AKR - Acadia Realty Trust

Operator: Good day, and welcome to the Acadia Realty Trust Second Quarter 26 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question, you will need to press *11 on your touch-tone telephone. As a reminder, this call is being recorded. I would like to turn the conference over to George Horst, summer intern. Please go ahead.
Kenneth F. Bernstein: Good morning, and thank you for joining us for the second quarter 26 Acadia Realty Trust earnings conference call. My name is George Horst, and I am a summer intern for property management. 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 1.93 thousand and the 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, July 29, 2026, 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. Once the call becomes open for questions, we ask that you limit your first round to 2 questions per caller to give everyone the opportunity to participate. You may ask further questions by reinserting yourself in the queue, and we will answer as time permits. Now, it is my pleasure to turn the call over to Kenneth F. Bernstein, president and chief executive officer who will begin today's management remarks. Thank you, George. Great job. Welcome, everyone. As you can see in our press release, we had another strong quarter. Driven by continued momentum across both internal as well as external growth initiatives. And while geopolitical events have certainly added unwanted uncertainty to the global economy, our results tell a different story. In fact, it is worth poised to--pausing at this point for a moment. For instance, the tariffs on Labor Day were announced on April 2nd. So this is really the natural quarter to compare against to see what is actually happened to our business. And since then, we delivered earnings growth of 11% year over year Last quarter, same-property NOI came in ahead of our plan at 8.7%. We produced record leasing activity, with rent spreads exceeding 90% this quarter compared to single digits a year ago. So while the headlines have been relentless, what our retailers are telling us is a very different story. The US has become increasingly relevant. The consumer has remained resilient. And retailers are doubling down on must have real estate. That strength shows up across the key drivers of our business. First, with respect to internal growth, which A.J. Levine will discuss in more detail our operating metrics continue to reflect the strength of our street retail thesis. Second, with respect to external growth as Reginald Livingston will discuss, we were busy last quarter on the transactional front. With important street retail additions to our REIT portfolio and more to come. Simultaneously, we were harvesting profits from several assets in our investment management platform, where we have now disposed of or recapitalized over $500 million year-to-date, at a nearly 2x equity multiple. And then third is John Gottfried will discuss, our balance sheet metrics are right where we want them. With plenty of dry powder, to fuel future growth. But taking a step back, what this quarter really reflects is our street retail thesis being validated in real time? On previous calls, we discussed why tenant demand and tenant performance in street retail is so strong and those same drivers remain firmly in place. Limited new supply, strong tenant performance driven by the affluent consumers who shop our corridors and then most significantly, the increasing demand due to the long term migration of brands away from wholesale or department stores. and towards their own direct to consumer stores. This DTC shift has been gaining steam over the past few years and it appears we are still in the early stages of this important multiyear demand driver. it is an important reason why we are seeing the strongest growth coming from the street retail portion of our portfolio. But this increased demand and ensuing market rent growth is only half the story. The other key driver of our results comes from this differentiated structure of our street retail leases that allows us to capture this growth faster than in other formats. First, our street retail leases generate higher contractual rent escalators generally with 3% annual growth. They also require a lighter relative capital on retenanting. So more of that top line growth, drops to the bottom line. But most importantly, our street retail leases carry fair market value resets that allow us to have faster and more frequent mark to market opportunities, a structural advantage that simply does not exist in other formats. This means that to the extent that we are now operating in a longer term inflationary environment, as we have experienced over the past couple of years. These resets provide for inflation protection as well. The combination of superior contractual growth more frequent mark to market opportunities means our street retail portfolio is positioned to generate 200 to 300 basis points of incremental same store growth above what we achieve in our suburban portfolio. In fact, over the last 3 years, we have delivered closer to 400 basis points of superior growth. And given that demand seems to be increased we expect this outperformance to continue. We are also seeing proof of concept where our performance is being further enhanced. When we achieve scale in a given corridor. We have found that once we own about 20% to 25% of the retail on 1 of our key streets we can better drive curation better drive sales performance, market intelligence, and operating efficiencies that result in about a 10% incremental NOI increase for our properties. Thus with these tailwinds and goals in mind, our acquisitions are focused on those deals that both stand on their own from a return perspective but also position us to further recognize the benefits of scale. Since the third quarter of 24, we have invested approximately $700 million in street retail acquisitions in our REIT portfolio. And with our current pipeline, our goal is to hit $1 billion by year end, nearly doubling the size of our street retail portfolio. These investments have already created approximately 3% FFO accretion per share. And an even higher percentage of NAV accretion. Importantly, this focus is bringing us closer to our goal of being the premier owner operator of street retail in The US. Which is also bringing scale benefits to our platform. Now to be clear, our discipline here is unchanged. Our investments continue to be accretive to earnings, and accretive to net asset value from day 1 and continue to deliver on our target of initial accretion of 1 penny of FFO for every $200 million we deploy. As a result, the benefits of scale that we hope to recognize in the future are additive to what these deals already deliver on their own. So in conclusion, the results we are delivering today are a direct reflection of the strategy we have been executing for several years now. Both with respect to our focus on street retail for our REIT portfolio as well as our execution through our investment management platform. The internal and external opportunities in front of us give us a clear line of sight into multiyear top line growth, with increasing confidence that this growth will continue to drop to the bottom line. And with that, I would like to thank the team for their continued hard work, and I will turn the call over to A.J. Levine.
