Ken Bernstein - President, Chief Executive Officer Amy Racanello - Senior Vice President of Capital Markets and Investments John Gottfried - Chief Financial Officer Nishant Sheth - Senior Analyst.

Katy McConnell - Citi Justin Devery - Bank of America Todd Thomas - KeyBanc Capital Markets Vince Tibone - Green Street Advisors Lizzie Li - Boenning.

Good day, ladies and gentlemen, and welcome to the Third Quarter 2017 Acadia Realty Trust Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, today’s program maybe recorded.

And now, I’d like to introduce your host for today’s program Nishant Sheth. Please go ahead. .

Good afternoon and thank you for joining us for the third quarter 2017 Acadia Realty Trust earnings conference call. My name is Nishant Sheth, and I’m a Senior Analyst in our Capital Markets Department.

Before we began 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, November 3, 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.

President and Chief Executive Officer, Ken Bernstein, will being today's management remarks with a market overview and discussion of the company's core portfolio, followed by Amy Racanello, Senior Vice President of Capital Markets and Investments, who will discuss the company's fund platform.

Then Chief Financial Officer, John Gottfried will conclude today's prepared remarks with the review of the company's earnings, operating results and balance sheet. Now, it is my pleasure to turn the call over to Ken..

Thank you, Nishant. Good morning. Over the past several quarters we discussed some of the legitimate headwinds impacting retail real estate and then try to shed some light regarding confusion between which of these headwinds are more traditional short term and cyclical and which are longer term secular changes.

So today in reviewing our third quarter results, I’ll discuss how these trends are impacting the different growth drivers of our business. In general, we are seeing things play out consistent with our overall thesis with a few worthwhile observations.

First observation, we see stability, not withstanding overly negative and overly simplified headlines around retailer headwinds. As we look at our core portfolio, as we look at our cash flows, they remain solid and long term growth prospects remain strong.

But the fact that we see stability, the fact that we see long term embedded growth doesn’t ignore that a variety of retailers are facing real challenges. Now these challenges are having different short term and they are likely going to have different long term impact on retail real estate depending on the property type and the retailer.

But to view all retailer challenges are somehow permanent or caused solely by ecommerce, it’s missing the point. My other observation is looking at our third quarter results, is that this summer new activity both in terms of new leases and new investments was quieter than we had hoped.

Now while some of it might be attributable to summer holidays, and I get that patience is a virtue, it’s just not one of my strong points and its certainly doesn’t help our short term metrics. So I’m pleased that we are seeing things start to pickup.

But more important, when we take a step back, we look at the different drivers of our businesses; I like how we are positioned. I like it both in terms of our core portfolio, as well as our fund platform. First in terms of our core, it’s a well diversified well leased portfolio with strong embedded long term growth.

As we explained on the last call and then John will discusses further today, our portfolio NOI is poised to grow at a 4% per annum clip over the next five years with realistic, rational and achievable assumption. And while a quieter summer means incremental leasing is talking a bit longer. We also need to keep this in perspective.

For instance on the street component of our portfolio as John will explain, we have less than a dozen key spaces to lease, and while the timing of these leases are very important to our short term metrics, given the quality of the location, given that the rent conversations we are having with retailers today are consistent with our expectations, I’m confident that we get there, it’s just a matter of timing.

Further more in the past few weeks, we’ve begun to see important signs of retailer reemergence, especially the Live-Work-Play gateway markets and urban markets where we are focused.

We are seeing this in Chicago, where in Lincoln Park the screens to stores trend is playing out nicely and recently we signed a lease with online home furnishing retailer Serena & Lily on Armitage Avenue. They are joining Bonobos and Warby Parker who are tenants of ours there as well, as well as elsewhere in our portfolio.

We are seeing it in Chicago and Rush and Walton Streets, where the expansion of Lululemon is well underway and we are going to soon begin to redeveloping the building, housing the current Burton Snowboards and that will complement recent additions to that corridor of Aritzia, Versace, Dior and Tesla.

We are seeing it in Washington DC, where there is continued interest from a variety of retailers, ranging from new fashion concepts coming to M Street to off price retails in our urban assets.

For example, in the third quarter at Rhode Island Place, TJ Maxx relocated into a super store location and then we nicely and profitably backfilled it with a Ross Dress for Less store.

