ten-year money ranging from 180 to 200 basis points over swaps at 60% to 70% loan-to-value.

So we are happy with our current capital structure and our use of non-recourse, low-cost debt. But we also recognize that as we grow over time, expanding our options will be beneficial.

Accordingly, we are now in the process of replacing our current $65 million secured line of credit with a $125 million to $150 million unsecured revolver, which we plan to accordion-up as we continue to grow the core portfolio. And we will continue to maintain our current overall low level of leverage by locking in long-term non-recourse debt at 60% plus [LTB] for select assets, while leaving other assets unencumbered, and thus allowing us to grow the unencumbered pool.

Turning to the other two-thirds of our capital structure, during the quarter, we finished up on our initial $75 million ATM, which we have launched during the first quarter of this year. And we have continued the program with a new, $125 million ATM launched in the third quarter. To-date, we have raised a total of $100 million under the program, which has proven to be an efficient, low-cost vehicle for match funding of $135 million of year-to-date core acquisitions. And we have another $100 million remaining under the current ATM.

This, in combination with current cash on hand and our existing line of credit availability, positions us well in terms of capital needs when looking at the current core pipeline of $175 million under contract. And then lastly, as to our fund platform, we now have up to $1.5 billion of additional purchasing power following the close of Fund IV, which will continue to drive growth for that component of our business. With that, we will be happy to take any questions. Operator, please open the lines for Q&A.

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

Todd Thomas, KeyBanc Capital Markets.

Hi, thanks, good afternoon. First, I was just wondering if you could touch a bit on the core acquisitions that are under contract, the $175 million pool -- I was just wondering if you could give us a sense as to what the composition of those deals looks like and perhaps with the timing might be for them to close. In terms of the composition -- basically, what percent street retail versus some of the other densely-populated suburban markets that you touched on?

The vast majority of this is going to look very much like the past year's acquisitions. So I would say it looks to be at least 70% street or urban. $40 million of it is our expected -- and hopefully we will get in the next 30 days done complete -- the final tranche of the Chicago portfolio. And you may remember, Todd, on previous calls we said there was the final piece that we had to get through the securitization approval and I think we are now there on that piece. So, expect it to be in the markets that we continue to operate in. So they will be scale, expect it to be assets similar to those that we currently own, and probably 70% street/urban, 30% dense suburban.

Okay, and then for the $175 million, what is the expected equity requirement overall?

Well, I think Jon was pretty clear when he articulated that we want to stay on a leverage-neutral basis. Jon, why don't you walk through our cash on hand?

Sure.

And keep in mind -- because the one thing I didn't then specifically say -- some of these deals are still subject to due diligence. So you can handicap that as you might choose to. I would say about one third of the properties we still need to make sure we are comfortable with. And then from a timing perspective, I wish I could tell you they would all close tomorrow. But I bet we will get half of them done this year, and then the other half may bleed into next year in terms of delays with lenders' approvals, etc. So Jon can walk through both cash as well as how the ATM seems to have worked quite nicely.

Sure, and as I mentioned in my prepared remarks, the ATM to-date has worked very well in terms of match-funding the acquisitions that we have completed. And looking at what we currently have in terms of available capital, there is $65 million available under our current line of credit. We have $25 million-plus of free cash or available cash that we can apply towards the acquisitions, and then we have $100 million available under the current ATM. So, depending on the timing, we should be able to, for the most part, match that up and cover those acquisitions with that combination of capital.

Keeping in mind that leverage-neutral means two-thirds equity, one-third debt, so we are talking, give or take, $120 million of equity versus the $55 million to $60 million of debt. We think it all works and again, we will see how the pieces fall and close over the next quarter or two, but it should work well as it relates to that.

Much debt is in place on the $175 million that you would be assuming?

Not much, not much at all. Probably less than $10 million.

Okay. And then --

Todd, I'm sorry -- by the way, that doesn't -- obviously, as we close, we can put property-specific debt on at closing, as another means of putting the debt piece in place.

Okay. And then I was just wondering if you could share an update on the monetization of the Storage Post portfolio. Is that being marketed today and if so what has the interest been like?

We have not gone out to the market yet to-date. Our team has done a terrific job, as I mentioned, in terms of getting occupancy up, and now what we are seeing is significant -- I think year-over-year, 20% same-store NOI growth. So it may be a little early for a formal marketing. We are getting some reverse increase, and if it plays out that way, that is fine with us, too.