Alexander Levine: Thanks, Kenneth. Good morning, everyone. I will start off with an update on leasing activity and the trends that are driving our results this quarter. Then I will focus specifically on the rent growth we have seen on our key streets, and how that is translating through to pry-loose and mark-to-market opportunities in our portfolio. Starting with leasing activity. During the second quarter, we signed approximately $8.9 million in new leases, which is the highest volume for any quarter in our company's history. While we continue to see strong fundamentals and leasing momentum from all sides of our portfolio, street, urban and suburban, it is the performance of our streets that continues to fuel the majority of our growth. Approximately 80% of the new ABRs signed in the second quarter was from our street and urban markets. where we will see the highest contractual growth at 3% per annum as well as more frequent opportunities to mark-to-market through FMB resets. And even with the record volumes we have achieved during the second quarter, the pipeline of prospective leases in advanced negotiation remains strong. With $10 million in additional ABR being actively negotiated. As far as what is driving that demand, there are several factors at play. The first being the current supply demand dynamic on our streets, vacancy rates in markets like Madison Avenue, Green Street in Soho, North 6th Street in Williamsburgiamsburg, Armitage Avenue in the Gold Coast in Chicago, and Melrose Place in Los Angeles at historical lows. As far as tenant demand, the decline of traditional wholesale channels coupled with the recognized benefits of DTC retail, has given rise to the deepest pool of specialty, advanced contemporary, and luxury tenants that we have seen perhaps ever. it is clear from the activity on our streets and from speaking with our tenants that retailer demand continues to meaningfully outpace supply. That is naturally creating heightened competition for space supported by unmitigated consumer demand. And that brings us to the second factor, which is tenant sales growth and occupancy costs, especially for those tenants catering to the higher earning customers that shop our streets. The annual sales growth that we have seen from tenants such as Aritzia on M Street Alo Yoga on Michigan Avenue, Violet Gray on Melrose Place, Doen on Bleecker Street, Tecovas on Henderson Avenue, and Zimmerman in Soho, is averaging over 25% year over year. And the blended health ratio for those tenants is below 9.5%. So unlike the 2015-2016 cycle, when rents ran well ahead of what sales could support and ultimately had to correct, today's tenants remain healthy and 4-wall profitable. Even before taking into account the halo effect and other benefits of omnichannel retail. So as we look for additional opportunities for growth this is where we find it. And what the sales data continues to signal is that despite several years of elevated rent growth on our streets, we still have significant room to run. And the third dynamic, which is perhaps the most intentional is the scale that we are building along these dynamic corridors that is allowing us to curate our streets, positively influence tenant performance, and ultimately capture the outsized rent growth. A good example of these dynamics at play would be Armitage Avenue in Chicago, where we control over 30% of the retail on the street and have spent years thoughtfully curating with brands like Serena & Lily, Jenny Kane, Huckberry, Levain Bakery. Over 65% of our GLA on Armitage has undergone some form of a rent reset since 2019 and over that time, rents on the street have effectively doubled. The street has virtually zero vacancy, but that has not stopped us from unlocking embedded value, both qualitative and quantitative. Through our pry-loose strategy and FMB resets, we continue to improve merchandising and drive rents on the street. In our latest example from the second quarter, we re leased space on Armitage at a 75% spread. But when you consider that the prior tenants' initial rent from 2000 was $76 a square foot, and the new rent is $155 a square foot that means that rents on Armitage have grown over 100% since 2019. that is 10.5% annual rent CAGR. And just 1 year ago, we signed a lease at Armitage at $130 a square foot, which means that rents on the street have increased by 20% year over year and signals that the market is, in fact, accelerating. That level of growth does not happen by accident. It flows from thoughtful, intentional merchandising, space by space, tenant by tenant. Prying loose an underperforming tenant and replacing them with the likes of Jenny Kane, who has the ability to generate sales at 2x the previous tenant. The type of planning and impact that can only come from achieving scale within a market, But while this level of rent growth is fairly unique to our streets, it is not unique to Armitage Avenue. We have seen a similar dynamic on M Street in DC, on North 6th Street in Williamsburgiamsburg, on Newberry Street in Boston, and on Worth Avenue in Palm Beach. On Green Street in Soho, for example, where, again, supply is near all time lows, and competition for space is the strongest it is been in over a decade, This past quarter, we signed a new lease with a European luxury retailer at a 34% spread. But when you factor in the 3% contractual increases typical of street retail, the true spread against the previous tenants starting rent from 2022 was closer to 43%. Again, that is close to 10% CAGR over the last 4 years. On Melrose Place, we retenanted the space at a 48% spread. But, again, when you compare today's market rent against the market when the previous tenant last renewed in 2021, the growth over that period is 66%. that is 11% CAGR. Those are just a few examples. But overall, spreads for the quarter came in at 91%. Now let me be clear. We recognize that posting 90% spreads is extraordinary. But given the current market dynamics of street retail, double-digit market rent CAGR over the last several years and the performance in demand we are seeing from our retailers, we do expect to see consistent double digit spreads moving forward. Plus the 3% contractual growth that is standard for our streets. The spread is the headline, but the compounding is what really drives returns over time. What makes all of this particularly powerful for our portfolio is that because of FMV resets that are unique to street retail, we are able to capture this rent growth sooner than we can from suburban leases. And therefore, a meaningful portion of our portfolio will be resetting to current market in the near term, allowing us to seize the momentum in real time. John will walk you through what that embedded mark-to-market translates to in terms of earnings growth potential. it is also worth noting that the average payback period for the quarter's new conforming street leases was slightly above 9 months. that is accounting for commissions and CapEx. Whereas the payback period on a new suburban box is typically 5 to 7 years. that is just 1 more reason why not all spreads are created equal. So in summation, despite a record quarter of leasing activity, the runway ahead remains significant. Mark rents on our core streets have compounded meaningful since 2019. Those rents continue to accelerate, as available supply further contracts. And our lease structure ensures that we can capture that growth on a recurring basis. As always, I would like to thank the team for their hard work, And with that, I will turn the call over to Reggie.