Now while we are seeing increased tenant interest in both street and urban, there is no doubt that there has been a fair amount of volatility and a lot of headline noise around street and retail, so I would like spend a few months discussing that.

In trying to understand some of the volatility, I think it’s worth looking at New York City which is getting more than its fair share of headline. In some corridors in New York City, rent doubled from 2010 to 2015 and thus the decline from the peak to current has been meaningful.

Thankfully we were not particularly aggressive in joining the Trees Growing to the Sky Club and thus New York City street retailer is only 8% of our NOI. Nevertheless, we have a handful of spaces to lease there and I think it’s instructive to observe how things played out. In short rents grew, too far too fast.

By 2015 things began to peak, foot traffic was still strong and still is strong, but whether it was a stronger dollar, merchandising misstep, shopper fatigue combined with apparel going into a broad base, nationwide funk, that resulted in retailers slowing there expansion plans, pruning their fleets and then pushing back on that.

And at the same time, a host of entrepreneurial landmarks, they were trying to vacate existing below market tenants and replace them with tenants at ever increasing peak rents. This has created the standoff and visibly noticeable vacancy rates that exist today. And while it may take some time to stabilize, it feels much more cyclical than secular.

In short it’s been much more about old fashion grade than about Amazon and now that rents are beginning to settle, retailers are beginning to step-up. This rollercoaster can be painful for some, that’s the nature of cyclical businesses, but it creates opportunities for others as we think will be the case for us.

As it relates to our portfolio, we certainly like watching rents grows well in excess of our expectations in a handful of the markets we are activity in. But out rental growths goals for our street retail portfolio were always far more modest.

As you may recall, on prior calls we laid out that our goal was to achieve about 200 basis points stronger, rental growth from our street retail portfolio than our stabilized suburban portfolio and that equates to about 4% annual growth, to the 3% contractual and then a bit more through market to markets over time.

Now, if market rents grew 5% per annum or 6% per annum, that’s great, but only if retailer sales and profitability could keep up. In any event 10% per annum, or 20% per annum market rental growth was just not sustainable.

So reflecting over the last five years, notwithstanding the noise, notwithstanding the rollercoaster ride, we see things playing out consistent with our original thesis, and our retailers are telling us that once they regain their sea legs, the must have locations, the properties we own, the gateway markets we are located in, that’s where they are going to return to.

This retailer enthusiasm is also reflected in the progress we are making in our core redevelopments, also in live-work-play gateway markets. As John will discuss, our projects are moving ahead nicely. Then in terms of the suburban component of our core, which is about 25% of our portfolio.

There we see general stability as well and while we are not immune to the trends impacting the suburban side of our business, whether its pressure on some box retailers or interesting trends impacting super markets and drug retailers, we do not feel overly exposited to any one tenant or any one product type in the suburban side, and as always location matters most.

Another driver of long term growth for our core portfolios are core acquisitions. But disciplined match funding is essential and that’s in the third quarter; core acquisitions were quite.

Lack of currency and limited motivation or discreet so far on the part of sellers for the highest quarter properties kept out on balance sheet core purchases sidelined. But we are beginning to see certain owners recognize that they bit off more than they can chew and it the starts aligned, we’ll be there.

Then the other main driver of our business is our fund platform, and while new fund investment activity was also a big quite, we are seeing that beginning to change. Sellers are beginning to be willing to transact at where the market will clear and as Amy will discuss, our high yield opportunities continue to present themselves.

The challenge there to-date has been being able to get comfortable that the NOI will remain intact. Then on the disposition side of the fund business, activity continues to be productive and profitable.

Finally, in terms of interest income from on balance sheet lending as John will discuss, mezzanine capital is coming back to us faster than we are currently redeploying it. This is a high class problem and one that we suspect will reverse itself given some of the dislocations in the market.

So in conclusion, while we look forward to increased activity because that’s what we are built for, we ought not to confuse activity with value creation and from that perspective we are doing the right things staying disciplined and position ourselves appropriately. Most importantly, as we look out over the next several years, we like what we see.