So we are not going to be holding this portfolio for an extended period of time, because in our fund business, we don't do that for any businesses and I think we have been pretty clear that self storage is less core to us than retail. And, as you saw last quarter, we sold Westport. So, be a little patient, because we want to make sure we maximize the value, but we're not going to be greedy and we're not going to hold onto this longer than we should.

Great, thank you.

Sure.

Craig Schmidt, Bank of America.

Thank you. A question on City Point. Given the high-profile opening of Barclay Center, and now your announcement of Armani Exchange, has that raised or broadened the tenant interest in the project?

It certainly has, and then, Craig, I don't know if you have noticed today, but we not only have to become Nets fans, but we now have to become Rangers -- excuse me, Islanders fans, as well. For a Knicks and Ranger person like me, this is a little bit of a stretch.

Brooklyn is on fire -- residentially, in terms of the restaurants, and then in terms of retail. It is going to be a combination of the fact that a host of retailers -- whether it's the H&Ms of the world or the Armani Exchanges now coming to our site -- have recognized that Fulton Street has the potential to be doing and serving a much broader part of Brooklyn than historically Fulton Street did. But now, with everything that is going on in downtown Brooklyn, I don't know how far this could go. But I am amazed at how many people that I talk to, especially young professionals, they want to live in Brooklyn. Now, in terms of technology, a lot of people want to work in Brooklyn. So we are trying to be relatively patient and thoughtful about how we finish the lease up of this project. But our main focus is to get this done in deliberate fashion, get Phase I open with Armani, and then get Phase II -- the construction started -- and then Phase III, which will be more likely than not pure residential, and that will then be sold off to a residential owner/developer.

And what are you targeting for your Phase I and Phase II openings now?

Phase I should open this year with Armani Exchange. And then Phase II, we will start construction this year. We already have. And that should open 2014, 2015. And those are the two phases we will be actively developing and a part of. Phase II will have 200 units of affordable housing, which I think is very important for the community, as well as another residential market phase as well. Both of those, we are not doing; we will be handing those off to very talented developers. And then the timing of Phase III is to be determined, because, as I mentioned before, our goal will be to sell that land to a developer, and the ability to build something very substantial there exists and could be well over 0.5 million square feet.

And just one last question. On Fund IV, may there be opportunities that exist for that fund that weren't available for Funds II and Fund III, as you investigate new areas?

Yes. Every fund seems to have a theme, in one form or another. And we try not to stray too far from what we consider our core competencies. But if you think about our -- what we like to articulate as our four different buckets, in terms of fund activity. One is opportunistic. And you tell me what year it was, and I will tell you what opportunistic looked like, but certainly in 2009, it meant just having the guts to write a check and buy assets. And then I have a feeling now, opportunistic -- what we're seeing is more the opportunity to buy debt at a discount, and foreclose or work out those assets. And two years from now, who knows?

And then there is the distressed-retailer component. And you have seen us play in that arena a lot of different ways. In Fund II, that was the Albertsons and Mervyns transactions. Today, it is more about us buying one-off pieces of real estate, subject to Shaws or A&Ps, but, unfortunately, distressed retailers are always going to be a part of our business in good times and bad, so we like to have that theme as well. And then there are times when it feels better, safer, better risk-adjusted returns, to be a developer/redeveloper. We have historically limited our development to real dense and in-fill locations. My guess is that would stay the case over the next few years.

So the one piece that intrigues me is -- and we're not -- don't expect to see any announcements right now -- but there seems to be a very wide bid-and-ask spread for secondary assets. And for our core portfolio, we're been crystal clear that the separation between the haves and have-nots continues, and we want to make sure that for the core portfolio, for assets that we intend to own for a very long time, that we are owning these great locations -- the SoHos, the Lincoln Parks of the world. But it seems as though there is a lack of transactional activity on some of the secondary assets, and if yields continue to move up on those, maybe there would be an opportunity.

So far, we have not seen enough transactions that make us want to jump into it, but I look at some of the deals that Blackstone has accomplished in multiple different spaces. Very smart guys, and I think they will make a lot of money on the deals they acquire. So, that could certainly be an opportunity within retail for Fund IV. It is certainly a skill set we have. So stay tuned.

Thanks a lot.

