Dianna Murphy - Regional Property Manager Ken Bernstein - President and Chief Executive Officer John Gottfried - Chief Financial Officer Amy Racanello - Senior Vice President, Capital Markets and Investments.

Christine McElroy - Citi Todd Thomas - KeyBanc Capital Markets Michael Mueller - JPMorgan Floris van Dijkum - Boenning Craig Schmidt - Bank of America.

Good day, ladies and gentlemen and welcome to the Q4 2016 Acadia Realty Trust Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference, Ms. Dianna Murphy, you may begin..

Good afternoon and thank you for joining us for the fourth quarter 2016 Acadia Realty Trust Earnings Conference Call. My name is Dianna Murphy and I am a Regional Property Manager in our Property Management department.

Before we begin, please be aware that statements made during the call that are not historical maybe 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, February 15, 2017 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.

[Operator Instructions] At this time, it is my pleasure to introduce Acadia’s President and Chief Executive Officer, Ken Bernstein..

New York, Chicago, San Francisco, D.C. and Boston. And this has been in response to the changes both in retailer demand as retailers are adapting their business to the ongoing evolution of omni-channel retailing as well as the many different consumer trends.

All-in-all, these changes are resulting in a growing separation between the have and have-not locations in retail real estate and it’s pretty clear to us that retailers will continue shedding more generic locations and continue to focus on mission-critical locations.

And while this shift is continuing to play out, it’s never going to be a simple transition. The market will both under-react and overreact to these changes. In all instances, it’s imperative that we remain disciplined in our investing.

For example, in 2015, we saw demand for street retail, both from buyers and from retailers, grow in excess of what we thought made sense. At that time, we were very clear trees don’t grow to the skies. So in 2015, we did not acquire any street retail for our core portfolio.

That has enabled us to avoid some of the pain that others are experiencing today.

It’s also positioning us for some interesting future investment opportunities, but most importantly is to not lose sight of the fact that this temporary overcrowding of the street retail trade in 2015 does not contradict the long-term trend of how our retailers are refining their fleets.

In fact, the trend is playing out more or less as retailers have forecasted. And location matters today more than it ever has.

And while it’s frustrating to watch some of our traditional retailers struggle through this transition, I am confident that many of them will succeed and it’s also exciting to see some of our newer online-first retailers moving from screens to stores as they recognize the importance of having strong bricks and mortar presence as well.

Today, our urban and street retail properties comprised about 60% of our total core NOI and over 70% of our core value. Our thesis has been that over the long-term these types of properties should generate NOI growth that is superior to our suburban assets by at least 200 basis points.

This is driven roughly in equal parts by stronger contractual growth and stronger market growth with more frequent mark-to-market opportunities due to fair market value, option resets, recapture and re-tenanting activities.

As John will discuss our fourth quarter results as well as our full year 2016 performance, we are consistent with this thesis as is our leasing and redevelopment activities in 2017, where we are successfully recapturing a handful of locations and will profitably re-lease them.

And although the short-term disruption in rent will weigh on our 2017 metrics, as John will discuss, the value created by these things will be meaningful and visible in 2018 and beyond. And as we look beyond the next 12 to 24 months, the growth looks even more compelling.

Over the next 5 years, nearly half of our urban and street retail NOI is projected to grow by an incremental $11 million to $12 million of NOI, growing from $36 million to $48 million. And this equates to a compounded annual growth rate of between 5% and 6% on this significant portion of our portfolio.

And this growth should thus help drive the growth for our overall core portfolio. This expected approximately $11 million of growth comes roughly equally from two areas. First about half comes from the growth embedded in our 2016 acquisitions and then the other half are value creation opportunities at 7 of our existing core assets.

First, let me touch on the 2016 acquisitions. These acquisitions represent approximately 30% of our current urban and street retail NOI. The acquisitions are comprised of approximately 70% street retail, 30% urban. They are geographically diverse located in supply-constrained gateway cities, New York, Chicago, San Francisco, D.C. and Boston.

We have strong tenant diversification with the right blend of value and necessity and lifestyle retailers ranging from Target to H&M, Trader Joe’s to Walgreens, lululemon to Starbucks.