Our core portfolio has strong embedded growth with the right assets in the right locations. Our profitable fund platform continues to provide additional value creation opportunities and our balance sheet metrics are right where we want them. With that, I’ll thank our team for their efforts and turn the call over Amy. .

Thank Ken. Today I’ll review the steady and important progress that we continue to make on our fund platforms V, VI, VII and VIII. Beginning with acquisitions, as discussed on several calls, our funds have been pursuing a barbell strategy, acquiring both high quality value-add properties and high yield or other opportunistic investments.

On the value add front, retailer interest and high quality urban and street retail remains strong, although the process for leasing space is talking longer. And despite all the negative headlines, from an acquisition perspective, there is no actionable distress to speak of.

On the other end of the barbell we are finding interesting buying opportunities in the 7.5% to 8.5% cap rate range. The focus here has been on stable properties and solid, but less favored secondary markets. This has included Wake Forest in North Carolina, Canton, Michigan and Santa Fe, New Mexico.

These assets may not have the right long term profile for the public markets, but on a one off our portfolio basis, we can take these assets private and using two thirds leverage generate mid-teens current returns for our finite-wise fund, unless it’s a lease up opportunity.

At these cap rates we don’t need much growth in an OI to meet our target returns, but we do need stability. As a result, finding these types of centers in good location with the profitable stores and rational co-tendency clauses had been akin to finding needles in a haystack.

But be assured, as we look ahead to our own exit, we are sober to the fact that sponsorship matters and are careful not to assume that the next fire will achieve the same attractive financing terms as us. During the third quarter Fund V added two high yield properties to its portfolio for an aggregate $70 million.

The first is a 380,000 square foot power center located in North Carolina, about 60 miles northwest of Charlotte for $44 million and the second is a 190,000 square foot suburban shopping center in Michigan, about 30 miles west of Detroit for $26 million.

Both properties are well leased at 96% occupancy or better to a solid collection of discounter or best-in-class retailers, including TJ Maxx, Old Navy, Kohl's, Dick's Sporting Goods and Ulta. Year-to-date our fund platform has acquired $141 million of properties and has $107 million under letter of intent.

Assuming that all pending investments close, we will be at the low end of our original 2017 fund acquisition guidance and above the mid-point of our revised guidance of $140 million to $300 million. That said we remain focused on returns not volume, and are highly confident that our investment discipline will be rewarded.

Looking ahead on a leverage basis, we still have approximately $1.3 billion of Fund V dry powder available to deploy and we feel good about our pipeline.

Turning now to dispositions, year-to-date our fund platform has sold or entered into contracts to sell $240 million of investments, of which $53 million was completed during the third quarter and the $106 million was completed in October.

Looking ahead our near term disposition pipeline is also strong, underscoring the fact that the capital markets still have a strong appetite for our stabilized properties, especially our urban investment.

As previously discussed, in July Fund III sold New Hyde Park Shopping Center a 32,000 square foot retail strip center for $22 million and this sale generated a 14% internal rate of returns and a 1.6 multiple on the funds equity.

And then in September Fund II sold 216th St, which is a newly built single tenant office building in the inward section of Northern Manhattan For $31 million and this sale generated a 15% internal rate of return and a 3.3 multiple on the funds equity.

Then in October Fund IV in partnership with a local developer sold four properties in its Broughton St Collection in Savannah Georgia for $10 million. The total Broughton St Collection contains 23 properties and approximately 200,000 square foot of retail, residential and office space.

The four sold properties totaled 17,000 square feet and are fully occupied to key retail tenants such as Vineyard Vines, L’Occitane, and Savannah Taphouse. Our partnership has been successful in attracting National retailers to its charming next generation street retail market.

However we had an opportunity to execute on a partial sales collection at attractive pricing and we did so. I do recall this is a structured transactioned where the funds capital is senior with a 15% preferred return.

Also in October Fund II in partnership with Washington Square Partners sold 7 Dekalb, which is City Point’s Residential Tower 1 in Brooklyn, New York for $96 million. As we recall in mid 2010 we opportunistically acquired all of City Points residential component totally $1.1 million square feet of development rights.

7 Dekalb is the last of three towers sold by the partnership and the building has 250 apartments of which 80% are affordable. Now with respect to our overall City Point Project.

