Acadia Realty Trust (NYSE:AKR) Q4 2023 Earnings Call Transcript

Acadia Realty Trust (NYSE:AKR) Q4 2023 Earnings Call Transcript February 14, 2024

Acadia Realty Trust isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by, and welcome to Acadia Realty Trust Fourth Quarter 2023 Earnings Conference Call [Operator Instructions]. I would now like to hand the call over to Jeff Winston. Please go ahead.

Jeff Winston: Good morning. And thank you for joining us for the fourth quarter 2023 Acadia Realty Trust earnings conference call. My name is Jeff Winston, and I am a senior associate in our Asset Management Department. Before we begin, please be aware that statements made during the call that are not historical may be deemed forward-looking statements within the meaning of the Securities and Exchange Act of 1934, and actual results may differ materially from those indicated by such forward-looking statements. Due to a variety of risks and uncertainty, including those disclosed in the company’s most recent Form 10-K and other periodic filings with the SEC, forward-looking statements speak only as of the date of this call, February 14, 2024, 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 Web site 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 two questions per caller to give everyone the opportunity to participate. You may ask further questions by reinserting yourself into the queue and we will answer as time permits. Now it is my pleasure to turn the call over to Ken Bernstein, President and CEO, who will begin today’s management remarks.

Ken Bernstein: Great job, Jeff. Thank you. Welcome, everyone. Happy Valentine’s Day. I’m here with John Gottfried, Stuart Seeley and A.J. Levine. I’ll give a few comments, then hand the call over to A.J. Then John will discuss our earnings, our balance sheet metrics and our guidance. And after that, we’re here to take questions. As you can see in our earnings release, our 2023 performance was very strong. Same property NOI growth was nearly 6% and new lease spreads were over 40%. And this same property NOI growth is comping off prior year’s growth of over 6% as well. Fourth quarter results also showed continued strength, driven by the Street retail portion of our portfolio, delivering 10% same store NOI growth and strong leasing spreads.

I’ll let John discuss the moving pieces of our earnings in detail. But in short, our goal of creating superior top line growth at the property level and having that growth translate into bottom line’s earnings growth remains on track. As we look to 2024 and beyond, the leasing momentum we saw last year is continuing. This is evidenced by both our significant signed not open activity and the leasing pipeline behind it. And while in some respects, last quarter might be viewed as just another solid quarter from an internal growth perspective, I think there is a more meaningful shift going on. We are now past retail simply experiencing a COVID list or a COVID recovery. The shift in retailer sentiment and retailer activity feels more secular than cyclical and thus more long lasting than just a rebound.

While we first saw this as a lift in the suburban and necessity portions of our portfolio, and we’re still seeing strong solid performance there. The longer term growth is now having its most material impact within the Street retail component of our portfolio, and it is looking more likely that, that growth rate in Street retail has real staying power. A.J. Levine will discuss the drivers of this trend in further detail. But as it relates to internal growth, these secular tailwinds should add further support to the multiyear growth goals that we have been discussing and delivering on for the last couple of years. Then along with continued momentum on internal growth after several relatively quiet years, actionable external growth opportunities are starting to emerge.

We are seeing a narrowing of the bid-ask spread and increased likelihood that accretive growth will start to pencil out. And since retail has not been an area of focus by institutional investors over the last several years, there are just fewer well positioned capable buyers. Now granted, the inverted yield curve and elevated interest rates are still a headwind for improving deal flow, but this is beginning to shift. Increased optimism about improving borrower cost, coupled with resilient tenant demand is helping underwriting. And more significantly, whether due to more realistic appraised values or other factors, sellers seem to be more realistic and more willing to transact. A couple of quarters ago, I thought the majority of our activity would be distressed focused, either discounted debt or forced sales, and it’s still likely that there will be a fair amount of what we refer to as special situations, certainly for office, but other products like retail as well.

Given the nonperforming nature of much of this type of investing we’ll likely participate in distressed special situations in conjunction with one of our strategic capital relationships. But more importantly, we are now seeing sellers begin to emerge that are not highly distressed, just motivated. They may have some staying power, but not unlimited patients. And this shift means our pipeline for a broader variety of opportunities is coming together nicely. You will hopefully see this reflected later this year and for years to come. So here’s how we’re thinking about external growth. In terms of product types within open air, we consider ourselves to be highly confident in all areas of open retail and try to position ourselves to be open minded as to which growth opportunities, which capital structure, which risk adjusted returns are most compelling at any given time.