And while it’s easy to see that these assets provide strong downside protection due to their tenancy and in-demand locations, as importantly, they also have strong embedded growth primarily driven by lease-up in the portfolio where we should be able to take the economic occupancy from its current 91%, up to our more historic average of 95%.

The other half of the growth comes from the leasing and redevelopment of opportunities in seven of our existing urban and street retail properties. Beginning in 2017 and over the next 5 years, we anticipate harvesting about $5.5 million of incremental NOI. And in this case, that equates to a compounded annual growth rate of approximately 7%.

Here are five examples that captured the majority of this growth. In January, we executed a new lease with Lululemon for their rush street store in Chicago’s Gold Coast where they will turn their existing store with us into a flagship location by taking over part of an adjacent building that we own.

This space is currently occupied by Brioni and the new Lululemon lease results in a lease spread of approximately 20% over the Brioni rent. At a time when many retailers are being forced to learn to do more with less, we are also seeing in certain critical locations, select retailers recognizing the importance of also doing more with more.

This flagship will join other recent additions to this corridor, including Aritzia and Tesla as well as Versace and Dior who replaced the Urban Outfitters across the street. These tenancies bode well for the balance of our ownership in this quarter.

As you may recall, we also own the retail under the Waldorf Astoria Hotel, anchored by Saint Laurent and Marc Jacobs as well as a handful of other buildings. A second driver of this growth is in connection with our Lincoln Park Chicago redevelopment located at Clark & Diversey. There we have recently finalized a lease with T.J.

Maxx, who will occupy all of the project’s upper level space. And then we have already leased one of the street retail small shops to Bluemercury. Construction here is expected to commence this summer.

And similar to our Rush and Walton Street, we own a meaningful collection of assets in this submarket, all of which will reap benefit from this redevelopment activity. Other retailers at our property here include Trader Joe’s, Urban Outfitters and Starbucks.

Then in Washington, D.C., we successfully recaptured a building formerly leased to Lacoste on M Street and Georgetown and we have released that at a 50% leasing spread. And similar to our Brioni in Rush Street and Walton, this space is going to be combined with an adjacent building to create a retail flagship there.

Then in New York, in SoHo, we are in the process of recapturing one of our two stores on Prince Street. This one occupied by Uno de 50. Additionally, we are also in discussions to take back the adjacent space. Now notwithstanding a significant amount of noise surrounding SoHo asking rents, the current rent for this space is significantly below market.

And between the two stores, the combined lease spread is projected to be approximately 70% here. Lastly, in San Francisco, we are advancing plans to densify City Center, which is our Target anchored property that we acquired in 2015.

So as it relates to our core portfolio, our 2016 acquisitions and our seven embedded value opportunities, which again represent just under half of our urban and street retail NOI, should be important drivers in generating above average growth over the next several years, as I have just outlined.

And we also expect that from time to time, the other half of our urban and street retail portfolio will also have outsized growth opportunities as we get closer to more mark to market opportunities there. Turning now to our buy-fix-sell fund platform, as Amy will discuss, we remain very busy.

The 2015 and the first three quarters of 2016, we were net sellers at strong profit. This was appropriate given the sustained strong demand for stabilized assets. However, in mid to late summer, we began to see a shift in the capital markets.

Even though cap rates for high quality well leased core assets in gateway markets seem to remain at the same level, there have been fewer bidders for well located properties requiring releasing and redevelopment. And then cap rates for second tier assets are beginning to increase in some instances substantially.

As Amy will discuss, this has created increased opportunities to deploy capital through our fund platform at attractive leverage returns. So in conclusion, as we look forward, we continue to like what we see. Our core assets are poised for long-term growth as we continue to navigate a shifting retail landscape.

Our balance sheet is fully reloaded, giving us transactional flexibility. And our complementary fund platform remains active on all fronts buying, fixing and selling. With that, I would like to thank our team for their hard work and progress last year and I will turn the call over to Amy..

Thanks Ken. Today, I will review the steady and important progress that we continued to make on our fund platform’s buy-fix-sell mandate. Beginning with acquisitions, in light of cross currents in both the capital markets and the retailing industry, we continued to employ a barbell approach to investing our fund commitments.