Since 2006 more than 8 million square feet of new development has been completed within roughly a quarter mile radius of City Point or said another way about a three block radius. Most of this new development is residential and note, this metric does not include our own 2 million square foot project.

Looking ahead, City Point is still at the center of a construction zone with another 3 million square feet of development either in construction or in the pipeline and this includes a new 380,000 square foot office building with a 300 plus seat public school and a new one acre public park bodes directly across Gold Street from the City Point.

As the neighboring construction subsides, our project will reach stabilizations, but in the meantime it would be foolish for us to grumble too long or too loudly about the continued densification of downtown Brooklyn. Today all our upper level anchors are open and thriving.

In addition our food anchors DeKalb Market and Trader Joe's are exceeding expectations on the concourse level, bringing an additional shot of energy for traffic and authenticity to our already strong retail project.

In fact, the sales per square foot trend for the food hall already puts it in good company among our top performing retailers with a lot more runway ahead of it..

To that point we’re excited to welcome Cello [ph] Barber who is opening this month and we will also be opening the first brick and mortar store for Joybird who is an online mid-century modern furniture retailer.

The future of retail demand’s authenticity and excitement and our necessity point surely delivers the project may be taking longer to stabilize, but we’re confident that the long term growth profile is strong. So in conclusion we had another productive quarter in our Fund Platform.

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

Great. Thank you, Amy and good morning. I like to first start off by reviewing our third quarter results. We had a strong quarter with FFO coming in above our expectations at $0.37 per share, which was assisted by approximately $0.02 of profit taking within our fund business, including $400,000 of net promote from a Fund III asset sale.

We are not anticipating any additional promo for the balance of the year and we continue to reaffirm $10 million of remaining net promote income for Fund III. Although very early in the disposition process, we are currently projecting that up to half of this could be captured in the second half of 2018.

As you’ve seen in our release, we have tightened our guidance range for the balance of 2017 to $1.45 to $1.49.

As we guided on our prior call, this is slightly below our original midpoint and was driven by the lower than anticipated investment volumes that Ken discussed, along with earlier than expected repayments within our structured finance portfolio.

Now moving onto occupancy, one of our key strategies to enhance our NAV and generate long term growth is through the recapture of space, particularly on our street assets. We continue to believe that the long term benefits of this strategy will far out weight the short term volatility this generates in our quarterly metrics.

I wanted to provide some color on the spaces that we’ve recaptured over the course of the year. In aggregate this space is comprised of 30 leases with AVR of approximately $5.5 million.

While we’re certainly active on all 30 of these leases, as I have shared on prior calls, the vast majority of NOI and thus our short term performance will be driven by the timing of achieving rent commensurate dates on really just a handful or 11 leases with AVR of approximately $3.41 million.

Doing the math, this equates to $300,000 a month or approximately 100 basis points impact on our quarterly same store NOI metric. These 11 leases comprised 20,000 square feet within our Chicago and New York City street retail portfolios.

As I’ll discuss in a moment, we have actually executed in the last few days one of these 11 leases within our Chicago portfolio. So breaking down these 11 leases a bit further;.

Chicago comprises five of the 11 leases with roughly $1.1 million of AVR and approximately 15,000 square feet at our high quality live-work-play locations on Chestnut Street and within our Armitage portfolio. And Ken mentioned, we have just signed a lease with Serena & Lily for about a third of our available Chicago street space.

We are anticipating a rent commencement date on this lease late in the second quarter of 2018. Just to further illustrate the point on timing, the execution of this lease was several months behind our initial expectations and obviously a drag on our short term metrics, but more importantly we hit the rents that we were projecting on that space.

So now moving onto New York City. We have six spaces to lease on less than 5,000 square feet. The projected annual rents are approximately $2.3 million and these leases are located on Madison Avenue underneath the Carlyle Hotel, SoHo and West 54th Street.

We will continue to provide leasing updates throughout the balance of the year and into 2018 on these camp out leases. So in terms of NOI, as we anticipated our same store NOI was flat for the quarter.

After equalizing the comparable periods for the recapture of space that I have just discussed, our same store NOI would have grown approximately 4% for the most recent quarter with our street and urban continuing to outperform our suburban portfolio by nearly 200 basis points.