Reginald Livingston: Thanks, AJ, and good morning, everyone. I will start my remarks covering our recent transaction activity and current pipeline. Which is keeping us on our traditional pace of $400 million to $500 million of street retail acquisitions per year. Year to date, we have closed over $228 million in acquisitions for our REIT portfolio including $149 million in Q2 to date. All while hitting our key metrics. Accretive to NAV, accretive to FFO at a rate of a penny per $200 million, with NOI CAGR in excess of 5%. Specifically, our recent activity included 4 and 28 Newberry Street in Boston, These assets are anchored by Chanel and Cartier and possess a meaningful value creation opportunity we are actively working to harvest. 8.8 thousand Melrose Avenue in West Hollywood, which is leased to Jacquemus, the acclaimed French retailer. This too has value creation opportunities that could drive cash yields to north of 8% in the near term, through redevelopment and retenanting. And finally, we added another door in the key Flatiron Union Square market where we now own 5 storefronts and are further realizing the benefits of scale there. On top of those acquisitions, we are excited about our pipeline. We have built a platform that routinely closes $100 million a quarter of street retail and we expect to exceed that pace for 2026 And John has raised all the money needed to do it. This pipeline has all the Acadia hallmarks, including off market deals leveraging the less crowded street retail space in our first call advantage, tenant driven market intelligence infused in our underwriting, building more scale on corridors that continue to experience outsized rent growth, and below market leases that allow us to harvest that growth in a relatively short period of time and stabilize significantly above our going in yield. In fact, we have already delivered several examples of converting below market leases to market rent on our recent acquisitions. On our 2024 SoHo portfolio purchase, we have signed leases that will increase NOI by 90%. Stabilizing to a 6% yield, and a high sixties yield in a few years through another F&B opportunity. All on an asset that would trade below a 5 cap today. Same with 1 of our 2024 Will purchases where we have more than doubled the NOI also slated to stabilize to a 6% yield an asset that would trade at a low 5s cap rate today. In other words, we do not just buy deals with upside. But we are actually executing on our plan to capture that upside. On the IMP side, the increased capital appetite for open air retail is certainly made competition for this product stiff, but we remain confident we will secure the right assets at attractive prices. Confidence driven by our history of doing so. On the flip side, we are taking advantage of this increased competition. Through select dispositions of IMP assets where we have successfully completed our business plan. To date, we have sold and recapped north of $500 million, with another $200 million-plus of dispositions by year end. This continues the success of this platform. Where we have achieved a nearly 2x equity multiple and mid-teens IRR on these deals this year. So in conclusion, the bottom line is we are well on our way. To cross the threshold of $1 billion of street retail over the last 2 years, and we are doing it in a way that is accretive, disciplined, and building scale with a growing pipeline to fuel more growth. And with that, I will turn it over to John.
John Gottfried: Thanks, Reggie, and good morning. I will start off my remarks with comments on our second quarter performance, including building blocks for the balance of the year and into 2027, and then closing with an update on our balance sheet. As outlined in our release, we delivered $0.31 of FFO. It was another clean quarter that exceeded our expectations. Enabling us to once again raise our full year earnings guidance. And to keep it simple, it was our street retail portfolio that drove the quarter. Contributing nearly 16% same property growth equating to nearly $0.02 of incremental FFO versus the prior year quarter. The growth was pervasive across our street markets. And in our scaled corridors, the growth was even more pronounced. For example, on M Street in Georgetown and Armitage Avenue in Chicago, we exceeded 20% same property growth during the quarter. As a matter of practice, we do not revise our same property guidance during the year. That said, we same property growth of 7.3% through the first 6 months and continued strength expected in the second half of the year, our full year model has us trending above the midpoint of our 5% to 9% range. I want to spend a moment on our signed, not-yet-open pipeline. As AJ highlighted, through our team's record leasing, our S&O pipeline increased nearly 60% during the second quarter, reaching an all time high of $16.5 million, or roughly 7% of our pro rata ABR. About half of our pipeline is projected to commence in 2026, and is heavily weighted to the fourth quarter. that is when the growth of TNT and LA Fitness's Club Studios both in our San Francisco redevelopment projects are slated to come online. With the balance of our S&O is expected to commence throughout 2027. And when factoring in our estimate of rent commencement dates, let me now translate the anticipated impact of our S&O pipeline on FFO. In aggregate, our S&O pipeline represents about $0.08 of incremental FFO net of roughly $0.03 that we are capitalizing within our development and redevelopment. Based on estimated commencement dates, we expect to realize $0.01 or so in the second half of 2026, another $0.03 to $0.05 in 2027, and the balance in 2028 building to the full $0.08 run rate. Now let me turn to a topic AJ touched on in his remarks involving market rent growth, and the potential earnings upside of below market leases in our street retail portfolio. We have historically been reluctant to provide specific mark-to-market data across our streets. But given the high volume of leasing activity that has and continues to occur, we now have enough empirical data that supports our increased conviction in the opportunity ahead. And just to point out, we have already been capturing this market growth in our streets over the last few years. Having increased our street and urban occupancy by over 500-basis points, accelerating mark-to-markets through fair market value resets that are unique to our street retail, and through our pry-loose efforts. All of which have been driving double-digit rent spreads, same-property, and FFO growth that we have been experiencing. And even after all of that, we still