Acadia Realty Trust (NYSE:AKR) Q3 2018 Earnings Conference Call Transcript

Oct 25, 2018 • 12:00 pm ET


Acadia Realty Trust (NYSE:AKR) Q3 2018 Earnings Conference Call Transcript


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Good day, ladies and gentlemen, and welcome to Acadia Realty Trust's Third Quarter of 2018 Earnings Conference Call. (Operator Instructions)

I'd now like to turn the conference over to Nishant Sheth. Please go ahead.

Nishant Sheth

Good afternoon, and thank you for joining us for the Third Quarter 2018 Acadia Realty Trust Earnings Conference Call. My name is Nishant Sheth, and I'm a Senior Analyst in our Capital Markets department.

(Forward-Looking Cautionary Statement)

During this call, management may refer to certain non-GAAP financial measures, including funds from operation 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.

Now it's my pleasure to turn over the call to Ken Bernstein, President and CEO, who will begin today's management remarks.

Kenneth Bernstein

Thanks, Nishant. Good afternoon. As you saw in our release, we had a solid quarter where, most importantly, we're seeing continued momentum in leasing fundamentals, especially in our higher barrier-to-entry street and urban assets. So today, I'll discuss some of the relevant leasing and retailing trends we're seeing and how we've positioned ourselves to benefit from them, then John will drill further into our operating metrics and balance sheet strength, and finally, Amy will discuss the progress we're making in our Fund platform.

In terms of our Core portfolio and retail leasing environment, we're seeing further confirmation of the separation between the haves and have nots, both amongst retailers as well as retail real estate. As it relates to the retailers in the have category, sales growth has been significantly more robust than had been either feared or forecasted as recently as a year ago.

We're seeing this in retailer categories, ranging from discount department stores to off-price retailers, from specialty grocers to new up-and-coming screens-to-stores retailers. We're seeing this from tenants ranging from Target to TJ Maxx, from Aritzia to Allbirds. What we are consistently hearing from all of these retailers is that great real estate is going to be a key component and a critical area of differentiation for their growth, especially in an omni-channel world.

So if retailers in the have category can post same-store growth of 3%, 4%, 5%, in some instances even higher. It's worth asking, What might rental growth look like in the future for locations that can drive this level of profitable growth? What we're hearing so far from many of our retailers is that we're thankfully passed the concern of perpetually declining sales and store profitability, and we're now heading back to the age-old battle of supply and demand.

In other words, retailers with strong sales can once again pay more rent for mission-critical locations. But they won't unless they have to. Where there is abundant supply, that could take a while and might feel like pushing on a string. But where that supply is more constrained or where the growth is more robust, then longer-term rental growth feels more achievable.

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