On one hand, we are selectively acquiring high yielding, stable shopping centers in non-primary markets, but we can do so at attractive pricing. As Ken mentioned, we have seen cap rates for these types of assets increase by at least 50 basis points over the past 6 months to 12 months.

On the other hand, we continued to pursue opportunities to acquire well located assets in key markets where our team can add value through lease-up and redevelopment.

Although cap rates seem to be holding for high quality assets with stable cash flow, as Ken mentioned, there seem to be fewer bidders for high quality assets with significant moving pieces. And for sellers, certainty of execution is becoming of increased importance.

Since our fund capital is fully discretionary, our fund platform is a beneficiary of this shift. During 2016, Fund IV acquired or entered into contracts to acquire almost $300 million of investments, of which approximately $260 million has closed.

Both strategies, high yield opportunistic and high quality value add are represented among these transactions. On the high yield side, during the fourth quarter, Fund IV completed the acquisition of the Northeast Grocery Portfolio for $92 million.

This 1.2 million square foot portfolio includes eight grocery anchored properties located in Maine, Pennsylvania and New York. The fund acquired the fee interest in seven properties and made a $9 million loan on the eighth. The current lease rate is roughly 90%.

And with minimal lease-up and rational leverage, this investment should generate attractive mid-teens cash-on-cash returns throughout the fund’s hold period. On the value add side, during the fourth quarter, Fund IV acquired 717 North Michigan Avenue located in Chicago for $104 million.

This is a 62,000 square foot four-storey street retail property located at the corner of Michigan and Superior. The property is 25% leased to The Disney Store and Acadia intends to redevelop the balance of the property, which was previously occupied by Saks Fifth Avenue Men’s Store.

The building has unused air rights, so we are also exploring densification opportunities at this flagship location. Looking ahead, given last year’s successful fundraising, we have plenty of dry powder available in Fund V to deploy into new opportunistic and value-add investments.

Turning now to dispositions, during 2016, we completed $230 million of dispositions across our fund platform, mostly in Fund III. Of this amount, almost $80 million was completed subsequent to the third quarter. First in December, Fund III sold its remaining 35% interest in Cortlandt Town Center for $58 million.

This is a 640,000 square foot power center located in Westchester County, New York. As you recall, in January 2016, we sold a 65% interest in this property to the same institutional investor at the same $165 million valuation.

We are pleased to report that over 8 years, Fund III realized a 43% internal rate of return and a 3.5 multiple on its total equity investment in this asset. As previously discussed, across the street from Cortlandt Town Center, we successfully pre-leased about half of our development project to ShopRite.

And as a result, construction of that property commenced during the fourth quarter. Now even though Fund IV just completed its acquisition phase, it also continues to be a responsible seller. As you recall in 2014, Fund IV sold its Lincoln Road portfolio in Miami Beach ahead of schedule and at a significant profit.

More recently, in January 2017, Fund IV in partnership with MCB Real Estate sold 2819 Kennedy Boulevard in North Bergen, New Jersey for $19 million. This is a 40,000 square foot property that was previously owned and occupied by Toys "R" Us. We acquired the property in 2013 and completed a façade renovation.

Then we re-leased the Toys "R" Us box to Aldi supermarket and Crunch Fitness. This sale generated a 21% internal rate of return and a 2.5 multiple on the funds equity. Lastly, consistent with prior quarters, we continued to make important progress on our existing fund redevelopment pipeline.

For example, at City Point in Downtown Brooklyn, Target held its grand opening at the end of January. And with that, all three of our upper-level anchors on Levels 2 through 5 are now open for business.

Construction is also progressing well on the concourse level for several of our food centric tenants, which include Trader Joe’s, DeKalb Market Hall, Han Dynasty and Fortina, all of whom are expected to open this spring. So in conclusion, we had another productive year in our fund platform.

We continued to execute on our barbell investment strategy, sell our stabilized assets at significant profits and create value within our existing fund portfolio. Now I will turn the call over to John who will review earnings, operating results and balance sheet..

Great. Thank you, Amy and good afternoon. As you have just heard from Ken and Amy, we had a strong finish in 2016 and more importantly, we have positioned ourselves with an outstanding platform to generate a combination of significant value and earnings growth as we move into 2017 and beyond.