Here’s how that landscape looks today. In terms of power or junior anchor dominated regional centers, these will have the highest going in yields. But in order to have net effective growth special attention will have to be paid to tenant turnover and the cost of retenanting, which heavily impacts net effective growth. We still think this area can provide attractive risk adjusted returns. But as was the case with our Fund V investing, we’ll continue to focus on this investing in the fund or strategic venture format. Then in terms of supermarket or neighborhood anchored centers, investor demand remains strong because of their resilience during COVID, the defensive profile, the ease of underwriting. And this segment is probably the most covered or most crowded in terms of competition for bidding.

So unless there’s a value add component, it will be hard for us to be constructive. We could add the right supermarket anchored assets, both on balance sheet or in a joint venture structure. But in either case, growth opportunities will have to be compelling. In terms of Street retail, after several bumpy years, we believe this segment will have the highest long term net effective growth. For a variety of reasons, notwithstanding the ongoing rebound in fundamentals, Street retail seems to be trading at an elevated floor on cap rates with going in yields that don’t appear to take into account the growth potential. And this is creating an opportunity for asymmetrical upside. Now granted, Street retail requires the highest level of expertise to underwrite as it lacks some of the uniformity of other open air assets.

And while not all Streets, not all markets are recovering equally, the initial fear that Street retail was too idiosyncratic or a zero sum game with the Sunbelt winning and other key markets losing, it’s turning out not to be the case. For most retailers, there is more synergy than cannibalization, meaning retailers can thrive in SoHo and [national]. And since there are more markets that are thriving, from a scale and opportunity set perspective, we think there should be plenty of deals of size out there. We think we are entering a period where our shareholders will benefit from the expansion of our highly differentiated Street retail portfolio in our core portfolio, provided we can do it on a leverage neutral earnings and NAV accretive basis.

Given our expertise and our extensive experience in this space, Acadia is well positioned to be a consolidator in Street retail assets in this phase of the cycle. While a key focus will be to the extent practical to grow the Street retail component on balance sheet, adding to the 70% of our current portfolio, that is Street or urban, we suspect that there could also be several larger opportunities that will also include the leveraging of our strategic capital relationships. We are in a period we’re having access to multiple sources of equity and debt should inure to our shareholders’ benefit. Finally, from a capital allocation and deployment perspective, a few thoughts. Capital recycling will be part of our growth strategy. It can come from multiple areas.

First, from portions of our core portfolio that might not be as high growth or not consistent with our long term growth strategy. And then second, from portions of our over $2 billion of assets currently in our fund or investment management platform. Investor interest is growing and we should be able to capitalize on this increased interest. This means we should be able to bring in new capital on a non-diluted basis and then redeploy it accretively. Given our recent equity issuance, our balance sheet metrics are getting to where we want them, so we can also afford to be strategic with our capital recycling initiatives. Finally, since it doesn’t take much volume to move the needle for us, even a few acquisitions can add meaningfully to our external growth.

So to conclude, the stars are beginning to align this year. We will be keenly focused on the three key drivers of our growth; first, driving solid internal growth; second, maintaining a solid and flexible balance sheet; and third, executing on our accretive external growth strategy. The combination of improving fundamentals, improving debt markets, improving bid ask spread and investors inching their way back to retail are all positive trends. And we’re in a great position, having access to both public and private capital to use our platform to execute a highly accretive growth strategy. And with that, I’d like to thank the team for their hard work last year, and I will turn the call over to A.J. Levine.

A.J. Levine: Great. Thanks, Ken. Good morning, everyone. So every week, I get asked the same two questions. First, is there any sign of a slowdown. And for the last two plus years, my answer has consistently been a resounding no. Despite some of the choppiness in retailer sales that we saw in 2023, fundamentals remain strong and is feeling as if that trend will continue well into 2024 and beyond. Now that doesn’t mean that we’re naive to the impacts of inflation or the normalization and sales growth that we saw in 2023, of course, coming off of a record year of sales growth in 2022. But it does mean that when I speak with our tenants, they are yet to signal any anticipated slowdown in new store growth. There are always exceptions.

