Acadia Realty Trust (AKR) 2015 Q1 法說會逐字稿

Welcome to the Acadia Realty Trust Earnings Conference Call. My name is Ellen and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Amy Racanello, Vice President of Capital Markets and Investments. Ms. Racanello, you may begin.

Good afternoon and thank you for joining us for the First Quarter 2015 Acadia Realty Trust Earnings Conference Call. 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 April 30th 2015 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.

President and Chief Executive Officer, Ken Bernstein will kick off today's management remarks, with an overview of the company's core portfolio, followed by discussion of that platform's existing investments and external growth strategy. He will also provide an overview of the company's fund platform, after which I will review the fund's first quarter highlights. Then Chief Financial Officer Jon Grisham will conclude today's prepared remarks with a review of the company's operating results, earnings and balance sheet metrics.

Once the call becomes open for questions, we ask that you limit your first round to two questions per caller to give everyone the opportunity to participate. You may ask further questions by re-inserting yourself into the queue, and we will answer as time permits. At this time, it's my pleasure to introduce Ken.

Thanks, Amy. Good afternoon. Thanks for joining us. During the first quarter, we continued to deliver solid results across our core as well as our fund platforms, both in terms of operating results and transactional activities. Consistent with our thesis urban and street-retail which now comprises nearly two-thirds of our core portfolio as well as an important piece of our fund activity continues to generate strong enthusiasm from both our retailers as well as in the capital markets. Let's begin today's discussion with our core portfolio. You'll recall last quarter Jon forecasted that our same-store NOI growth for 2015 would be somewhat back ended, driven by the timing of a few releasing projects. During the first quarter, our portfolio delivered at the high-end of our expectations, and as a result, if this momentum continues, our portfolio's full year growth should be at the higher end of our forecast.

Then looking ahead, there are a few items that regarding our same-store NOI is worth noting. First, over the past few years, we've seen significant increases in market rents in many of our street retail markets. And as a result, our existing core portfolio is starting to accumulate a number of below market leases. Second, given our acquisition pace over the past several years, today nearly 30% of our core portfolio NOI is still excluded from the same-store pool and these new properties that we acquired are primarily urban and street-retail with above average mid and longer term embedded growth.

Finally, our reported same-store NOI does not capture any of the growth created in our fund investments. Thus while our reported core same-store metrics are important, they certainly don't always capture all of the value creation that's occurring at any moment in time in the overall company. For example, in SoHo, we've added more than $100 million of property to our core portfolio, including two acquisitions in the past 12 months. Thus, those two acquisitions are not part of our current same-store pool.

Today, our SoHo portfolio's in-place rents went to about $350 a square foot while new leases in SoHo are being signed at rents as high as or even surpassing $1,000 a foot. Now, market rents will vary by location and will vary by layout, but it's still very clear to us that our portfolio contains significant upside potential as well as downside protection in a market where tenant demand continues to far exceed supply. And although the near natural lease expiration is still a couple of years away, in the past, we've been successful in recapturing spaces prior to lease maturity and at any event, the contractual growth in SoHo is strong while we wait.

From an acquisition perspective, given street and urban retail attractive growth profile relative to other investment alternatives, and given the reality of shifting retailer demand over the past several years, we've increased the scale of our urban and street-retail platform not only in New York, but also in Chicago, Washington DC, Greenwich and Westport, Connecticut and then most recently in San Francisco.

Last year we acquired $450 million of core assets of which about 70% was street-retail and about 15% was urban retail. And then looking forward, notwithstanding the highly competitive acquisition environment, we like how we're positioned for new investments.

First, our platform is active in several key markets and as a result we can remain somewhat flexible acting on compelling opportunities, whether they're in New York or Boston or a handful of other high barrier to entry markets, where we've already set down roots. Second, within these markets, we believe that the acquisition opportunity set for urban and street-retail remains large with a highly fragmented and primarily non-institutional ownership base. Third, we've differentiated ourselves from other cash only buyers by being able to issue OP units to sellers on a tax-deferred basis. Finally, given our relatively small size and very low leverage on our balance sheet, we can achieve large growth goals on relatively small volumes and we have plenty of dry powder to do that.

During 2015 we're again targeting roughly a 20% expansion of our core portfolio or $300 million to $400 million of new investments. To that end during the first quarter we completed $179 million of core acquisitions bringing us approximately halfway towards our year goal. Most notably in March, we completed the $155 million acquisition of City Center, a 200,000 square foot City Target anchored urban retail property located in San Francisco with attractive mid to long-term growth opportunities.

San Francisco has several attractive attributes in common with our other core markets, including high barriers to entry for retail development, high population density, strong demographic trends. Through our successful retailer control property venture in Funds I and II, we have for many years owned a minority interest in City Center, enabling us to closely track its redevelopment. And as a result, when the partnership determined that it was time to sell the property, we're able to move quickly.