I would like to first start off by talking about our fourth quarter 2016 earnings. Our FFO before transaction costs came in as we expected at $0.40 per share, which includes $3.4 million or $0.04 per share from our net promote and Fund III.

Additionally, during the fourth quarter, we successfully closed on the previously announced 555 9th Street acquisition in San Francisco for approximately $140 million. Consistent with our disciplined approach of match-funding, all of our 2016 acquisitions were fully funded on a leverage-neutral basis with no equity issued during the fourth quarter.

As I will discuss shortly with our 2017 guidance, we are projecting that our $630 million of 2016 acquisitions will be highly accretive generating accretion of approximately $0.06 during 2017, followed by an incremental $0.02 to $0.03 of additional growth over the next several years when factoring the NOI growth we believe is embedded in these assets.

The aggregate accretion of $0.08 to $0.09 that we expect to derive from this portfolio provides us with a strong per share growth in excess of 5% of our 2016 core FFO. Now moving on to our same-store NOI, our same-store NOI came in at 3.7% for the quarter and 3.4% year-to-date.

Our strong growth in 2016 was once again driven by our street portfolio, which outperformed our suburban assets by over 300 basis points. As we have guided throughout the year, we are expecting to successfully recapture nearly 300 basis points of below market street occupancy in 2017.

The recapture of this space will largely occur in the first half of this year and will result in relatively flat same-store NOI growth of 0% to 2% in 2017 to reflect the anticipated downtime. As we fill the occupancy and profitably bring the rents to market, we are projecting strong same-store growth of 5% to 7% in 2018.

More importantly, we are projecting to capture cash rent spreads in excess of 40% on expiring leases within our street and urban portfolio over the course of the next several years.

Keep in mind, these will be spread over the next several quarters and several years and not all of it will end up in our same-store NOI given some of it will involve redevelopment activities. But nonetheless, it will create meaningful NOI and long-term value.

While this drop in street occupancy has an impact to our 2017 same-store NOI given the significant rents that these spaces generate, coupled with a relatively small size of our same-store NOI pool, it’s important to keep in mind that our overall occupancy is projected to remain strong and in excess of 95% throughout 2017.

Absent this temporary loss of street occupancy in 2017, which represents roughly 200 to 250 basis points of same-store NOI, we would have otherwise projected 2017 same-store NOI within our historical ranges.

Therefore, while a temporary drag on 2017 same-store NOI and FFO, it is consistent with our value creation thesis of owning assets that provide us with the ability to recapture space more often in markets and locations that we believe will continue to generate strong rental growth and value creation.

Another thing to keep in mind relating to our growth profile is the point Ken just made about the value embedded in our portfolio. As he discussed, over the course of the next few years, we are projecting NOI and FFO growth in excess of 5% from nearly 50% of our street and urban portfolio.

This equates to in excess of $11 million or $0.12 per share of growth resulting from a combination of our redevelopment activities, growth from our 2016 acquisitions and unlocking a significant value from bringing below market leases to market. Lastly, we are projecting this growth using our lenses in today’s market.

Should market conditions outperform our base case expectations, we believe that through a combination of shorter lease duration and fair market resets that are embedded in many of our street leases, this will enable our portfolio to capture incremental upside earlier and far more prominently given the nature in high tenant demand locations of our street assets.

Now moving on to occupancy and rent spreads, occupancy in our core portfolio remains high and stable at over 96% through the end of 2016. During 2017, while our overall occupancy is projected to remain in the mid 95% range, as we just discussed, we are projecting a decline of roughly 300 basis points in our street portfolio.

Leasing spreads on our three new leases this quarter were 31% cash and 110% on a GAAP basis. Overall, new and renewed leases for the quarter were approximately 8% on a cash basis and 22% on a GAAP basis, based upon approximately 90,000 square feet of leasing activity, the vast majority of which represented renewals within our suburban portfolio.

Now moving on to our 2017 earnings guidance, we are guiding the 2017 FFO before transaction and other cost of $1.44 to $1.54.

Our 2017 guidance reflects FFO within our core business – reflects FFO growth within our core business of roughly 10% after equalizing for the $0.13 of incremental promote recognized in 2016 and approximately $0.07 from the temporary loss of earnings from selling fund assets during 2016 and the projected loss of street occupancy during 2017.