But for the vast majority of our tenants, they continue to see a remarkably strong consumer. They are still comping significantly positive against 2019 sales and they are still operating under the reality that the physical store is the greatest driver of profitability for their businesses. When one of our luxury tenants on the Gold Coast tells me that despite a relative slowdown in 2023, they are still comping up 50% against 2019, it no longer surprised me. And that general message holds true across the board. So that leads me to the second question. Do you have any space for me? This is true for both the suburbs and the Streets, but particularly on our high growth Streets. The demand for new stores well exceeds the supply of desirable space.

The biggest challenge facing by retailer counterparts today is the lack of well located, high quality space. And as Ken mentioned, this is the result of the trends that we started seeing in late 2020, early 2021 that have persisted and appear to be more secular in nature. Robust, yet thoughtful and disciplined retail expansion into both new and existing markets, that’s certainly true for our luxury markets like SoHo and the Gulf Coast, but also applies to markets like M Street where luxury hasn’t yet shown up, but that hasn’t deterred dynamic brands like Alo Yoga, Skims and Glossier from planting their flags on the Street. The pivot away from department stores and toward freestanding open air storefronts on our Streets and the inevitable clustering of other like minded brands within these markets.

In cities like New York, Los Angeles, Chicago, increased customer demand and a diverse demographic profile has prompted many of these retailers, including luxury to have multiple locations within the greater market. They can capture the tourist in one neighborhood and the local shopper in another. They can do Madison and Fifth Avenue and SoHo. And in the case of [Indiscernible], they can even add Williamsburg, they can do Melrose and Rodeo. In terms of rents. The sharper decline in rents that we saw on our Streets coming into the pandemic and the remarkable recovery we’ve seen over the last few years will continue to provide stronger net effective rent growth relative to our suburbs. In our existing high growth markets like SoHo, Melrose, the Gold Coast, M Street, the double digit rent growth we’ve seen over the last few years should continue.

Stronger sales are fueling higher demand now layering low supply and natural barriers to entry, and that is a recipe for sustained growth. And to be clear, even with a moderation in rent growth moving forward, many of our markets can still experience low double digit growth. And with the healthy occupancy costs that we’ve been seeing, these markets will remain affordable for our tenants. On a related note, just like in past quarters, we continued to proactively price space loose on our Streets and accelerate a positive mark-to-market. In the third quarter, in SoHo, we accelerated a 45% mark-to-market spread and in the fourth quarter we did the same, this time with a 25% spread over a 1-year period, and this was done at zero out-of-pocket cost to Acadia.

Now that’s very hard work but the team has shown themselves to be more than capable of identifying these opportunities and then getting to work on unlocking that value. And for those spaces that we can’t recapture early, the Street centric nature of our portfolio will allow us to capture that growth through FMD resets. Of course, this is not unique to our portfolio. Space in SoHo that was being offered at $3.5 million in ABR just one year ago recently leased at $4.5 million, that’s 30% growth in one year. That only happens in markets with a combination of low supply, high foot traffic and the right brands, including luxury, that will cluster and create the right ecosystem to attract those shoppers. Additionally, that scarcity of space should also continue to accelerate the rebound of traditionally high growth markets that have been slower to recover, like Madison Avenue in the 70s, North Michigan Avenue and eventually San Francisco, as well as newer markets like Nashville and Tampa.

As Ken mentioned, this is not a zero sum game. Retail expansion and rent growth has and will continue to occur in both established and newer growth markets. Overall, the net result of all this was another exceptional year of both Street and suburban leasing. In 2023, we signed approximately $11 million of new core leases, representing 8% of in-place ABR that eclipsed the $9 million in new leases we signed in 2022. We added a number of key retailers to our core portfolio, including Zimmerman, Madewell, Club Monaco, Alo Yoga, Skims and ANINE BING and the pipeline remains strong. Already this year, we have in excess of $4 million in new core leases in advanced stages of negotiation. Shifting for a minute to City Point. The park is complete. Our neighbor, which is the tallest residential tower in New York outside of Manhattan, is open and residents are starting to move in.