And given our familiarity with both the asset and the market we could be very decisive and aggressive on our pricing. During the first quarter, we also added a second property along the highly productive retail corridor in the affluent Boston suburb of Newton, Needham MA. These Staples and Petco anchored property is located within a half mile of our fourth quarter Newton acquisition and is consistent with our dense suburban strategy. Over time, the below market leases in these properties will nicely add to our overall portfolio of organic growth.

Now let's turn to our fund platform. Over the years, our five, six sell fund strategy has proven to be both profitable and highly complementary to our internet-wise core business. Through it all, we've remained focused on the fact that over any extended period of time, discretionary capital, that is total return focused is a great asset as long as one remains disciplined in its deployment. After all, the real estate industry is cyclical, there will be times when it's better to buy and times when it's better to sell. There will be times when the market is chasing current yield too aggressively and too focused on current accretion and then there's times when the market overreacts in the other direction and current yields are compelling.

Either way, having capital that is opportunistic, that is discretionary, that is total return focused and not directly linked to the REIT market is a huge plus. Here is what it means for us today. First of all, in this competitive and low yield environment, putting new dollars to work at attractive returns has certainly become more challenging. That being said, over the years, we have developed a comprehensive value added skill set and we continue to demonstrate our ability to find compelling investment opportunities in the retail space.

Second, the fund structure rewards, the opportunistic selling stabilized investments as well, and given the tailwinds in the capital markets right now, we are certainly doing our fair share of that.

Finally, there is still a lot of value creation opportunities embedded in our existing redevelopment pipeline. So we have plenty to do both with our existing assets as well as potential new investments.

Now, to discuss all of these activities in more detail, I'll turn the call back to Amy.

Thanks, Ken. During and subsequent to the first quarter, our fund platform remained active on all fronts, completing $84 million of new acquisitions in Fund IV, profitably monetizing $161 million of stabilized investments in Fund III and making continued re-development progress across the entire platform from Brooklyn, New York to Savannah, Georgia.

First on the transactional front, as previously discussed in January, Fund IV completed the $51 million acquisition of a commercial condo located at the corner of Third Avenue and 62nd Street on the Upper East side. Significant renovations are underway, which will enable us to drive rents, as we lease up and roll below market leases to market.

Then in April, Fund IV completed the $33 million acquisition of a 5,000 square foot five-story building, situated between 67th and 68th Streets on Madison Avenue. Upper Madison Avenue is one of Manhattan's premier luxury districts, with current asking rents averaging $1,700 per foot for street level space. During 2016, we will have an opportunity to renovate and re-lease our property's flagship retail unit. Including these new investments, Fund IV has now assembled and is in the process of releasing a $155 million street-retail portfolio on the Upper East side that includes live-work-play retail on Third Avenue with new tenants including Vineyard Vines, boutique flagship retail a few steps off Madison Avenue, with new tenants including Mary-Kate and Ashley Olson's The Row and flagship retail located directly on Madison Avenue.

Looking ahead, given street-retail's fragmented ownership, we believe that the capital markets will reward us for assembling this diverse high-quality portfolio. On that note, as previously discussed in January, Fund III completed the $64 million sale of Lincoln Park Center, a street-retail property located in Chicago. In less than three years, we successfully re-anchored and sold the property, generating a significantly outside internal rate of return of 57%, and an equity multiple of 2.7 times. Then in April, Fund III in partnership with Charter Realty & Development Corp completed the sale of White City Shopping Center, a 256,000 square foot Shaw's-anchored property located 40 miles west of Boston.

The joint venture redeveloped the property over four years and sold it for $97 million. In doing so, Fund III generated an internal rate of return of 24% and a multiple of 1.8 times on an equity investment.

Turning now to our redevelopment pipeline, let's begin with the largest of our projects, City Point in Downtown Brooklyn. Brooklyn has quickly become a global brand and Borough of choice for those seeking the live-work-play urban lifestyle. As a result, several Brooklyn neighborhoods have seen significant residential growth. In Downtown Brooklyn alone, there are more than 18,000 new residential units completed, under a construction or in the planning stages. Upon its completion City Point will add approximately 1,300 residential units in three towers. Towers one and two have been sold and are currently under construction, and we are in the process of finalizing the sale of air rights for Tower 3. Jon will discuss the expected timing of this sale and its contribution to earnings later in the call.

With respect to the commercial component, construction remains on schedule and we're in the process of delivering space to City Target, Century 21 and Alamo Drafthouse. These anchors are expected to open within the next 12 months. In leasing news, we are pleased to report that City Point will once again be home to Dekalb Market, our food market that was previously housed on site in a collection of salvaged shipping containers, before we began construction of phase two.