The growth is driven through a combination of 2016 acquisitions and the impact of positive lease spreads in our core portfolio generated during 2016 and into 2017. As it relates to our promote expectation, we do expect to pause in 2017 from the FFO recognition of net promote income.

In terms of future promote expectations from Fund III, we continue to reaffirm aggregate net promote income of $20 million, of which we are about halfway through that at the end of 2016, with the balance of $10 million being recognized in earnings largely in 2018 and beyond.

Therefore, between the monetization of Fund III, followed by Fund IV and ultimately, Fund V, we are projecting a recurring source of meaningful income for our REIT and fund investors. While on the surface, 2017 may seem like the transitional year from a same-store NOI and FFO perspective. Our underlying core business is strong and growing.

And the opportunities and activities that we have outlined today will enable us to continue to create meaningful, long-term NOI and FFO growth and value creation over the next several years. Now, moving on to our balance sheet.

As we have said each quarter, all of the equity we needed to close our 2016 acquisitions on a leverage-neutral basis has already been raised. During the fourth quarter, we drew down the remaining shares from our forward equity contract we executed in April 2016 in connection with the closing of 555 9th Street in San Francisco.

Our $150 million line of credit is fully available to us with no amounts drawn at December 31. Further, we have a minor amount of scheduled debt maturities in 2017, which we will repay or refinance at rates well below our existing prices.

Given our low leverage, interest rate protection agreements, staggered debt maturities and various avenues to access capital, we are well positioned to withstand the impacts of upward movements in rates that many are projecting without creating any meaningful impact to our earnings or NAV.

Our balance sheet has never been stronger when considering our overall debt, key leverage ratios and our various avenues to access capital whether it be from our lenders, public equity markets or capital commitments from our fund partners.

We continue to have numerous low cost options available to access capital, which enables us to continue executing our strategy of both maintaining a best-in-class balance sheet and significantly increasing our asset base each year. In closing, we finished strong in 2016 across both our fund and core businesses.

More importantly, we have assembled the portfolio, balance sheet and avenues to access capital that we believe positions us to provide our REIT and fund investors with a combination of long-term growth and value creation. With that, I turn it over to the operator for questions..

[Operator Instructions] And our first question comes from the line of Christine McElroy with Citi. Your line is now open..

Hi, good afternoon everyone. Ken, you talked about an expected CAGR of 7% through retenanting and redevelopment.

Given the turnover in your portfolio in recent years, especially in regard to the street retail assets, how should we think about the cash growth rate versus the GAAP growth rate and any impact on FAS 141 as you harvest many of these below market leases?.

So, let me first clarify, I think what I – well, I know what I said and meant to say, overall CAGR, 5% to 6% broken into two components, one of which was 7% and 5% to 6% feels pretty darn good.

I will defer to John on the FASB piece of this, but from an NAV perspective, which is fundamentally what we are focused on is, if we can grow this rent by $11 million without significant expense to do that, that is the value creation proposition. It does more or less blend out to that 5% to 6% range. But John, in terms of.....

Hi, Christie. So on the GAAP sides I think these are not acquired leases. So these would be – we wouldn’t have an above or below market lease adjustment that we typically have in an acquisition, but there will be straight line rent which will only increase the 5% to 6% or 5% to 7% that Ken just walked through.

So it does not include the straight line impact, which will provide additional FFO opportunities..

Okay, got it. And then Ken, you mentioned the planned densification of City Center in San Francisco. Can you give a little bit more color on the plan there? I think it’s just under $8 million of base rent.

How much disruption could that cause?.

We are still in discussion, so I am going to be a little tentative.

But if you have looked at the aerial shots we have on our website or visited, you will see there is an abundance of parking in an area that is densifying in a community that recognizes the importance and growing importance of mass transportation and in fact are encouraging us to densify the asset.

So, our expectation would be to convert some portion and still in discussions, so I don’t want to, but a meaningful enough portion that it will help drive the value at that asset and overall. In the next couple of quarters, we will give you a lot better information on that one..

Okay, thank you..

Sure..