As you recall from prior calls, we are continuing to anticipate a $4 million impact from the capturing space during 2017. This is the driver as to why our short term growth in 2017 is temporarily off our long term growth estimation. As we have shared on prior calls, our fourth quarter will feel the full impact of our occupancy shift.

As Ken mentioned, during the third quarter we recaptured approximately 25,000 square feet from TJ Maxx in one of our DC locations and profitably backfilled it with Ross Dress for Less.

So while accretive long time, it does result in downtime and that’s a short term drag on our FFO and same store NOI, we are projecting seven months of downtime as Ross completes its build out and works towards the Q2 2018 rent commencement date.

Thus given these timing shifts, we expect our full year 2017 same store NOI to be relatively flat with negative same store NOI of 1% to 3% projected for the fourth quarter of 2017.

Consistent with Ken’s observations on it being a slow summer and evidenced by our recently executed lease with Serena & Lily, the timing of RCBs has slipped beyond our initial expectations – but it’s really just that, its timing.

While the process is taking loner, the market rents that we have assumed in our internal models remain in line with the pricing discussions we are having with tentative brokers.

So when do we lease these spaces, beginning, middle or end of 2018, it has a very negligible impact on our 4% long term core growth or more importantly the value of our portfolio. So I now want to move on to an update against our growth plan.

As you recall, we have previously laid out our plan for 4% annual growth, our $20 million of incremental NOI through 2021. Half of that growth is comprised of contractual rent bumps with the balance being split between lease up and redevelopment.

So when thinking about this from an FFO perspective, the lease up and redevelopment portions of our plan are projected to generate $0.10 to $0.12 of additional FFO through 2021.

While the contractual growth portion of our plan will certainly drive our cash and same store NOI growth, it doesn’t impact FFO given the mechanics of how straight line rents are used for GAAP reporting purposes.

So in terms of our redevelopment efforts, during the quarter we have made significant progress in our City Center Project in San Francisco, which is the single largest driver of growth in our plan. As you recall, we plan to add 35,000 square feet of prime retail space to this 200,000 square foot target anchorage center.

We have been fully approved by the planning department and no further appeals exist. We anticipate receiving our construction permit in the first quarter, with the majority of construction being completed during 2018. Our leasing is well in line with our expectations in over 80% of the space is leased or at leased.

We are anticipating RCDs as early as the second half of 2019. As you also recall from our first quarter call, as part of the City Center redevelopment, we will also be recapturing approximately 55,000 square feet of space from Best Buy in early 2018 upon the expiration of their lease.

Between rent and reimbursements, this translates to approximately $4 million of FFO or $0.04 per share in 2018 to reflect downtime. We have strong interests and are in active discussions with a number of exciting retailers and expect to profitably release the space with an anticipated RCD in the first half of 2019.

Now moving onto our balance sheet, we remain disciplined in our capital allocation practices. We have not issued any equity nor have we increased our leverage throughout the year. Our ratios remain best in class and our debt is appropriately staggered with no meaningful maturities in the next few years.

I want to take a moment to highlight a couple of areas of dry powder embedded in our balance sheet and the growth engine that this provides us. Starting with our structured finance portfolio. We are anticipating proceeds of approximately $60 million from the profitable repayments of loans during 2017 and into 2018.

Through September 30 we have received about $12 million of these proceeds with the balance projected over the course of the next few months.

As Ken mentioned, while these payments are short term dilutive prior to reinvestment, it is also a driver of future growth as it enables us to redeploy these proceeds from what has transitioned over the past few years to a primarily first mortgage book to a more creative mezzanine book.

We intend to keep our investment levels within our structured finance business consistent with our past practice which is operated at less than 10% of our GAV. So now moving on to our Fund business.

We have already raised the capital in Fund V and as Amy discussed, on a leverage basis we are targeting $1.3 billion of acquisition volumes over the next few years.

So to put this in perspective of future growth, generally speaking for every $500 million of growth volume, this generates roughly $0.05 to $0.07 of FFO from the incremental NOI and related fees we earned.

Further as we think about the fee earning portion of our business, upon the substantial completion of City Point within Fund II this past year, we are anticipating our aggregate fee business revert back to historical levels which is average $20 million and we expect this to start in 2018.