This unique food destination, with its distinctly local Brooklyn flavor was successful in attracting both the existing and new residents of Downtown Brooklyn and the surrounding Brownstone communities to our project, and we're excited to welcome it back in roughly 30,000 square feet on the concourse level. Now that we've reached our in-construction milestones and pre-leased all of the upper levels as well as a significant portion of the concourse, we are ready to begin making decisions on the retailer mix for the street level small shop, which represents almost half of City Point's projected total revenue.

We also continue to make progress elsewhere in our portfolio. For example in lower Manhattan, construction has now commenced at our site on the Bowery, which will include great retail space as well as seven levels of high-end residential units. And on Broughton Street in Savannah, Georgia, where our JV owns 24 properties, leasing continues to proceed, consistent with our expectations.

J. Crew, L'Occitane, Lilly Pulitzer Palm Avenue and Goorin Brothers hat shop, have all now opened for business. While Lululemon is slated to open this Spring. So as you can see, the fund platform continues to make steady and important progress on all aspects of its buy-fix-sell mandate.

Now I'll turn the call over to Jon, who will review our operating results, earnings and balance sheet metrics.

Thanks Amy. Good afternoon. We are pleased with our first quarter results across the board. For today's call, I'd like to focus on a few areas, specifically our core portfolio performance, earnings, and then the balance sheet. Starting with the core portfolio, we continue to see stable occupancy. Overall, we're 96.2% occupied and 97.1% leased and even at this level of relatively full occupancy, we are seeing and creating opportunities to drive rental growth through the recapture and releasing of space. Same property NOI for the quarter was up 3.1%, which is at the higher end of our first quarter expectation.

On our year-end call, we discussed that anticipated tenant rotation and the related downtime at a few core locations would impact NOI and potentially result in growth for the first half of 2015 at or slightly below our annual 3% to 4% guidance range. And as expected, rotation at three street-retail locations did create a short-term drag of about 70 basis points for the first quarter.

So when adjusted for these, our same-store NOI would have been closer to 4%. I've mentioned two of these tenants previously 17th Street New York, where union fares replacing a former Barnes & Noble bookstore and 851 West Armitage in Chicago, where we signed a lease with Warby Parker. The third lease is at our 639 West Diversey property in Lincoln Park. All of these tenants are scheduled to open during the latter half of this year, at rents that on average will be 75% above that of the previous tenants.

New and renewal leasing spreads, based on leases executed during the quarter were 23% on a cash basis and 32% on a GAAP basis. For the first quarter, this was almost entirely from lease renewals and primarily within our suburban portfolio.

During the quarter, 130,000 square feet or about 3% of our core portfolio GLA rolled with approximately 90% of these tenants renewing. And of these renewals, 60% were at contractual rents, which provided us some opportunities to increase rents and the remaining 40% were FMV providing us the opportunity to fully mark-to-market.

Turning to earnings. FFO for the first quarter was $0.32, this included acquisition cost of $1.1 million or $0.015. So before such costs, FFO was $0.33 plus, which is consistent with our expectations in annual guidance.

We continue to forecast an annual 2015 FFO range of $1.48 to $1.56, which represents 10% to 15% earnings growth over last year. Core acquisitions in the same property NOI are expected to account for about half of this growth. And as I just covered, we're on track with our internal core growth target. And as Ken discussed, we're on track with our core acquisitions.

Our Fund platforms should drive the balance of this growth with recycling activity in Funds II and III being the primary drivers. We're also on plan as it relates to this.

The sale of air rights at our City Point project in Fund II is still expected around mid-year. And as Amy discussed, we've made significant progress this year in monetizing Fund III while achieving significant profits for the REIT and the fund investors. Following the sale of the White City Shopping Center this month, we're now down to $25 million of remaining unreturned capital. Although keep in mind this balance will fluctuate some as we continue to cull capital to stabilize current projects.

After the return of all capital, Acadia will earn a promoted share of 36% of all remaining distributions. To briefly go through the math again as it relates to this promote position, if we sell the balance of the Fund III portfolio at an average 6 cap, we estimate about $200 million of profit after the return of capital, which in return would generate about $30 million of promote to the REIT net of our self-pay portion. And after the related dilution from these asset sales, the net FFO contribution would be about half of this or $15 million. And depending on the number of years to fully monetize Fund III, this could average $4 million to $5 million per year or $0.05 to $0.07 per share. Obviously, to the extent we sell for more or less than a 6 cap, it will impact the result.

Also keep in mind that profitable fund recycling generates capital gains and related redistribution requirements. For 2014, we paid a special dividend of $0.30 per share and although we're still quite early into this year and there are a number of variables that could significantly impact our required tax distributions, based on fund sales completed to-date, and the expected sale of City Point air rights, we currently anticipate paying another special dividend for this year.