The scaffolding is coming down and we are no longer leasing into a construction zone. In more recent news, Live Nation will be opening a 2,000 seat theater directly across from City Point. And in terms of occupancy, the retail on our upper floors and concourse level are spoken for with best-in-class anchors, including Target, Primark, Alamo Drafthouse and Trader Joe’s. And this past year, we successfully anchored both ends of Prince Street with Fogo de Chao on the north and Sephora to the south. But despite this momentum in many respects the leasing story at City Point is just beginning. Much of our most valuable Street level space is yet to lease. And with positive mark-to-market opportunities, there remains substantial embedded value at City Point still ahead of us.

So wrapping it all up, an exceptional year for fundamentals and an exceptional year for leasing volume in both our high growth Streets and our suburbs, and no sign of a slowdown on the horizon. So with that, I will pass things off to John.

John Gottfried: Thank you, and good morning. As outlined in our release, we had a strong finish to the year with our same store NOI and earnings coming in above our initial expectations. As the recovery within our Street retail portfolio not only continued but as we had been anticipating accelerated throughout the year with growth of 10% during the fourth quarter. And as we kick off the new year that momentum is continuing. Our multiyear core internal growth of 5% to 10% remains intact, along with a balance sheet that is now in a position to capitalize on an expanding pipeline of accretive opportunities, which sets us up for above trend same store NOI and FFO growth over the next several years. Now I’ll provide some more color on the quarter, along with an update on our multiyear outlook, starting with our fourth quarter results.

In line with our expectations, we reported FFO of $0.28 per share for the quarter. And in terms of same store NOI, we came in at the upper end of our guidance range with growth of 5.8% for the year. And additionally, as I highlighted in our release, we reported same store growth of 4.2% for the fourth quarter. We want to point out a couple of things related to the quarter. First, the fourth quarter results were comping off our 2022 quarter, which had included approximately $400,000 of prior period cash recoveries, which, if excluded, would have increased the 4.2% we reported to 5.7%. Secondly, and as outlined in our release, our Street portfolio grew in excess of 10% on a same store basis. Not only have we been anticipating this acceleration but we are feeling increasingly confident that this double digit growth will continue with our model projecting about 10% annual growth from our Street portfolio over the next several years.

And with roughly 45% of our pro rata NOI coming from the Street, this 10% annual growth is expected to generate incremental NOI of approximately $18 million to $20 million in our share. And we are already well on our way of capturing this with more than half of the $18 million to $20 million already accounted for. Approximately $6 million will come from the 3% escalations that are built into our Street leases, along with another $6 million from executed Street leases that have not yet commenced and are included in the $7 million of signed, but not yet open pipeline that we reported at December 31st, which leaves us with another $6 million to $8 million of Street retail growth coming from two additional sources. First, about half or $3 million to $4 million is anticipated to come from projected cash rent spreads on expiring leases over the next few years with the balance coming from lease-up of our current inventory of available space.

And to be clear, this is just the growth coming from our same store portfolio. Meaning the $18 million to $20 million of NOI or 10% annual growth is before any potential upsides from our redevelopments of North Michigan Avenue. So while we are starting to see some encouraging activity on North Michigan neither our 2024 guidance or our base case multiyear projection assumes a recovery. It’s also worth pointing out that in addition to the extraordinary growth we are projecting from the Street, we are also seeing solid trends across our core and fund platforms. In fact, as we look into 2024, in addition to the 5% to 6% of projected 2024 same store NOI growth, we are projecting 6.5% of total NOI growth from our core and fund businesses, inclusive of redevelopments.

And the good news is that our leasing team has already signed the vast majority of leases necessary to achieve our 2024 goals. With $13 million of executed leases, representing 7.5% of in-place ABR at our share and the signed but not yet open pipeline at December 31st. And this $13 million of signed but not yet open pipeline is comprised of $7 million from our core operating portfolio that we highlighted in our release, which represents the assets in our same store pool with another $4 million of signed leases from assets in our core redevelopment and $2 million from our fund business with all of these amounts being in our share. Let’s now transition from how this NOI growth impacts our 2024. Consistent with what I introduced on our last call, we are projecting $1.28 of FFO at the midpoint.