have plenty of room to run. We estimate that our high growth streets are still approximately 25% below market today. And keep in mind, this does not include the additional upside we anticipate from market rental growth over the remaining lease term, which further increases the mark to market opportunity. But for purposes of walking through the earnings impact, let's just stick with the 25% that we think we capture today. This represents about $20 million to $25 million with some of the largest contributors being SoHo in Manhattan, which we estimate to be about 35% below market, Henderson Avenue in Dallas about 60%, Armitage Avenue in Chicago at about 50%, and North 6th Street in Williamsburgiamsburg at about 25%. In terms of timing between natural lease expirations, FMB resets, and our pry-loose efforts, Our team is highly focused on capturing a meaningful amount of this mark to market opportunity within the next 5 years. Thus, between several hundred basis points remaining street lease-up, 3% embedded contractual growth, the executed leases in our S&O, and our below market street retail portfolio, we are increasingly confident in our ability to continue producing 5%-plus same property growth and strong earnings growth over the next several years. Let me now turn to our 2026 guidance. Given the strong operating fundamentals and increased confidence heading into the second half of the year, together with the accretion from our external growth, we raised our full year earnings guidance again this quarter. Now targeting approximately 10% year over year FFO growth at the midpoint. And it is worth noting that this strength more than offset about $0.01 or so of positive rent dilution from our investment management business. Which is the short term dilution we absorb when we profitably sell investment management assets ahead of redeploying the proceeds. Which is a reminder we did not build into our initial guidance. You heard from Reggie, we have sold or recapitalized well in excess of $500 million of investment management assets. At nearly a 2x multiple with more in the pipeline. So while short term dilutive, it gives us meaningful dry powder to redeploy into future earnings growth as we reinvest that capital. And now moving to our balance sheet. Starting with our capital raising Our acquisition goal is to add roughly $400 million to $500 million of accretive street retail on balance sheet each year. Based on our penny per $200 million target, this translates to over $0.02 of annual FFO accretion. And, as you heard from Reggie, with a very busy second half of the year ahead of us, we remain on track to achieve that goal again. During the second quarter, as this pipeline of accretive external opportunities began to increase, we match funded it with approximately $200 million of equity. And following this raise, we have all the equity we need to achieve our current external growth goal. Along with the funding we need to complete our Henderson development project which we are continuing to anticipate an 8% to 10% yield on our cost. In terms of our balance sheet, we have virtually no maturities over the next several years, nearly $1 billion of liquidity, and significant dry powder to fund our REIT expansion investment management businesses. So in summary, we had an outstanding quarter, achieved record leasing volumes, better than expected operating metrics, and a balance sheet that has ample capacity to support the discipline execution of our growth strategy. And with that, I will turn the call over for questions.
Operator: Thank you. If your question has been answered and you would like to remove yourself from the queue, please press *11 again. Our first question comes from Craig Mailman with Citi. Your line is open. Your line is open.
Craig Mailman: Thanks. it is Nick Joseph here with Craig. Just on the street retail strength that you are seeing, curious, number 1, if the retailers if you are hearing from any of the retailers on changes in consumer behavior? And then on the rent levels that you are seeing today, if you think these are as sustainable or are they stretching same store economics at all?
Kenneth F. Bernstein: Let me start, and then AJ, chime in. There are some shifts underway that I think are important and we should not lose sight of as it relates to open air retail in general, just discretionary retail specifically, and you need to take into account omnichannel. And to be more specific, over the last few years, the move out of wholesale, out of the department stores, as department stores have been reducing the number of doors they have. Retailers are recognizing the most profitable channels and the most important ones is them having their own store as opposed to being in department stores. Similarly, in an omnichannel world, online is still very important to these retailers. But the store is the most profitable channel. So from an overall makeup, what we are seeing is a bunch of retailers that were not historically 5, 10 years ago active users of their own stores showing up. So that is the first step. And then, AJ, why do not you chime in terms of health and what our tenants are telling us in terms of the profitability and viability of these stores?
Alexander Levine: Yeah. I mean, there is a few things I would point to. First, sales growth, health ratios, Sales growth is outpacing market rent growth, so health ratios are actually declining, which is a good indicator of where rents can go. As Ken mentioned, you know, this is the deepest pool of tenants and the tightest supply that any of us can remember, and some of those are European retailers that are entering The US for the first time, expanding in The US, looking to The US as their main growth driver moving forward, Some of these are, again, traditional wholesale players that are pivoting to DTC. And Momentum. Right? Most of the rent growth that we have seen has actually happened post 2024. So this is not just a pop that happened coming out of COVID that is now leveling out. It is sustainable. And, of course, do not wanna discount our ability to actually curate because of the scale we have achieved in a number of these markets. We can actually influence rents influencing tenant performance through cotenancy. So we do believe that this is a sustainable trend moving forward.
Craig Mailman: Thanks. that is very helpful. And then maybe just on the kind of balance sheet and kind of tying that to the busy acquisition pipeline that you spoke of. How do you think about forward equity offerings from here And how do you think about pricing relative to the returns that you are targeting?