Lastly, looking at our balance sheet, we have been and plan to continue to exercise discipline in match funding new investments. Our 2015 to-date core and pro-rata share of fund acquisitions have totaled approximately $200 million. We funded this with $132 million or approximately two-thirds equity which we've raised through a combination of last year's block trade and current year ATM sales.

Our leverage remains very low. Our fixed charge coverage ratio including our pro rata share of fund activity is up to 3.9 times for the first quarter and our net debt to EBITDA is 5.2 times. And every one-time multiple of annual EBITDA represents about $125 million, which means we have sufficient dry powder, both in terms of liquidity and leverage to easily fund our remaining 2015 capital needs without being overly beholden on the capital markets and still have the lowest or some of the lowest leverage in the sector.

So, our solid balance sheet and available fund capital provides us the necessary capital and flexibility in sourcing it to enable us to continue to execute our strategies in both our core and fund platforms. With that, we'll be happy to take questions. Operator, please open. Go ahead.

Thank you. We will now begin the question-and-answer session. (Operator Instructions). Christy Mc Elroy, Citigroup.

Hi, good afternoon everyone. Just regarding the leasing of the at grade retail space at City Point, Amy, I think you mentioned that you're starting to think about the retailer mix. Maybe you could give us some additional insights into what you're thinking; have you executed on any leases at this point and what sort of a backlog are you're seeing at retailer demand for the space?

I'll take a first crack at that, Amy then certainly chime in. What we have done as all of you have watched is leased five, four, three, two and now we have both the DeKalb market in our concourse below-grade as well as strong retailer entrants for that. That then leaves what's effectively just our Prince Street Passage that's going to connect Flatbush Avenue to Gold Street and Fulton. And this is going to be a very dynamic corridor, but frankly until we could build it and show our retailers and they are now in the process of looking at it, we were not getting the right kind of retailers interested at the right time. We now are thankfully past that. And so what you should think about in the overall mix and what I would expect to see and what we're going to see is the Alamo Drafthouse, up on five which is a Austin, Texas based movie theater, food and entertainment chain and they are going to kill it there. Then you have Century 21 on three and four, City Target on two and then expect to see primarily fashion on the street level. The fashion opportunity is frankly to address all of the new population that is gravitating towards Downtown Brooklyn.

In this area in terms of -- we're adding a million square feet of residential on our property alone. Amy, in just walking distance we have how many units roughly?

18,000

And there is probably another shadow 20,000 units in that greater area about to occur. That shopper, plus the Brownstone Community is currently not being fully served on Fulton Street. And a host of our retailers are now recognizing the opportunity to come into our Prince Street is going to be a huge game changer for them. But they needed to see the progress and I don't blame them. And now that they do, we're in a very good position to lease that final piece to a host of national as well as local, very Brooklyn focused fashion retailers for the Prince Street component of it. Amy anything?

In terms of the fashion, would you expect it to be more full priced or off priced?

Well, I think it's going to be a combination or certainly the retailers that are expressing interest right now are trying to tap into the very hip, fairly affluent, very well employed new entrants to the market while also being very cognizant of the fact that Fulton Street historically has been more off price focused. And you've seen a wide range of retailers now entering into that at a more fashion focused area. So I think you'll see a nice blend.

And remember in New York City, Brooklyn specifically, it blends so well that it's not as though it's all going to be ultra-luxury and then pull that fashion on a whole different area. New Yorkers get used to that kind of blend with the final piece being; don't underestimate the importance the DeKalb market and food brings to a place like Brooklyn. The enthusiasm that we're seeing from our retailers on grade with what we're doing down below is amazing. Food has really become one of the important anchors to these kinds of shopping experiences in ways that we didn't think of years ago or in ways that department stores really provided. So, stay tuned, I realize that we have told you all to be very patient as it relates to that, but if you think about our portfolio occupancy overall for instance, or even in the fund level, no one can criticize us for holding too much vacancy. This is one of the few instances where we have on a very disciplined basis laid off the risk on the residential side. If there's any criticism it is that we sold the residential too soon. We've laid off the above second-floor risk to great anchors that are going to really help. And if we are being a little greedy or a little patient on Prince Street, fine. We're going to get it right.

Got it. And second question, if I could, Jon I just want to make sure, I'm clear on the numbers around the three street retail spaces that are causing a drag. Are all three of those spaces re-leased today? And can you provide some color just around sort of the expected timing of rent commencement and did you give expected revenues for the space?

So couple of things, in terms of the three leases, those will all pick occupancy and start paying rent in the second half of the year. The 17th Street location will be late second quarter, early third quarter, with the balance of the other two tenants being later in the second half.