This equates to earnings growth of about 5% over 2023 before the $0.08 for the noncash gain on the Bed Bath lease and over 7.5% when adjusting our FFO for the promotes earned from our fund business. As you may recall from our last quarter’s call, our 2024 earnings growth is being driven by the underlying strength of our core business. With $3 million of ABR that commenced fairly late in the fourth quarter that we highlighted in our release, along with another $7 million that is included in our signed but not yet open pipeline, of which approximately 85% of those represent Street leases and will commence throughout [2024]. Last point on earnings, with strong year-over-year earnings growth of about 5% or over 7.5% before promotes, we see the potential for upside in our numbers from a few areas.

First, we are now past the painful and long discussed rollover on North Michigan Avenue and the bankruptcy of Bed Bath & Beyond. In fact, as we look forward, these historical headwinds are now a source of upside as neither our 2024 guidance or our base case multiyear projections have assumed a near term recovery. Secondly, we have made significant leasing progress. With $13 million of executed leases in our signed but not open pipeline, representing 7.5% of our core and fund NOI, coupled with a long and growing list of LOIs out for available space, we are in great shape to not only hit our 2024 leasing goals, but with a lot of calendar left in the year, a very realistic opportunity to beat them, and not to mention that the rental rates our team is achieving on new leases is routinely beating the rents we had assumed in our model.

And finally, we have not factored in any earnings accretion from external growth. But as Ken discussed, we are starting to see some exciting and accretive opportunities. And as I will discuss now, our balance sheet is now at a point where we can and will aggressively pursue these. And as it relates to the balance sheet, let me first start off with talking about how we thought about the equity raise that we completed in early January. As you would expect, we thought long and hard about the decision to issue our equity below NAV. But in this unique instance of being able to raise a moderate amount of equity on a non-dilutive basis, it enabled us to accelerate our balance sheet goals by at least a year, if not more, and put our balance sheet in a much better position to go on offense.

And to be clear, our goal is and will be to get our core debt to EBITDA back into the 5s. We are now in the low 6s post equity raise and projected to be in the high 5s on a nonearnings diluted basis by year end, if not sooner. Thus, our acquisitions team now has both the balance sheet and liquidity it needs to aggressively pursue the external opportunities that we are seeing. And we will fund this accretive external growth on a leverage neutral basis, using all of the diverse and efficient sources of capital that are available to us, whether it’s recycled capital from non-dilutive dispositions, repayments from our loan book, retained earnings for our business or the issuance of common equity or private capital. Lastly, on the balance sheet, I want to highlight our exposure and potentially the opportunity related to interest rates.

With a core balance sheet that is fully hedged and no meaningful maturities over the next few years, we are well positioned to have overall stability in our earnings related to interest cost. And with the vast majority of our floating rate exposure in the funds already being the mark-to-market in terms of both spread and base rates, we have some upside in our earnings if and when the interest rates begin the downward trend that the market is predicting. So in summary, we are starting the year with a strong balance sheet, along with a near term and non-dilutive path to get it back to best-in-class. And we are excited about the internal growth that we are poised to generate in 2024 and for the next several years along with the potential to be in our expectations, whether it’s the continued acceleration in our Street portfolio, and/or the accretion from external growth.

And with that, we will now open up the call for questions.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Linda Tsai of Jefferies.

Linda Tsai: In terms of the outsized 10% same store growth in the Street portfolio this quarter, how sustainable is this run rate and why?

Ken Bernstein: John, why don’t I let you talk about the specific numbers as to our portfolio, and then maybe I’ll touch on these tailwinds from a more macro perspective.

John Gottfried: And Linda, before just back to what I spoke about in my prepared remarks, it’s a little under half of our portfolio. And when we look at our model, you factor in the 3% contractual escalations that we’re getting, we have a good chunk of great space that A.J. and his team are actively leasing up and then the mark-to-market. So I think you look at that, that’s as I outlined, $18 million to $20 million that we think we capture over the next two and half, three years. And when we model that out, that portion of our business, a little under half is projected to grow annually 10%.