John Gottfried: Yeah. So I think as, you know, outlined in our remarks, you know, I think we have the equity we need. We talked about getting to about $500 million of acquisitions. Which, you know, we think by the, you know, by the end of the year, we get there. And we have the equity we need as well as to fund our equity to fund our Henderson project. So not looking to raise any additional equity to what we have currently under a wrap. So in terms of forward equity, I think just giving the timing, if you think about why we like that product, you know, Reggie's out shaking hands on deals, and we would look through the math as to does this hit our metric. NAV accretive, FFO accretive, growth accretive, etcetera. And when we lock in that price of capital, and oftentimes, the diligence and closing process, it takes several months to get to that point. I wanna make sure Reggie has that capital on hand to fund it. So I think we do like that element to fund it, and we raise equity when we have conviction that we are gonna put that to work. Thank you.
Operator: Thank you. Our next question comes from Andrew Reale with Bank of America. Your line is open.
Andrew Reale: Good morning. Thanks for taking my questions. My line's kind of been going in and out, I apologize if either of these were touched on during the remarks. But I guess, I was wondering if you could just kind of tell us what are the going in cap rates on acquisitions year to date And then how should we think about both the timing and the magnitude of yield expansion on those?
Kenneth F. Bernstein: Yeah. And while we touched on it briefly, Reginald, why do not why do not you explain it?
Reginald Livingston: Yeah. Unfortunately, it relates to street retail, the cap rates are just 1 of the many components that we get to think about. I think, Andrew, here's how we look at it. The going in cap rate maybe for suburban retail is a little more relevant. The way we think about it is think about everything that we have discussed with expansion of rent growth in various corridors. it is really about what we stabilize to and how can we use the platform to pull certain levers to stabilize to, call it, 6-plus yield in a near time frame. And a lot of that we can actually do because of fair market value resets, the rent growth in these various corridors, retenanting, pry-loose, curation, etcetera. etcetera. So we think about it less from a going-in cap rate standpoint and more about where we stabilize to. And we are often finding opportunities where we are stabilizing 100 to 200 bps above where it would trade today. that is really the difference between a going in cap rate with meager growth and the opportunities that we are able to harvest.
Andrew Reale: Okay. Thank you. And then could you just remind us what share count you are assuming in the FFO guidance and if that includes settling all forward shares this year?
John Gottfried: Yes, Andrew. So think of when we bring down the acquisition, that is when we will draw down on the shares. So I think we are just gonna continue match funding as we did this quarter. So it is really going to vary with the timing of the closing of the deals. Okay. Thank you.
Operator: Thank you. Our next question comes from Floris Van Dijkum with Ladenburg Thalmann. Your line is open. Floris van Dijkum: Hey, guys. Thanks. Solid underlying results. Interested in your dispositions a little bit as well, maybe diving into that. Obviously, you sold some of your JV assets, got pretty decent pricing on that. Maybe talk about how you thought about that. And I think the local press has also talked about Clark and Diversey portfolio being for sale in Chicago. Maybe you can talk a little bit about what, you know, where you think that would have to price that in order for you to put that off the books.
Kenneth F. Bernstein: So let me start, and then Reginald chime in with some details. First of all, we do not comment on press articles. that is just a matter of practice. What we have said before and is the case for our on balance sheet dispositions. Is while we will entertain them periodically over time, they will not. Create earnings dilution. They will not create NAV dilution. We have the balance sheet we need, and so we can be just strategic about any dispositions with respect to that. And then Reginald, why do not you just touch on the overall disposition market where it feels the most crowded, where we see opportunity?
Reginald Livingston: Yeah. I think we are what we have always said historically is that 1 of the reasons we like street retail on balance sheet is it is a much less crowded field. And a lot of suburban product, grocery anchor center, power centers, it has increasingly become a crowded field as retail is kinda having its day from an institutional investor standpoint. So we are kinda leaning into that in our fund 4, fund 5 dispositions that you have read about. We are getting solid pricing for it, and a lot of it is because of this increased competition. That investors are out there for. So we but only when we have completed our business plan, we doing it. So we are getting maximum value when we take it to market. Floris van Dijkum: Thanks. Maybe if and my follow-up I mean, you guys are in a couple of really hot street nodes. How would you rank in terms of, you know, medium term upside and also in terms of your ability to invest capital a SOHO market versus Williamsburg versus a M Street and or a Boston Where do you see, you know, some of the opportunities or the greatest opportunities right now?
Kenneth F. Bernstein: Let me start, and then both AJ and Reginald feel free to add additional color to it. Where we are most excited by far is where we can own enough assets on a given corridor that we can create what we call the benefits of scale And as I said in the prepared remarks, it does not mean a 100%. Usually, when we get to about 25% of the stores in a given market because we, our team, are active day in, day out. We can have a meaningful impact on that given quarter. So the ones I am most excited about are those corridors where our curation can raise the sales of a given corridor where our curation can help us really drive the rents, and we are at scale in about half of the key streets that we are active in. In terms of which ones in the medium term, are gonna have the most growth, well, to some degree, you are asking us to pick our favorite children, but to state the obvious, it is in those that are in the earlier or early ish stages, of stabilization, Henderson Avenue in Texas would be a prime example. But, AJ, what else would you add to that?
Alexander Levine: Yeah. I mean, the flat iron Upper Madison Avenue, still not back to prior peaks. Think they still have a lot of room to run. Obviously, available supply is extremely constrained there. Bleecker Street is a market that is really resonating with a lot of these traditional wholesale retailers that are pivoting to DTC. And I also think SoHo, you know, still ranks at the top of the list. there is still a good amount of room to run just given the demand we are seeing in SOHO. And I think a good amount of room to run to put more capital to work. As well. So that is as close as we will get to talking about our favorite kids. Thanks, guys.
Operator: Appreciate it. Thank you. Our next question comes from Todd Thomas with KeyBanc Capital Markets. Your line is open.