So in closing, we had a very strong quarter and more importantly a strong outlook for meaningful value creation given our high quality portfolio and the strength of our balance sheet. With that, I will turn it over to the operator for questions..

[Operator Instructions] Our first question comes from the line of Christy McElroy from Citi. Your question please..

Good morning. This is Katy McConnell on for Christy. Can you provide some more color around the slow leasing velocity and relative to your previous expectation of the bulk of leasing will be done in six to nine months.

How are you thinking about that timeframe today and how that could impact potentially lower NOI growth in 2018 versus the initial 5% to 7% expectation?.

Let me take a first cut at it John and then maybe you could add some detail and reiterate how timing sensitive it is. The summer was quiet as I had said.

If you had asked me six or nine months, I said we had a dozen leases to do and we could simply achieve that being the lease of the month cloud and now we got to be more like the least of the week club if we want to get rent commencement date done by January 1, and so frankly I don’t see that.

But that being said, in the past several weeks first Serena & Lily stepped up and now our team is working with a handful of other retailers who are showing legitimate interest, legitimate rent. So from my perspective what I care about is will that NOI be there at some point in the next year.

I care less about the specific timing, although I get that that impacts our quarterly results. I care about that $20 million of NOI that John talks about that and for that we’re feeling good. So John, why don’t you reiterate them from a timing perspective, the impact of when these leases occur..

Okay, good morning. So I think you know as Ken said I think it really is going to be driven by these 11 which is really now 10 basis points given the Serena & Lily, lease we execute it.

So I mean breaking that down, I bet so assuming we have 2% to 3% growth already accomplished, you know again following up with what Ken said in order to get you know this incremental leasing or from these tent leases.

In order to get that incremental, call it 3% to 4% of incremental growth, we would need to sign those on January 1 and the way that I think about it every month that we slipped, again averaging those 10 leases its gone to cost us 25 basis points of growth each month, that is beyond January 1.

So again what I can say is that while we are very confident on the prices that we are assuming that will enable us to capture that growth and the way that we think about how that flows up in our NOI over the next four years.

I think that share Ken’s confidence that hitting, January 1 day on each of these 10 remaining leases is, does not look to be like it’s going to happen. .

And let me just one final point as John articulated, it’s close to 400 basis points of embedded growth. And if it’s January 1, then our numbers look at the high end of whatever we had expected. As long as it shows up, it may not help for the quarter, but as long as it shows up and we feel good about that, then from an NAV perspective we’ll be fine..

Okay, great thank you..

Sure. .

Thank you. Our next question comes from the line of Craig Schmidt from Bank of America. Your question please. .

Hi, good morning. This is Justin Devery for Craig. While we hear your point on retailers reemerging with demand for space, we’ve noticed some of your peers have stated it’s taking a little bit longer in general to get deals done as retailers on the whole are just being more selective now on where they want to open stores.

Curious if you guys are seeing this as well. .

Yes absolutely.

Whether we want to term this the rise of the CFO, no one fault intended John, but the financial side of the business is much more active and part of this transaction has seen new exciting merchants emerge and emerge with the capital to do a deal and this shifting, this shuffling of the deck, changing of leadership, it’s going to take a while.

And until it does, things are happening slower than they should. And that’s fine because I’d rather the see the new emerging retailers be disciplined and be careful about how they are making their decisions than to flame out. .

Thanks and appreciate the update on City Point. I was curious if there anything you learnt from leasing this project that can be applied to perhaps the urban assets in the core portfolio, specifically as it pertains to the food hall and having that in place from the big boxes in place before leasing the small shop space. .

Absolutely and yes, City Point is very instructive to us on what’s working, what the shopper today is interested in. So you know there is that saying that’s been around that food is a new fashion and fitness in the new food and we are seeing all of that.

That the shopper wants authentic, the shopper wants real and the retailer online originally wants profits and so what we are also starting to see is that the retailers are saying hey we need to be in a place like this that has the dynamic food hall, that has Alamo Drafthouse which I used to think of them as a movie theater and then as I spent time there I realized that’s another food outlet, its anther entertainment ally – all of that matters.