In terms of the rent side, I'm not going to get into a discussion of rents per square foot necessarily, but as I mentioned, the increase of 75% is obviously significant and was across the board, although again the 17th Street lease was a primary driver as it relates to that result; rents there were almost double or they were double, that of the former Barnes & Noble.

And then, was there one other part to your question?

Yes, just in terms of thinking about the absolute dollar amount of the rent commencement on an annualized basis for the three leases combined.

You know what off the top my head, I'm not even sure what that number is, but I can certainly get back to you.

I can follow-up.

Yes.

The next question is from Todd Thomas with KeyBanc Capital Markets

Hi. Thanks. Good afternoon. Question, Ken, I was wondering are you seeing or hearing anything from retailers with regard to the strong US dollar here in terms of tourism trends in New York, maybe also Chicago I guess? Have any retailers pulled back from the market that we're in conversations for space? I mean does this really change anything here in terms of discussions or your thoughts around market rent growth at all?

Yes, it's a conversation that we started having three, four, five months ago as we saw the dollar rally; in the past week or two maybe that cuts it the other way. So, first of all, the short answer is no, as it relates to our retailers coming back to us and saying either they have lost any level of enthusiasm for those markets that are kind of most international tourist driven, so far not yet but we always are going to have to watch and observe and see how transitory might some of these shifts be or versus kind of long-term secular. And then, if it is long term, it is something you certainly want to take into account as you would the price of oil, as you would a host of other factors that we always think about.

But what is worth noting, for instance Miami, which certainly benefits from a lot of international tourism with a fair amount of international tourists coming from oil generating, energy generating countries, you think or I would have thought that we would see some led up there first. And while thankfully we sold at a huge price, honestly we did not sell our Lincoln Road portfolio in anticipation of anything to do with currency, it was purely pricing and event driven. But as we speak to our retailers about Lincoln Road, about Miami, they are watching it, they are cognizant of it, but so far we have not seen that enthusiasm decline. And then, when you get elsewhere into our portfolio, yes, there is a fair amount of tourism in New York but overall, the majority of our assets are either in what I would call more live-work-play Tribeca for instance, it's not a tourist driven location, it is a live-work-play destination, Brooklyn, the same thing. SoHo would have some of it because as I pointed out on our call, our leases are well below market. So I'm not particularly concerned.

Elsewhere in the portfolio kind of same type of analysis where Chicago gets some international tourism but it's more domestic than not. Thus, we're not hearing it from our retailers yet, we'll watch it but there is no reason to think that they're making these long dated multi-year, if not multi-decade commitments to these key locations. It's not clear to me that this will have any impact. Secondly, we're pretty well insulated, so we may hear about it later than some other folks.

Okay. And then, second question for Jon. With regard to the balance sheet and sort of the company's low leverage here, you know still have a very conservative balance sheet. Any thoughts around levering up a little bit further, locking in some long-term low interest rate debt here. And just curious to get an update sort of on your view of why maintaining such low leverages, is it sort of still the right call here? I mean is it really concerned more around macro risks or is it something specific to the type of assets that the company owns?

Yeah. I think it's more related to a macro market risk, as we look across the horizon here. In general, we've always run a very conservative balance sheet regardless of whatever point in the cycle we've been at. What my experience has shown me over the years is we're horrible prognosticators and our crystal ball doesn't work so great most of the time. So, when we look at the markets, I'm not sure we want to get into the business of making a call as to what is the right time to lever up versus not lever up, as opposed to just running a safe and conservative balance sheet at all points through the cycle.

That being said, and as I said in my prepared remarks that, what it does provide us is the ability, if the equity -- public equity markets are not with us for a period of time and we experienced this last year during the summer. We have the ability to pull that lever to keep the acquisition target in plan -- moving on plan. So, I think we want to maintain that flexibility to make sure that there's no disruption in terms of our strategic plan. In terms of locking in long-term rates, we did that in the fourth quarter. We executed on a couple of swaps totaling $50 million, which had an average maturity of between seven and 10 years, eight something years. So we will continue to opportunistically lock in rates on a dollar cost averaging basis. So, that's our strategy which we stuck to over the last 12 plus years and I think we're going to stick to that going forward.

Let me just chime in one thing that, Jon said we've always operated on a low leverage and then he qualified that by mentioning it was 12 years ago, because Jon and I were here 15 years ago when we took over what was then Mark Centers Trust and we started as a public company with arguably the highest level of leverage in the sector, if not in the industry. And I can assure you that is no way to run a public company.