Todd Thomas: Hi, thanks. Good morning. First question, John, you mentioned that you do not regularly revise the same store growth forecast during the year, but said that you are trending above the midpoint. Of the 5% to 9% range. Does the FFO guidance reflect that view? And has that been sort of adjusted accordingly? And can you clarify that and just discuss the driver of the $0.02 increase at the low end of the range and just talk about what where you sort of derisked, you know, the outlook as far as the year goes?
John Gottfried: Yeah. So again, Todd, we just have, I think, at the beginning of the year, I and hindsight, put in a way too wide of a range, at the 5% to 9%. What we have not done is on a regular basis, update it. Rationale really being for us is, I think, it indicates an element of precision on a portfolio of our size that you we just do not want to articulate on a quarterly basis. So forward, we are going to have a much tighter range, but at least at this point, do not want to update where we are going forward quarterly. And then where we look to the components of the we raised the low end of our guidance $0.02. Really a combination of things. 1 is, as we continue to redeploy the external growth from that we have deployed is 1 piece of it, Credit is a second piece of it. So I think we had credit built into our credit assumptions built in. We are continuing to see strength in there. Getting spaces open. We have a very significant signed, not yet open portfolio. You will see that not only did we put a bunch of leases online this quarter, we have added more to it. And our team is getting those spaces open on time if not ahead of where we thought those would be. So between really a combination of the accretion from acquisitions, the ability to get stores open faster, and really just the overall tenant health, that is what that is what drove it. And I think in terms of, you know, where do we land in the midpoint between our new range, I still have half the year left. So I think it is we will leave the where we trend, but definitely, trending on the upwards upward slope of that.
Todd Thomas: Okay. that is helpful. And then my second question, now that Acadia owns 100% of Fund 2's interest in City Point, effectively 95% of the asset, can you just talk in a little bit more detail about the NOI upside opportunity and time frame to realize that the earnings growth from that asset. You know, I think leasing has generally been excluded from the SNO pipeline that you have discussed. So can you clarify that a little bit or talk about that a little bit? And then can you also just talk about the longer term ownership of that asset and how it fits into the core portfolio, whether you plan to keep that on balance sheet or whether there is an opportunity to recapitalize that asset or perhaps monetize it in some way or form over time?
John Gottfried: John, why do not you start and then AJ add some leasing update color? Sure. Yeah. So I think a couple of things. 1, to point out the $16.5 million of SNO That is pro rata across our entire portfolio. So that would include CityPoint. it is not in our--because it is in the investment management, it is not in our same store. So it is in our whatever share of leasing we have signed that has not yet opened. That will be in the $16.5 million. So as you pointed out, as we put into our materials last night, we did acquire the remaining pieces of the partners in fund 2. So just that complexity of the loan and the timing, that is now all behind us. And the upside is it is in front of us. And I will start off on some of the leasing, but I think as we look at the asset and the opportunity, know, we have made incredible progress in terms of what leasing we have done, what we have currently signed or in process of being signed. And we think the upside to that is we are probably, again, call it, probably in 12 to 18 months to really starting to see that lift from the asset.
Alexander Levine: And if I mean, you have been to the asset multiple times, it is a combination of getting the couple of remaining spaces on the park, those leased, as well as the getting the mark to markets that we think are available to us in increasingly playing out where we see the strength of some of the opens of some of the new tenants, the likes of Sephora. Getting the mark to market on Prince Street within the SoHo. I am sorry. Prince Street within City Point, not SoHo, not to be confused with SoHo. To get those mark to markets, which those will be the more of the long longer dated ones as we navigate through those. But we are seeing a clear visibility. And now that the ownership is where it is, that gives us significant runway to do that. And then the last point on where do we see the ownership of it. I will tell you we are not going to do is that given the future growth in front of us, we are not going to given we have the capital balance sheet, do not need to sell that upside at a discount to somebody else. We are going to monetize that and then look to explore whether it makes sense to bring in institutional capital at that point. But not anything near term where we would be looking to bring in a capital partner. So, AJ, you want to give a little more color on leasing? Yeah. As you mentioned, you know, the space that we have left is our most valuable space. And the way that we are gonna unlock that value is really just to stay the course, be selective, focus on curation, finding the right tenants, and driving sales. You know, this past quarter, we signed Warby Parker and Lovesac, Activate, They will complement Lululemon, Sephora, Swarovski, and of course Trader Joe's, So we are creating that right ecosystem. We have seen really strong sales growth. Continue. We see it show up in the food hall as well as from our retailers. And, of course, the spaces that are occupied on the Ground Floor, those are the spaces that are going to roll the most frequently, and we will be able to, again, capture that upside in rent. So stay the course, focus on curation, there is a good amount of upside ahead of us.
Operator: Okay. Thank you. Thank you. Our next question comes from Anthony Paolone with JPMorgan. Your line is open. Anthony, if your telephone is muted, please unmute. Our next question comes from Paulina Rojas-Schmidt with Green Street. Your line is open.
Paulina Rojas-Schmidt: Good morning. And your portfolio list rate is at 94.7%. So 3 questions related to that. Where do you see the overall lease rate going over the next 12 to 18 months? And we have seen that where can Chicago realistically get to in that horizon? And then more broadly outside of Chicago, are there any specific assets call out as near term needle movers on the leasing upside front?