But what we are also seeing is along with that combination of food and entertainment, that there are ligament retailers who are recognizing that that’s what they want to be around and so we are trying to be patient, we are trying to be disciplined in which ones we are bringing in, but you are going to see a bunch on formally online only stores.

They need reference to couple of them starting to shop. I had no reason to think if they are not also going to show up in our core as they begin to get better grounded in terms of their business. .

Thanks for taking my question..

Sure..

Thank you [Operator Instructions]. Our next question comes from the line of Todd Thomas from KeyBanc Capital Markets. Your question please. .

Hi, thanks, good morning. So just a follow-up on the leasing activity in the Chicago and New York Street portfolios for the eleven spaces. You commented that you hit the rent projected on the space in Chicago. But how are rents trending for the remainder of that space, based on discussions.

You know in understand the timing is a little uncertain but how confident are you in achieving the rents that you’ve projects?.

So the good news is we didn’t buy too much, we avoided the vintage that would make the peak rents necessary.

So when I say we are achieving our rents thankful, we bought 2010, ‘11, ‘12, ‘13 and as you may really we kind of step to the sidelines for ’14, ’15 because we articulated that rental assumptions were growing too high and we couldn’t get there. So our rental assumptions were more rational and thus we are getting to them.

The volatility Todd has been the bigger issue. The fact that retailers have been a little sluggish and I don’t blame them. When you saw rents growing 10%, 20% a year less Chicago more New York and then you see the declining 10%, 20%, 30%.

If you are the new Head of Real Estate for an up and coming retailer, you want to be really careful that your finding the bottom or finding stability and so they were all being taking there time.

That being said, we are seeing them start to show up at the rents that we assumed and so its achieving our long term 4% growth and that’s I said – we try to avoid this 10% to 20% conversation, in that rollercoaster and we are getting there. .

Okay, and then how much time does it take from lease signing to rank commencement for these, you know some of these smaller street retail spaces on average?.

Yeah, I mean Todd is totally depended on retailer. I think on Serena & Lily I mentioned we’ve signed that literally in the past few days and they are not going to be in the space until the second quarter of ’18 and that could be given they are new to the retail space as they transition from an ecommerce player.

So it’s really dependent upon who the nature of the retail is, but in the report for example on Ross, that took seven months, but I think on some of these streets we tell in the space and it doesn’t, often times it doesn’t need much work to get up and running. It could take the sixty to ninety range.

So it’s very volatile in the nature of the retailer that’s taking it and what the plans are for this space..

Okay and then just maybe if just I shift over to you know the acquisitions a little bit here. So Ken, you been disciplined now for many quarters, particularly in the quarter as you mentioned and you commented that patience isn’t one of your strongest characteristics.

If we think ahead what’s the strategy that some opportunities do present themselves as you expect, but you don’t have the right currency to work with. .

So – and you are absolutely right.

It is a match funding process and if you don’t have the currency, then you better be willing to lever up and we historically have not – especially when you are in periods of high volatility like we are right now, and then usually what you see people do if they are smart about it, if they say we are not going to lever up, we are not going to issue our stock, we should go leverage off of other institutional capital, use our skills, use our capabilities, because boy there is good opportunities out there.

Now usually then they go and they say, ‘oh we got to go raise money we want to go get commitments.’ We have that money, we got the commitments. We’ve got $1.3 billion of buying power right now, fully subject to only our discursion.

So what I say is and I hope it’s not the case, but if we do not have the ability to do on balance sheet acquisitions and opportunities present themselves, we got the capital. You’ve seen us do this before, whether it was in Cortland Manor, dating back to Mervyn's and Alberton’s, a whole verity of things, thus we have that issue solved.

That being said, on the on balance sheet side, I’d like to continue to grow our core portfolio. We doubled it over the last five years until the recent correction. I think we can double it again.

Not very quarter, but you ought to able to assume five years from now we will find opportunities one way or another, because if this is a permanent correction it has a whole different set of conversations there. I think right now what you have a lot of noise, a lot of confusion in the market place.

This will settle down and then we will start seeing opportunities to add to the growth profile of our existing core portfolio. .

Thank you. .

Sure..

Thank you. Our next question comes from the line of Vince Tibone from Green Street Advisors. Your question please. .