And our next question comes from the line of Craig Schmidt with Bank of America. Your line is now open. Craig, your line is now open..

Why don’t we move on to the next question and hopefully Craig will re-queue in?.

And our next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Your line is now open..

Hi, good afternoon. John, if I heard you right, you mentioned that same-store NOI growth is expected to be in the 5% to 7% range in 2018 following 0% to 2% in ‘17.

What gives you confidence that there won’t be additional disruption from ongoing re-tenanting in the years ahead? Is it just expected to smooth out or you don’t anticipate as much space being recaptured in any given year? And then also the 40% rent spreads, was that just for 2017 or is that what you are expecting over the next few years? And is that a cash or GAAP spread that you are talking about?.

Great. So, Todd, first on the 40%, so that’s going to be over the next several years and that will be cash. So that will be – and that also includes many of the activities that Ken walked through. So, it’s not only in ‘17, this is in ‘17, ‘18 and even beyond that through the big street – street assets that we think will be coming to market.

And then on the question of the 5% to 7%, as I said, we do project certain things and using our lens today as what we think will happen in ‘17.

So, of course, things could be worse than we expected, but we are looking in today’s lenses as we project and we look at leasing velocity and other assumptions that are – that we are making when determining when we put tenants in and what rents that we do bring them in at..

Let me add some color to that as well. So Todd, just to be clear, I talked about our expansion of lululemon, a new lease that we did on M Street, the expected new leases that we are going to do on Prince Street.

And those blended to 40% over the next 1 or 2 years or blended to about 40% and which I think are pretty good indications that notwithstanding a lot of noise in the marketplace as long as we are careful about the deals that we buy and the rents there that we should be able to achieve thesis consistent results.

Our part of our thesis has been, hey, if we can get back below market leases, we believe it is in our shareholders’ long-term interest to take down some of that space, increase our vacancy in the short run as long as it’s creating long-term value. And so there is that possibility over time.

That being said, the vast majority of our leases are high-quality, with longer dated leases.

So, the volatility overall should be consistent with our past experience and I am fairly too very confident that we will continue to have opportunities to harvest, that we will be able to in a relatively low growth environment that we are in right now, have see our street and urban outperform our suburban.

And then if the economy gets better and continues to strengthen, those opportunities should be even more outsized..

Okay.

And then Ken, as the shifts in retail take place here and you mentioned the changes taking place between the haves and the have-nots in terms of location and quality, when you look at things, is that being appreciated appropriately in your view when you talk to private investors and lenders today and others in the industry? And if not, what’s being overlooked as all of this plays out?.

And Todd, it can’t, in 2017, be fully appreciated, because there is so much change going on. You will recall, you hosted a panel where I was the bricks and mortar real estate guy with a bunch of previously online only retailers moving to bricks and mortar and they are two very different worlds. There is a changing of the guard occurring right now.

And the historical conversations of our rent to sales ratios and occupancy costs are shifting to CPA, cost per acquisition, which means how do these new retailers think about acquiring customers? With so much change going on and with so many retailers having to either reinvent or frankly get this intermediated, it’s impossible I think for the broader market to fully appreciate these changes.

What we are seeing, what our retailers are telling us and by the way, that’s probably the most important of the conversations we have, we can all talk amongst ourselves, but it’s really about our retailers and what is working and they are being crystal clear that they need to gain and regain control of their brand.

They need to present a value proposition to the shopper that is different than it used to be, because simply going into a store where you are confused as to whether you are paying full-priced or off-price, where you can buy mobile as easily as in the store. And if you buy mobile, you don’t pay sales tax and your shipping is free.

And that’s a very confusing time period. What our retailers are saying now is they need to have strong bricks and mortar location that are brand relevant.

We think that the street retail on the urban locations are the most likely beneficiaries of that, because the retailer can control their brand, they can control their pricing, they can make a more unique shopping experience and use that as a part of their overall omni-channel strategy.

So we are seeing it with Warby Parker who we signed early in Chicago as well as Bonobos and there’s dozens of others coming on that side. And then our traditional retailers, we just signed T.J. Maxx in Lincoln Park. T.J. gets it, they know what their value proposition is to their customer and they are showing up in these right urban markets as well.