Sure.

Cedrik Lachance, Green Street Advisors.

Thank you. Just want to ask a question in regards to development, and just getting your take in on how attractive is it right now to go after or start a development versus continuing to acquire properties?

I think given the conundrum on locking in interest rates for development, we need to be very careful in this compressed rate environment. That the old rule, that I didn't love even back then, of 200 basis point spread to current cap rates doesn't feel wide enough. So when you are developing to a 12, because you're assuming you are going to sell at a 10-cap, that made some sense, and 200 basis points feels like a wide spread today, but there feels like there is so much spring-loaded risk, that interest rates move on you after you have already locked in your rents. Enough risk, similarly, in terms of locking in your leases and costs moving on, that we have been fairly cautious to make sure that the spread to development is wider than it was historical.

And then -- add to that, our bias that we really only want to be in in-fill markets that we know we have the tenant demand up front. We are finding that there is other people far more willing to take the typical speculative risks associated with development, and our team is more inclined to focus then on the value-add proposition, which is buying well-located real estate -- hopefully with tenants in place, but either way, a more straightforward path towards cash flow over 1, 2, 3 years. As opposed to -- look, we have been very pleased with our developments, and thankfully we are making money on them -- but we can see what happens when the tide changes and what it can do in terms of delaying these developments.

Okay. So, in your mind, it is still much more interesting to go find, let's say, a re-anchoring opportunity than to try to develop, round up, even in some of the better markets where you are active?

Yes. Again, I don't want to overstate it one direction or another, and the devil is in the details, and I could say all this, and the Whole Foods could call us up and say we really want this site, we will sign a lease, we will hedge your risks. Then all the sudden we may very well do something like that. We have very good tenant relationships and if the pricing works, great. But, for the most part, what we're seeing is for every development deal that we are spending time on, there are probably ten deals on the redevelopment or acquisition and lease-up phase that are occupying more of our time and probably more of our capital resources.

Okay, very helpful, thank you.

Sure.

Rich Moore, RBC Capital Markets.

Hi, guys, good afternoon. I take it, Ken, you are not part of the Cerberus bid for Supervalu at this point?

Why do think that?

Or maybe you don't want to answer that, sorry.

Yes, I think that's probably -- we would not get into those specifics. You know we are a partner in Albertsons, and I will let you conject on what any of that means.

Okay, fair enough. Then, on the same vein, in the RCP and Mervyns, too, in Fund II -- I think you guys paid out your part, which was $1.7 million of the legal settlement with Mervyns, is that right?

Yes.

Rich, to be clear, we didn't pay that amount out. What -- let's back up a second, in terms of the litigation, so this is the settlement, and we are pleased with the result and the settlement and putting all this to bed. This was not an amount of cash that was paid out of our fund. This was paid out of the assets at the consortium, at the Mervyns entity level. And so it doesn't impact our historical return at all. And so, just to be clear on that, it is not cash out of our pocket.

Okay, good. Yes, got you, Jon. And so, is that the extent of that legal settlement on the $166 million aggregate for Mervyns?

Yes.

As far as you guys are concerned.

Yes.

Okay, good, thank you. And then, the extra G&A that you had in Fund II, I think was legal fees for [PA and Molinsky], I think that's correct. Is that situation over at this point? Has that all been sorted and taking care of in the courts?

Yes, thankfully, they were fully exonerated, which was a great relief to them and to us, and it is all fully cleaned up.

Okay. So your relationship with them at this point, is there much left of that relationship?

This is an earnings call, not a therapy session. But the relationship is just fine. We had to step in and take over certain aspects towards finishing the projects, but they remain investors in the projects, partners in the project, and our relationship is just fine.

All right, good. Then, Jon, you have an acquisition facility in Fund III that I saw in the supplemental comes due October 10. Has that -- I think its $83 million -- has that been addressed at this point?

So obviously, Fund III, the acquisition phase is complete. So going forward, there will not be a need for a line like that.

Okay, so is that -- but that was actually outstanding on the line, wasn't it?

It was.

And then what happens to that?

That will be replaced with equity.

With the fund equity.

Alright, good, got you. And then, Ken, you were talking about upgrading the portfolio through acquisitions, and -- the core portfolio -- and I wasn't sure if that was simply adding good properties to the portfolio, or if you would continue to sell out of some of the lower end of the portfolio at the same time?