In the fund business, you can use a lot more leverage, but you do so at a risk and you better get a reward. In the public market, there is no evidence that within a certain band, and Jon is correct in pointing out that our leverage right now is at the low end, so we could certainly take it up to fund the balance of this year. But within a certain band, there is no evidence that our shareholders would benefit from increased leverage over an extended period of time. And there is a lot of evidence that since none of us can see around corners, that if we are not well equipped with dry powder and we are both on balance sheet and because of our fund, you miss out on a whole host of opportunities, you also create a whole bunch of potential problems, we saw that with folks heading into the financial crisis and being forced to de-lever.

So, I get the benefits of leverage, I remember the detriments of it, we're going to manage this correctly.

Jay Carlington, Green Street Advisors.

It's actually a great lead into my first question. And I guess Ken, would issue equity at the current share price?

Depends what the use of proceeds is for. So Jay, it's a slightly complicated model that our investment team goes through but it's not that complicated. You look at the investment opportunities, you look at equity -- you look at in our case, on a pretty straight forward basis whether or not that investment is NAV accretive, and then the best way to manage it. If it was a large field that would require us to lever up beyond our band of comfort and it was not NAV accretive, we would just pass on the deal.

If a huge compelling opportunity showed up today, and I am fantasizing because there is a ton of capital out there, that was priced in a way that even if our currency had traded off considerably it made sense, we would consider it. I say I'm fantasizing because we generally don't see that. And if you look at our track record of when we have issued equity and its use, it's pretty straight forward. And it's even more straight forward from our core perspective because what we do is we rate all of our assets and we do it on a quarterly basis and we rank them upper quartile, second quartile, third quartile and fourth quartile. And you've heard us articulate our acquisitions have been substantially all consistent with our upper quartile and accretive to NAV.

So, if you think about that and if you're marking your assets correctly, then it causes you to be more aggressive when your stock is doing well. And then you tend to be a lot more stingy when it isn't. Given the trade-off in the recent weeks, we're in the stingy mood, and given our low leverage, we can glide over any short-term speed bump and still meet this year's goals. We can revisit this conversation a year from now if the market has corrected one way or another; and I certainly don't have a clue to that.

Okay. And, I guess secondly, I guess your recent transaction activity it kind of appears to come in ways and targeted market. Can you maybe talk about what seems to be a targeted market approach where you grow your penetration rapidly from the Upper East Side, and I guess, Newton now, or am I reading too much into that?

No. In general, and we don't always get this right, but in general, once we've identified a market and we like it, we will try to penetrate it because the second deal is generally easier than the first. In some cases, I'll pick on the Bowery for instance, we did one transaction there and there really hasn't been the compelling next opportunity. That's fine. But our goal in general is to do once we understand the market, once we talk to our retailers and understand their level of interest, is to do a host of those.

The other thing is, it enables us to compare different markets. So if we were only on the Upper West Side of Manhattan and that's what we knew and that's what we could do, we would become somewhat myopic and I prefer to be able to look at different markets, talk to our retailers, understand where they are doing well, where they are underserved, talk to our team in terms of where cap rates are settling and then you see some level of waves in consistency. The good news now is, I like the markets we're in, I love some of them, and we're really at a point now where we could backfill into just the markets we're in and never have to go through the, aw shucks, should we be in Houston or oops, we're not et cetera. So, I think you should expect to see us continue to add in those markets we're in, but then you might see us show up somewhere else in that what makes as the fund business.

Got it. Thank you.

Craig Schmidt, Bank of America.

Good afternoon. Thank you. I wanted to dig a little deeper on the yields on the IRRs on the two dispositions. What drove them to this result? I mean is it the re-tenanting; the border books or the clean up at the Shaw Center or is it compressing cap rates or what were the components that you kind of think led to that really strong asset sales in both Lincoln Centre and White City?

Sure. And so and Amy, I'll let you run through the math, but let me just do a shot out to our team, both our team and then in the case with Charter, our partners, they did a fabulous job executing. And they deserve all the credit that they achieve by these redevelopments. But one of tacet team members who has done a fantastic job throughout this even though she doesn't return my phone calls is, Janet Yellen. So, I certainly wouldn't want to ignore the benefits of the declining cap rate market. And our goal in the fund business is to be able to take advantage, not just of good real estate execution, but also a cap rate compression. So starting with Lincoln.

With Lincoln Park Centre, so we stabilized that asset to close to an 8%, unlevered yield, and we had the benefit of cap rate compression. This is a great street-retail asset in Lincoln Park Chicago. So cap rates on exit were consistent with what you'd expect of street-retail in Chicago sub 5%. And then in terms of White City Shopping Center, we did a whole facelift with our partner Charter. And again in terms of timing of sales, we sold within three to four years which drove exceptionally high IRRs and we're also very pleased with the equity multiples.