So again, I could go on for the rest of this earnings call. It is a very confusing time. I expect it to remain confusing. But as long as we listen carefully to our retailers, see what’s working and see what’s not working, we are confident that we can navigate through that..

Okay, thank you..

Sure..

[Operator Instructions] And our next question comes from the line of Michael Mueller with JPMorgan. Your line is now open..

Yes, hi. Couple of questions.

First, John, when you are talking about taking back 300 basis points of street occupancy, can you talk a little bit about how much of that you will pick back up in terms of leasing right away? Because I know there was a comment about you are not going to – if you are going to take a few years and some of it will end up in redevelopment.

So like how much of that 300 will you get back in just normal course leasing versus something that will go into like a bigger project?.

Yes. Mike, so I would say that the vast majority of it is going to be normal re-leasing. So these expire, as I mentioned in my talking points, a fair portion throughout in the first half of ‘17. So, they will be re-leased later ‘17 or early ‘18. So, of the 300 basis points, we can recapture that with a return and ‘18 is the expectation..

Got it. Okay. And in terms of leasing spreads like cash spreads on a blended basis were 8% or 9% in 2016.

Just given I guess all the call commentary so far about the street leasing and the big mark-to-markets, as we look out to ‘17, ‘18, do you expect any notable changes in that bottom line spread – of the bottom line blended spreads?.

Yes, I mean, I will let Ken weigh in as well. But I think we do expect really strong leasing spreads. Some of the spreads that are coming through are at least one, possibly two of our SoHo assets, which as Ken mentioned, could be in the 70% range of spreads there. So, we do expect as we are getting a high volume of street leases coming back in.

We do have that. But keep in mind, that’s blended with suburban renewals and others that are not going to have those types of spreads. So, I would say over the course of next several quarters and years, you will see, I believe, a change as we are getting.

When we started our street acquisition activity, just a few years ago, we are getting these leases back and doing what we said we are going to do in bringing these to market..

Yes. And the 8% just to chime in, the 8% was our overall portfolio, which as John just mentioned includes the suburban where the spreads were a little less dynamic. The new lease street spreads, Michael, were pretty darn strong and absolutely thesis consistent. And I know we threw a lot of numbers out to all of you.

But 2016, street retail same-store NOI, as John mentioned, was about 300 basis points stronger than our suburban. So again, as long as we can continue to achieve that kind of growth, some of it shows up in our same-store, some of it does not, but as long as we can achieve it, then that thesis is consistent and that’s what our mission is..

Okay.

And one last quick one just on the guidance drivers, you lay out the acquisitions for the core and the JVs, but what about – or for the funds, excuse me, but on the disposition front, I mean, what should we think of there? I know you are not going to have promote income coming in this year, but which we think of in terms of asset sales?.

So, on the core side, we are not projecting any meaningful dispositions and Amy, you want to talk through on the fund side?.

Sure. On the fund side, across the fund platform, we’ll continue to evaluate when assets are stable. Assuming market conditions remain as they are, we will continue to responsibly sell those. So, you could expect that there maybe asset sales, either in Fund III or in Fund IV over the next 12 months.

And Fund IV, just given that we are still early in that process, you wouldn’t expect to see any promote income from those in ‘17..

No promote income, Mike, but I would expect that you would see continued monetizations, Fund IV and otherwise as we stabilize buy fix sell and that business model has worked incredibly well and very profitably..

Okay.

And is there an equity raise assumption in guidance?.

So Fund V, fully done last year. Thank you, Amy. And so we are done for several years on that side. We have $1.5 billion of buying power without having to go to the equity markets.

And I think John was very clear as it relates to the public side, we match funded, did not raise any capital, ATM or otherwise, for painfully obvious reasons in the fourth quarter. And there is nothing about this quarter that feels any different. So, we have a lot of avenues for continuing to grow externally.

And by the way, external growth, especially external core growth is just one of the arrows in our quiver. We have got a lot of embedded growth. We have got a lot of other things to do if the public markets do not cooperate..

Got it. Okay, thank you..

And our next question comes from the line of Floris van Dijkum with Boenning. Your line is now open..

Great, thank you. So guys, I am just – I know that people oftentimes focus on same-store because that gives you a good underlying CAGR.