John Gottfried: Yeah. So, Paulina, let me start with that. So I think the $94.07, and this is just for your awareness, but keep in mind, that is a blend of our entire REIT portfolio, meaning suburban and street and urban. So if you look at our the street portion of that, is lower. Right? So I think that if you look at the street portion of that is, you know, a good 100-basis points lower than that, that is our more high higher dollar value. Per ABR space. that is the 1 thing I wanna point out that still have several hundred basis points of room to run on the street. And you would think full occupancy within the street, we peaked at in the 97% range. But I think we could safely say 95%, 96%. Particularly given the strength that we have talked about today. From the street, which is a significant upside. And in terms of suburban, I would say suburban, we are probably pretty full at this point throughout our suburban portfolio. I think in the 95% to 97% range on suburban feels about full occupancy there. So on a blended, when you blend our mix of street and urban and suburban, you are going to be in the, you know, 95% to 96% range because you are always going to have a level of churn. You know, and then your question on Chicago. So I think if we look in Chicago, if we, you know, look across our markets, really do not have a lot of vacancy there with the exception of North Michigan Avenue, which is not in that statistic. So that is in our redevelopment pool. So that is 96 thousand square feet that we have on North Michigan. That is currently a drag on that. So very meaningful. Meaningful upside, and AJ could give some color that we are starting to see green shoots there. But meaningful opportunity from Chicago. And then Paulina, to your last question, can you repeat that, please?
Paulina Rojas-Schmidt: Yeah. Is there any other particular assets where you see meaningful upside? Because, for example, when I look at Soho West Village, it is at 93% today. And that sounds somewhat low given the strength that you are describing in the corridor and relative to the entire industry, but it is 96% leased. So yeah, any specific things that you would like to call out on the upside?
John Gottfried: Yes. I think you are always going to have some level of churn. So I think it is unlikely that, you know, we would ever be able to operate the second we get a space back that our team was able to immediately turn it. So there is you know, there is always going to be a spot. So in terms of upside, SOHO, as I pointed out in my remarks, there, the upside is, you we think we are 60% below market. They are given just the naturally shorter lease terms, the fair market value resets, and our team's pry-loose effort. that is where the upside is. AJ and his team could get that space back. And then where I would say there is meaningful upside is we go through again.
Kenneth F. Bernstein: We look at, you know, where do we have the greatest opportunity? Henderson and Dallas. So there, given the development we are doing there, we are strategically holding space back. So there are meaningful growth in Dallas as well through lease up. Also, San Francisco. So in San Francisco, very big rebound as you are aware, but I think between the--we brought in 2 large anchors there between TNT at City Center, LA Fitness, and Sprouts at 555 9th. We still have ample room to add to that. And, again, in the 94.7% occupancy you mentioned, because that is in redevelopment, that is not in that number as well. So meaningful vacancies in San Francisco, that is a strengthening market that we can lease into. And just to emphasize even further the importance I would argue that fair market value resets are going to be over the next few years. More important than the important occupancy gains that we had over the last few years because not only does the natural maturity and fair market value reset when it occurs, create a pop for us, but what AJ and his team have proven now multiple times is retailers coming to us years ahead of that FMV reset. And negotiating well in advance the increase in rent because retailers often are putting significant dollars, their own dollars, into stores and they need to know. That they have more than 1, 3, or even 5 years of certainty of rent. So all of that you put together I feel more excited about the upside embedded in our portfolio today, recognizable over the next few years, than I did even when we were in lease up mode a couple years ago.
Paulina Rojas-Schmidt: Thank you. Second question is when you underwrite acquisitions across your different street retail corridors, that you like. Do you find expected returns are broadly similar or do some markets offer meaningfully more 'credible upside than others today? Whether because where they are in the recovery cycle, liquidity, or something else.
Reginald Livingston: It really does depend on the asset. It really is fact dependent. There are a ton of deals where they whether they are early innings, mature markets, it is all about rent to market, Can you get to that rent to market based on the FMB? So it is less about the market delivering different returns and more about the asset and the business plan and the execution.
Kenneth F. Bernstein: That being said, I will reiterate again. You will see us most active in deals that check the box in terms of right price, right unlevered IRRs, right long term growth, everything we have discussed, but also where we can build scale. We thankfully are able to, and we have proven this now, and I think you will see in our upcoming acquisition that we are adding to corridors that we have the highest level of confidence in, they are achieving our returns upfront, And then over time, I think they will surprise to the upside. In fact, a deal we recently acquired over the last year, We underwrote, say, $300 a foot, and now AJ and team are finalizing leases at 30% higher than that. that is just 1 example. Of whereby controlling enough stores on a given street, we know the tenants' interest. We know who wants to be there, and we can do it promptly and professionally.
Operator: Thank you. Thank you. Our next question comes from Michael Mueller with JPMorgan. Your line is open.
Michael Mueller: Hey, I will try it again this time with hopefully the right PIN. So sorry about that. We thought you were bringing Anthony in on us now. Bait and switch. There we go. So I know I missed some stuff, but I did hear the comments about scale and terms needing to work. But when I look at the street portfolio, you are in 6 or 7 markets. If you include the smaller exposures. So I guess, you know, looking over the next 3 years, 5 years, where do we think you are you are gonna see the most investment opportunities? Is it more in the larger existing markets like New York? Is it kind of you know, focusing on building out those smaller markets or even adding kind of new markets to the list?