So, White City was more of a buy at a high yield because we were opportunistic, continue to clip the coupon while our partners, and our team here did a very good job stabilizing the assets and then selling it and it sold in 6 to 7 cap rate range. So there was some cap rate compression, but there was also just a lot of good current cash flow from that. It's that combination, Craig, and where we can do these right and time them right, it works very much for the benefit of all of our stakeholders.

Great. And I guess I look forward to further dispositions. Maybe you are far too high. Thanks.

Sure.

James Sullivan, Cowen and Company.

Thank you. Good afternoon guys. Couple of questions around street-retail and how you think about the platform, if you will, that you've put together versus the opportunistic chance you get to sell an asset at a substantial IRR. And we've talked about this before, I think when you first sold two assets in Miami and had a terrific execution, and I just wonder how you think about that?

You have obviously been something of a pioneer in terms of identifying and capitalizing on street retail, as a specific product. And you're seeing companies -- company like General Growth for example, which is assembling a sizable street retail portfolio in Midtown Manhattan and beginning to do it elsewhere. And I just wonder, do you see any enduring value in developing and maintaining street retail assets, as opposed to doing it as you do it through your funds, where you do the value creation and sell and then move on to the next product. To what extent are you losing something, when you are selling part of your platform?

Yes. I think it's a very good question and it's one that we ponder and we continue to refine and it's not perfect. In a perfect world we would always get to pick and cherry pick and then occasionally -- it's less frequent than you might think, but occasionally there are assets that are appropriate for our fund on a risk adjusted basis, that end up in our fund, that we then sell at huge profits, and I actually say Geez, I wish we could have owned that in the REIT. I'd say less often than you might think Jim, because the fact is that the discipline of buying, fixing and selling real estate, the fact that the market can overreact, in terms of enthusiasm of certain assets and that we can tap into that is a good one.

But in a perfect world, there are assets and as we think about our company evolving, there are assets that perhaps were going through Fund IV for about another year, perhaps if there is a Fund V, how the Fund V looks and stuff, it may address some of that. And there is other ways to address that as well. But let's also keep in mind -- so we have this very profitable fund business that creates significant value for our shareholders. And maybe we would rather just be talking about the profits in a White City, where believe me, our shareholders would not want us to announce that we just took into the core.

But simultaneously, let's not lose fact of the matter we've grown our core portfolio. It's now up to $100 million of NOI this year Jon, right? Roughly give or take. It was less than half of that, a handful of years ago. And not only has that portfolio more than doubled, but the quality of it has grown significantly. And as I pointed out, street retail has grown in there. So, it's not as though it's one flavor or the other, the question is whether or not street retail and that platform would have grown much more significantly, if we didn't have the fund business. And I can't answer that; I can tell you that the business, and you and I know this. It is cyclical by nature and the companies that are simply asset aggregating and that don't take advantage of the opportunity to monetize periodically, I think lose touch with an important piece of this business.

So, it's not an either or but I hear you and we recognize that every now and then there is assets we say goodbye to that we would love to see stick around. And the consolation prize is when you're talking about 2x to 3x on equity, when you're recognizing the fact that we put in little over 20% of the economics for the shareholders to get close to 40% of the profit, it's not as though this is a side business that our shareholders are not benefiting from. But I hear you and this is making our platform very strong, the skill sets across the board are important. But I also appreciate being called the pioneer.

One other quick question, if I may. There are a number of research groups out there, not sell side, but real estate analysts who provide cap rate ranges for different types of property. And within the retail spectrum specifically non-mall retail, if we look at the break down between cap rate ranges for street retail on the one hand, neighborhood centers on the second, and then power centers, the general spread, and I am being very, very general here, but I am curious if you think about this the same way. We see about a 4 as a midpoint for street retail, a 5, 5.25 midpoint for neighborhood centers; and about a 6.25 for power centers, does that kind of spacing between the three product types, to the extent that we can even separate them that way, does that make sense to you?

I think it's a little tight. And to get what I say, look at what we do, and forget just the core, look in core and funds and you see us continuing to gravitate towards these high barrier to entry, more urban/street, simply because we think that the risk adjusted return profile is superior. We, believe me, we understand all of those different segments Jim, and we play in all of them. So, when we see that spread out, that's the beauty of having an opportunity fund is we can take on power centers all day long. Right now, it feels a little tight, right now there is, people are chasing yield and so you are seeing that get compressed with our friends at the non-traded REITs et cetera. It will tighten and widen over time. And we will just make sure we're in a position to play that.

Michael Mueller, JP Morgan.

Yes, hi. I want to talk about timelines. I guess first at City Point. What's the timeline to I guess wrap up the remaining leasing portions to be done, mainly at the street and then for occupancy to come on, I mean how do you see that playing out?

Well, in terms of anchors, the anchors are scheduled to open on next spring, grand opening, and we would hope and expect that some of the small shops will open as well. And then we'll just continue to lease throughout the summer.