But as I look at your absolute NOI growth maybe if you can touch upon some of your absolute NOI growth, because it seems like you still have pretty above average NOI growth even in ‘17 despite of what people are talking about and obviously that should accelerate in 2018.

Am I missing something here?.

John?.

Yes, I think, Floris, that’s right. I think just in the way that the same-store if you look at, we brought on $630 million worth of assets throughout ‘16 that does not – a good portion of that doesn’t show up – that growth is not going to show up in ‘17 just the way the mechanics of the same-store works.

So I think just from that factor alone, it’s – we certainly agree with you..

The same-store NOI is not a perfect metric. None of, unfortunately, the metrics that we get to talk about are perfect. Our focus is how do we grow the NOI, how do we show it to all of you with appropriate transparency that reflects the actual pool we own? And at times, it doesn’t because of the acquisitions.

As John just mentioned or for other reasons, and where that’s the case, we will do our best to add additional transparency..

Great. And maybe a follow-up question on the assets that you talked about, Ken, the big drivers, so the 7 assets that will move growth going forward.

Number one, I guess you have signed obviously the lululemon deal, it sounds like, but have you signed or have you got tenants lined up for the Prince Street and the M Street as well as the Lincoln Park property that you mentioned? And maybe you can talk about the cost involved in potentially combining some of these boxes.

Presumably it doesn’t – it’s going to cost some money to get this space ready for the potential new tenants?.

Right. So first of all, leases have been signed. The lululemon lease at Rush Street, on M Street, that lease has been signed. I am not saying who the tenant is just yet so that you all will listen in on the next earnings call. Clark & Diversey, T.J.

Maxx is signed, which is the anchor upstairs second level and then one of the street levels, Blue Mercury has been signed. And then the only ones that have not been signed are Prince Street where we are just in the process of getting back one of the stores and still negotiating to see if we can get back the other.

The costs, and John chime in, Clark & Diversey is the only one that has material cost.

The others are closer to just your typical re-leasing costs where then the tenants are in street retail and this is custom where the tenants are paying the majority of those costs, so the only one that – in that whole component is Clark & Diversey and even that’s not particularly material..

Great, thanks. Sure..

And our next question comes from the line of Craig Schmidt with Bank of America. Your line is now open..

Yes, thank you.

On the opportunistic suburban shopping center acquisitions, how long generally do you need to get through the buy fix and sell cycle?.

Short is 2 years. And usually, if it’s 2 years, it’s because we did some of the fixing and then someone else is willing to take it over from there and just offer us a price that warrants us doing that in Lincoln Road for instance. We were only halfway through lease up when it was time for us to exit.

And in general, we shoot for none of the investments taking longer than, let’s say, 5 years, because that’s one cycle more or less the way we think about things and we try not to do assets that take longer than that. We have detoured periodically, but that’s not our goal..

And are you seeing the value and necessity focused tenants more interested in your street retail assets in the past or about the same?.

We may end up getting to the point, Craig, where some of the traditional labels that we grew up using of value necessity versus experiential versus fashion. And some of that’s going to blur. And I think the good news is what retailers are going to recognize is that location matters, first and foremost.

So when you see what we would traditionally view as necessity based, meaning food, is converging within some instances, exercise, with some instances, other components, I do think we need to be prepared to adapt for that. We are seeing continued interest from several of the newer necessity base, call that Trader Joe’s.

We are seeing continued interest from value which could either be fast fashion or the T.J. Maxxes of the world. But then there is these up-and-coming retailers and don’t count them out, because Warby Parker is here to say, Bonobos and a host of others are making some very interesting value propositions to the shopper are very exciting.

I am very pleased what I’m seeing lululemon do and there is a host of others. So it’s going to be about location, it’s going to be about these retailers picking the right type of store for them to present their brand where they can control their brand adequately. You are seeing Apple do it.

So, I don’t think it will be as simple as saying food and drug is safe and fashion is not safe. I think it’s going to be more and more about location and being very flexible, which is our focus..

Okay, thank you..

And I am showing no further questions at this time. I would now like to turn the call back over to Ken Bernstein for closing remarks..

Great. Thank you all for listening and we look forward to speaking with you at our next quarterly call..

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day..