Kenneth F. Bernstein: So I think I think you will see us add a couple of new markets to be clear, I my guess is when you came up with 6, you just lumped all of New York City as 1 market when I think our retailers view the West Village very different from Soho, very different from North 6th Street in Williamsburg. And certainly Northern Madison Avenue. So those are multiple different markets, but all New York. As I said in the beginning, we are continuing to add to our capital acquisitions on Henderson Avenue in Dallas. I think you should expect to see us continue to deploy there given the strong tenant interest, strong results we are having. I think you should expect most of our additions to be in markets that we are currently active. Last quarter, we planted seeds in Palm Beach on North Avenue, on Newberry Street. So those are 2 more markets over the next few years we added 2 more I would tell you we would be in a position where we would be highly relevant to the vast majority of our retailers nationwide, New York, Boston, Chicago, San Francisco, Los Angeles, Dallas, Floris, Georgetown and DC. All really important markets and that will enable us to be the premier owner operators of street retail in The US without having to add a couple more. But if we if you wanted to guess, you could come up with 5 potential and we will show up in 2.
Michael Mueller: Got it. Okay. And for a second question, there was John, some nice color on the mark to market. And I know spreads are going to be volatile. But if we are trying to dumb it down and thinking about go forward spreads, is there any reason we cannot say, okay, for street portfolio, we are taking your 25%, that you throw out there, blend that with the suburban for 10%. And as a proxy, the next few years. You know, outside of mark-to-market growth should be a good starting point to think about spreads.
John Gottfried: Easy for me just to say yes, Michael, but I think the reality is it is going to be least dependent as part of that. Right? So I think that would be the only so over, you know, I threw out that, you know, our target is we want to do this over the foreseeable future. If you were to average those, then, yes, that would be 25%. But when we have markets such as SoHo that are 60%, there is going to be volatility just inevitably quarter to quarter. So I would love to for you to be able to just say to spread it equally, but I think I would disappoint you if that was if that played out. But over that extended period, our goal is to do 25%-plus just given keep in mind, we are not trending rents are continuing to rise above the contractual growth we are getting. Got it. Okay.
Operator: Thank you. Thank you. Our next question comes from Kenneth Billingsley with Compass Point Research and Trading. Your line is open. Kenneth Billingsley, if your telephone is muted, please unmute.
Analyst: Oh, thank you. Yes. I was talking to myself. I wanted to ask a question on the fair market value reset. I know you have given a lot of color. In general, are those resetting every 5 to 8 years? And do you can you give color on the percentage that is resetting in 2027 and 2028?
Kenneth F. Bernstein: So the short answer is in general, it is every 5 years after primary term. Sometimes when we sign an initial lease, it will have a 10-year primary term, but thereafter, it is on every option period, and those options tend to run 5 years.
Alexander Levine: AJ, in terms of the that the question? Yeah. In terms of the number of leases that would be rolling to FMV in the next year, I mean, it is--it is definitely a significant number. And then when you add those to the active pry-loose pipeline to capture that growth.
Analyst: Okay. And the and the other question I have is within the corridors that you are curating the corridors themselves, at what percentage of ownership do you tend to start pricing yourself out? Like, where do you see that the benefit that is going to the other properties you do not own start to create acquisition problems for that corridor?
Kenneth F. Bernstein: You know, it is tricky. And Reggie, feel free to chime in as well. I would say it is more art than science and remember the economy comes into play. So there will be times where we feel like we are priced out of a given market, but then the cyclicality of the economy kicks in and other buyers disappear. First and foremost, because when we are active in a given corridor, like Armitage Avenue, We have best market intelligence. As long as we can afford to be patient and we can, you will see us consistently, you know, every year we may add 1 or 2 buildings, and there is not a lot of competition for that. Conversely, in a place like Soho, when a market really gets moving, yeah, then we may have to step to the sidelines. Pause for a bit. But thankfully, we have enough other markets where we have a unique position that we have been able year in year out to do $300 million in acquisitions, without getting priced out It does irritate us as you pointed out though, when we curate a street and make other people rich, so what you will see in down at Henderson Avenue for instance, is we are continuing to add buildings because we would rather hold on to that for ourself. Great. Understand. Thank you.
Operator: Thank you. Our next question is a follow-up from Paulina Rojas-Schmidt with Green Street. Your line is open.
Paulina Rojas-Schmidt: Thank you. Short follow-up. Talked about the lighter CapEx as a structural advantage of street retail. Can you help quantify that whether perhaps the CapEx run rate as a percentage of NOI or however you find it more intuitive to define it.
John Gottfried: Yeah. So, Paulina, what I would say right now, we are in extraordinary period of lease up. If you were just to look at our CapEx right now, it is going to run at a at a higher percentage just because we are, you know, we are bringing so many so many tenants in. So let me talk about upon stabilization as to upon stabilization, what is between know, recurring lease up maintaining the asset, the CapEx to maintain the asset, and the improvements that we need as part of that. So we will start with, what we see in our portfolio on power centers. So on the power we own, which is primarily in our investment management, that is going to--you know, we target in the 15% range of NOI for that full CapEx load. Grocer is gonna be lower by a couple of hundred basis points, so call that in between 10% to 12%. And then street, we are in the 7% to 10% range on street CapEx. So that is again what we like about the street. it is more higher growth, lever lower CapEx. Which gets us to the higher net effective rental growth. And the other thing, the part of the reason the street the dollars may be higher, but your rents are higher, which bring that percentage down, which is important to keep in mind. So, does that answer your question? Perfectly. Yes. Thank you so much.
Operator: Thank you. I am showing no further questions at this time. I would like to turn the call back over to Kenneth F. Bernstein for closing remarks.
Kenneth F. Bernstein: Thank you all for taking the time, Anthony Paolone, we miss you, but we look forward to speaking to you all again soon.
Operator: Thank you for your participation. You may now disconnect. Everyone, have a great day.