Yes, and is probably both, Rich. Again, keep in mind the law of small numbers. Our portfolio is $1 billion in total. So, by definition, if we have an upper quartile that's $250 million, we have a bottom quartile as well, and unlike children, you are allowed to have favorites and less-favorites. So in that bottom quartile, we can afford to patiently sell -- Bloomfield Hills in Michigan, you would quickly circle as not being in one of our core markets. And the team has done a great job now of leasing that, stabilizing it. It is adjacent to a top-performing Costco. It is very high-credit, with a new Dick's Sporting Goods open, et cetera. And I would expect us to sell that at some point.

Now, remember, $250 million -- if we were to get rid of the entire bottom quartile, and I doubt we would -- it's just not that many assets. So we will selectively sell. We would never have sold Bloomfield Hills two years ago; you couldn't sell anything. And my guess is now that we are being relatively patient, we can selectively sell some of those. But the more important piece of this is -- let's selectively add $200 million a year to the portfolio. And I think you should see far more growth, you should see far more net accretion, than you might see the historic asset recycling, or in companies that want to sell billions of dollars of so-called non-core. Just a relatively small piece.

And then on the core additions, I am fascinated by what we're seeing in terms of tenant demand for the kind of properties we have been buying. In many instances, we are seeing rents that are now well ahead of or ahead of our previous highs in terms of rents and in terms of sales. In the bottom quartile of our portfolio, we're not seeing that, and we're hopefully going to catch up. But the ability to add assets that are similar to our upper quartile, to me, is going to be a pretty compelling opportunity, and positions us in a pretty exciting place.

Okay, very good, thank you, guys.

Sure, thanks.

Paul Adornato, BMO Capital Markets.

Hi, good afternoon. You mentioned that in the acquisitions under contract, about 70% would be urban or street retail. I was wondering if you could let us know where you expect the proportion of street retail to be in the portfolio, let's say, in two or four years.

Interesting. Normally, I (expletive) about having to give quarterly guidance, and then I also resist saying two years out, because if a really exciting street portfolio came available in a market that we are not in, I wouldn't hesitate if we felt that it made sense. But my guess is, two to four years from now, us being creatures of habit that we are, the markets that we are in that the tenant response has been the most positive, has been Lincoln Park, Chicago, as well as other key parts of Chicago. And I would venture to guess that is going to be the only Midwest market that we are active in on the street retail.

I would expect that not to be the majority of our street retail, but I think it could be a significant portion. And our tenant interest there is just fabulous. Our team is doing a great job harvesting that. So I would expect to see that continue to grow. There are some assets on North Michigan Avenue that we are intrigued by and there is a bunch of other properties there that we think we could add and create long-term value owning those. Then Boston is intriguing. You know we are up in Cambridge. Maybe we get more involved there. We will have to wait and see. That is a pretty competitive market, so we will be patient.

We really like SoHo. We really like Brooklyn. We really like a couple other markets on the value-add side. We're down in Lincoln Road in Miami and it's all our same tenants, so if opportunities for core acquisitions there emerged, we would certainly consider those. And then there's a few key markets in Connecticut. We made a nice profit in Westport. It wouldn't shock me to see us go back to Westport someday. We like the asset we own in Greenwich Avenue in Greenwich, Connecticut. So those probably are what the high-street and the street retail looks like. The urban piece is going to be in the dense boroughs or a few other of those kind of areas as well.

Okay. So given, perhaps, a little bit more emphasis on this part of the portfolio, does the investment math change to something that is more lower-risk, lower-return with these assets? What is the long-term return look like in these assets?

You know, it's interesting, Paul, because you're talking about -- for street retail, for instance, and we spent time looking at these assets with you -- you're talking about a more fragmented industry, in terms of the fashion retailers. And they, in their specifics, have their ups and downs, and it is a tough business. But when you think of the retailers that are on M Street in Georgetown, not all of them are going to succeed. So there is volatility and risk on that side.

But we have found is that for every tenant who moves out in M Street or in SoHo, there is two or three ready to step up and take that space, and if you pick the right markets, and so far we have been fortunate in being able to identify those, the tenant demand and the tenant sales -- and tenant sales performance is really important for this -- is such that we are seeing about 3% growth same-store in our street retail, as opposed to, I would say, 2% for our stabilized suburban. And the 3% is both contractual, meaning that the tenants agree to these bumps, but probably more importantly, it is also backed up by the market, meaning that even if the tenants default and go out, we are able to replace those rents.