Okay. So by the end of 2016, everything should be fully leased and open?

I hope our leasing team is listening and yes.

Okay. And I guess moving further south to Broughton Street. I mean can you talk about the timeline there?

Well, I mentioned earlier that there are a number of tenants who are now open. We continue to see great leasing momentum. We're in discussions with retailers who would highly complement those who are already on the street, J.Crew, L'Occitane et cetera. So over the next 12 to 18, 24 months we would expect the street to really feel more like a Georgetown or other great street retail markets.

Okay. So within a couple of years, the vast majority of the remerchandising should be done then?

Yes.

Yes.

Okay. I came on late, so I apologize if I missed this, but did you talk about how much time you're spending working at California or stuff in the West Coast at this point?

No. But you did miss a great presentation by me, I have to tell you. Okay. We didn't. We are very focused on San Francisco, I like the deal flow; our team is spending a fair amount of time out there. But thankfully, if you think about -- we're about half way to our goal for this year in terms of deal flow, we can afford to be patient. There is a bunch of street retail markets in San Francisco that are fascinating to us and I think we can do some exciting things there. And there is a couple of urban markets, not unlike City Center, but in terms of time percentage, it's hard to gauge, it's going to be a great market.

Is San Francisco the only market you're doing homework on the West Coast?

No. But it's the one that we're by far most active in. We look at a wide variety of markets and never execute on them. And then San Francisco, where if you just think about our business, our platform, as the population growth, the trend towards urban cities like San Francisco -- and when you talk to our retailers, if you go through the handful of markets that are must have markets, globally as well as in the United States, San Francisco is a perfect one for it. The rest of California, we love it, but we may never be elsewhere and we could meet our needs being just in San Francisco and it could make a lot of sense and so far it is, we're very happy with what we see.

Okay. That was it. Thank you.

Great.

Rich Moore, RBC Capital Markets

Hey, guys. Good afternoon. As I look down the list of properties in Fund III, I mean you have got a pretty good list, is all of that stuff basically obviously (inaudible) -- but is most of that stuff for sale at this point, are you listing that or do you have to do more work I guess to get any of it ready for sale? I am trying to understand when you might hit that last $25 million of equity that you need to return.

So, we had embedded into this well in excess of $25 million, as Jon has mentioned. And I think you have forecasted that by the end of this year, we will get through that $25 million. But that's just one or two more assets, Rich as you think about it. I view it and we went through. You could go back to transcripts a few calls ago, about a third of Fund III's remaining portfolio is nearing stabilization meaning within the next I'll call it six months. There is still some stuff to do, but there are enough assets we can sell. And then another third will be ready next year, and then the final third probably shows up 2017. Now that being said, we can sell assets before we have fully leased them and we can hold the assets even though they're fully leased. So, let's see, we try to be very responsive to where the great market demand is and we don't have any guns to our head.

Okay. That's a good answer, Ken. Thank you. And then, going back to Jim's question for a second because you've talked before, Ken, about there being a gross spread between the different property types and that gross spread is better than say the cap rate spread, so that when you put the two together something looks more attractive than the other that has tended to lean towards street retail. So the growth you're getting on a street retail offsets the fact that it's getting expensive. This last quarter though you picked up a couple of more urban core, suburban high density type centers. Is there a shift of any kind going on in your mind between the combined growth rate and cap rate of street versus these other kinds of centers that also are attractive, but maybe less expensive for the growth rate you get?

So kind of. Let me be clear because I don't want anyone to misunderstand. The rental growth rate that we have experienced to date in street retail has absolutely validated our thesis and we're thrilled with that. The prospective opportunities always shift and I try to remain as agnostic as I possibly can when I listen to the different investment opportunities. So it's not a secret that street retail, it has embedded into a lot of exciting growth and thus there is plenty of competition there, you'll see us and we did, you know, we did some very nice street retail deals this past quarter as well. But you'll see us if the market is too enthusiastic on the buy, not buy those and we may buy something else.

So the dense suburban has to provide decent growth, should have limited downside, if we're going to play in that, urban has got to have the City Center like characteristics around it and then for street retail, if people are going to bid and we are seeing bids well below four, if they are going to bid that, then there better be the ability to execute on rental growth in the not distant future. And we miss out on some of those if we just are not as enthusiastic about the ability to go from a three cap or a two cap to a five or six cap, but that's not -- you should not view that in any way as our lack of enthusiasm for the space, just some people may be more enthusiastic than we are at any given moment.

And we have no further questions at this time; I'd like to turn the call back to Ken Bernstein for closing remarks.

Great, thanks. And since this is the first call that I handed over to Amy without thanking my team for their hard work, I'd like to thank the team for their hard work this past quarter and look forward to speaking to all of you again next quarter.

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