Good morning. So do you guys expect to recapture any of the street retail spaces expiring in ’18? Can you also provide an update on the Prince Street properties in SoHo.

Are you still proactively looking to take back that space and if not, when did those leases expire?.

John here, so in terms of expiry so we still, and Uno de 50 still actually in this space and SoHo and Folli Follie I think is through 2020. So we have some time on the Folli space. In terms of 2018, we have some expirations, but nothing overly meaningful since going into 2018..

And then to be specific on Prince Street, yeah we would take, we are going to get back Uno de 50. Their lease has expired and we are getting them back shortly. The Folli Follie, we would take it back tomorrow but they have more term left. So that negotiation is ongoing. .

Okay, great and so just to confirm, when is sorry the first retailer you referred to? When are they moving out or when does their lease expire?.

Uno de 50 is moving out and actually may just move down the past few days. I think it was October 31 if I remember correctly. .

Okay, great, that’s helpful. And you kind of touched on this but do you think Street retail cap rates in New York and Chicago have moved higher based on kind of the slowing leasing velocity. I’m sure cap rates have gone higher for assets that now have above market rents.

But what about you know stabilized assets that was embedded in market to market opportunities. You think cap rates have moved there as well. .

And again its depends which hat I’m wearing, but in general cap rates have now moved that much using the clarification which you just did, which is if the retailer is either in profitable and it looks like they are going to be there long term at a rational rent, those are trading – just saw the once in San Francisco, and all the stuff we own, its sub four cap and I have every reason to think whether its Madison Avenue.

Chicago is always a little big higher, but Rush and Walton where we are expanding Lululemon, those cap rates are probably as low or pretty darn close as ever, except it’s all about the rent.

So if you are getting 3% contractual growth, if there is a view that this is a very strong area, the Rush and Walton Steer in Chicago for instance where tenants are signing up, they are signing new leases, they are long term viable, strong retailers, like Lululemon, like Aritzia or even Tesla, but I won’t get into the whole technology thing.

There we are seeing cap rates halt. So that’s a long way of saying, the doubles and details, it’s about the rents, but if the rents feel good, people want to own in these gateway markets and are being very aggressive on pricing. I’d love to see cap rates back up a little bit more because we want to buy more of that stuff. .

Okay, great. Thanks, that’s all I have..

Sure..

Thank you. Our next question comes from the line on Lizzie Li from Boenning. You’re question please. .

Hi, good morning. This is Lizzie calling in for Floris today. I was wondering if you could elaborate a little more on the prepayment on the Mezzanine investment, the upcoming payment.

What kind of assets relate to current plans for their reinvestment of ?.

You broke up a little bit. John, why don’t you answer, but it was clear she is asking about our mess book, so why don’t you add some to color to that..

You will see in the press release that we put in roughly $30 million, $32 million I believe is what we had in there that we expect in 2017. $12 million of that came in.

In the first half of the year we received a noticed that another $20 million is coming in at some point in the shortly after the next few weeks, which was intended to be – to go out for 2019. It’s roughly if I really an 8% return that we are getting on the money. So we are actively looking at opportunities to redeploy that.

Trying to redeploy that in a way obviously where we get, we get returns that we are shooting for and we are in the early stages of looking at that Lizzie. So I would say you’ll stay tuned and I think when we get that back we will announce where we deploy it, but are in the markets looking to add that.

And as I said on my call, I just wanted to say a relatively small portion of our business but a meaningful one we’ll keep at around 10% of our GAV and ..

And just to put some context on this, at different times we’ve been able to put money out at mid-teens plus returns and in Mezzanine and when those come back there is a real challenge as to whether there is redeployment.

As John just articulated, these were relatively straightforward financings that we did either because we were hoping to then convert them into and own assets that we’ve opted not to or for whatever are the reasons. So redeploying it whether it redeploys our funds business, whether it redeploys versus core or ongoing mezz we’ll see.

But one way or another it’s kind of hard to complain about having money coming back, given all the dislocations and volatility in the market. .

Great, that’s helpful. Thank you. .

Thank you. And this does conclude the question-and-answer session of today’s program. I’d like to hand the program back to Ken Bernstein for any further remarks. .

Thank you all for listening in. We look forward to talking to you again next quarter. .

Thank you, ladies and gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day..