So from a risk-return perspective, we think that you're giving up perhaps a little on credit, vis-a-vis if it is a Costco-anchored property or Home Depot-anchored property, or in some instances a supermarket anchor, but as long as it's of a enough of a diverse portfolio, this 3% growth can be pretty compelling. And I won't spend any time on this question talking about how retailing is changing, but when we think about multichannel retailing, we like the profile of the street retail.

Okay. Thanks, thanks very much.

Sure.

Quentin Velleley, Citigroup.

Hi, good afternoon. Just sticking with the straight rates, how we are sort of hearing that cap rates are continuing to compress. Can you give us a sense of where cap rates are and what your expectations are for how they move? Yes, maybe if you can talk through that.

Sure. So there are some outliers, and we have not yet participated in the outliers, which is -- you will occasionally see a sub-for-cap request and someone may meet that request for some very sexy building in one of the key markets. And the sellers are out there looking for high net worth individuals who want to own a trophy asset. So there are prints that are 4 caps or better, and put those aside for a second.

The deals that we are looking at, generally, are in the 5- to sub-7 cap range. And, depending on the details of it -- not every lease is below market, some are in fact above market, and you need to be careful that you're not taking more risk, and that could push the cap rate up. Some may have more deferred maintenance, et cetera. But expect to see it in that range. Which makes sense, because that is the range that we are also seeing for high-quality supermarket-anchored centers.

And as I was just talking about before, if I had a choice, all things equal, I like both. We have supermarket-anchored centers that we like a lot, but I like the growth profile and risk profile of the street retail. So yield-to-yield, it doesn't surprise me that they are competing with each other, and then occasionally for the main high-street retail, for the Fifth Avenues of the world, for the Times Squares, they will easily blow below 5. And as long as rates remain relatively low, as long as tenant demand remains strong, I think that we are going to see cap rates in this range and the spreads relative to the 10-year treasury, relative to the BBB. We can scream at the screen and say cap rates should be higher, but there seems to be a lot of capital flowing in.

Okay. And then your comments earlier about development would suggest that the site adjacent to Cortlandt Town Center, the development returns should be quite strong. Can you maybe just talk through what your expectations are with that site?

It's a little early, Quentin, for us to give the kind of detail that I would normally like to. The tenant demand is very strong, and because we -- we're the only show in that town, at 650,000 square feet, and so our leasing team has done a great job of knowing who wants to be -- if you want to be in that part of Northern Westchester, you want to be there -- and so I think they have lined up a nice group of tenants and we will be pretty excited about that addition. But think of that more as an addition, as opposed to us waking up and saying -- oh, let's go develop another property.

Right. And, just lastly, and I may have missed this, but the other former A&P box -- can you just give us an update on leasing on that?

Crossroads.

Crossroads. Yes, we are very close to signing a lease, where we are going to expand that box, and I did mention it in the prepared remarks, but I don't blame you if you napped through those. I hear a lot of people do. So we bought the lease back from A&P; it was about half of market rent, and I'm hoping in the next few weeks, we have that lease signed. We have some what I think will be pretty straightforward approvals associated with expansion, and then adding that tenant will be a real plus to the balance of the center. And that center -- great location, but it has gotten tired over the years, so the ability to bring in a new anchor, give the property a facelift, I think will be a big plus for that property.

Thank you.

Sure.

(Operator Instructions)

Michael Mueller, JPMorgan.

Yes, hi. Most questions have been answered, but I just have one for Jon. Sounds like your same-store guidance almost doubled, but your 2012 FFO guidance didn't really change. I was wondering if you could just reconcile, or talk about what may be offsetting that.

Sure. So part of it is on the redevelopment side -- the Crossroads, because of the plans that Ken just went over -- that has been pushed out a couple of quarters into 2013. The other component is, every 1% of same-store NOI is, give or take, $0.01-plus, $0.01 to $0.015. So that additional 100 to 200 basis points doesn't push us out of that earnings guidance range.

Got it, okay. Got it. Appreciate it, thanks.

We have no further questions at this time.

Great. Well, I appreciate everybody taking the time. Good luck with earnings season and we look for to seeing everyone again soon.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.