Ken Bernstein: So then let me transition from that to why we see what I referred to in our prepared remarks is a secular shift. And while I neither expect nor hope that market rents continue to grow at the 10% to 20% and A.J. even mentioned 30% in one of our markets year-over-year, I do think that Street retail is poised for high single digit market rent growth and thus our ability to capture it and others’ ability to capture it in Street retail as follows as John touched on, 3% contractual growth is industry standard, fair market value resets, also fairly common. But what you need is really three different components as I think about it. One, you need supply and demand, and A.J. talked about now having more tenants than space.

And that’s a good tailwind to have right now after several tough years. Second, you need to have strong tenant sales. Tenants can only continue to pay more rent if their sales are there, and A.J. mentioned that as well. And then finally, you have to have the right deal structures. You have to have the ability to capture that rent growth in a strong supply demand, strong rent to sale, you need to have the right contracts and we do. Final point is, why now? Well, if you think about the last 10 years, almost 10 years ago, we entered into what was an oversimplified so called retail armageddon, and that was the notion that retailers were going to be able to migrate their sales profitably online. The migration online occurred but the profitability didn’t.

And by around 2019, it was becoming clear to a variety of our retailers that the ability to use online sales as the main driver of profit was going to be too elusive. But COVID hit and thank goodness for online sales because it kept a variety of retailers alive. What retailers saw in 2019, they are now executing on today. And that means they’re recognizing the importance of the store, whether it’s discount department stores, off-price, certainly luxury and aspirational and everyone in between, that tailwind is what’s driving then this long term growth.

Linda Tsai: And then you sort of referred to this earlier, but what types of opportunities are most compelling for you as it relates to external growth?

Ken Bernstein: So partially because there’s less competition, partially because — or significantly because we see outsized growth, we are probably most excited about Street retail, that’s not to diminish the other areas that also I see tailwinds for in terms of open air retail. But we think that there is an opportunity now to capitalize on that. We’re seeing increased seller interest and willingness. We see what I refer to as an artificial floor on cap rates, and I can get into that later. But we see what I think will be a good entry point at some point in 2024. And so we’re looking forward to that really nice combination of strong internal growth and now the ability to add a penny here, a penny there, which on a company of our size really adds up.

Linda Tsai: Just one last one. What kind of assumptions are baked into the high and low end of same store growth for your whole portfolio, and what are the assumptions for bad debt at the high and low end?

John Gottfried: Linda, I think first just on the rent side. So I think as I alluded to in my remarks, where we have a chance to hit the upper end is if leasing team hit some of — able to pull forward some of our expectations when we get space assigned. So I think that’s — the key is that do we beat our base case expectations on not only did leases signed but open. So I think we have a very deep team of professionals that try to accelerate the commencement. So between leasing getting a lease signed and our property management team that is making incredible strides on accelerating the time from signing to commencement, those are the two areas where we beat it. And then on credit, we have again, and what I would say is each month, wake up thinking we’re going to have some sort of deterioration in credit.

We’re just not seeing it in terms of collections, disputes. It’s we’re not seeing any downward trends. But within our guidance, I’ve put in a conservative, particularly over where we saw last year, expectation of 1.5%. So 150 basis points of rent of credit reserve that I built in, which is more than we needed last year.

Operator: Our next question comes from the line of Craig Mailman of Citi.

Craig Mailman: Just following back on the acquisition theme here, Ken. Can you just go through where you would see Acadia kind of put out its own capital, fully on balance sheet versus bringing potential partners and maybe what those partners look like relative to maybe the historical use of funds?

Ken Bernstein: So obviously, it will be very dependent on what our on balance sheet cost of capital, both debt and equity versus utilizing outside sources. And while every deal could look different in our investment management platform, our historic economics are probably a good starting point. So the issue will be where and when will the right pricing show up. Here’s what excites me in terms of on balance sheet. And to be clear Craig, I think our shareholders will benefit from earnings accretive acquisitions on balance sheet of assets that are consistent with 50% of our portfolio that is Street retail. I think that there is less competition in terms of buyers. There are sellers now who, after a couple of years of not being able to transact or recognizing either that times up or as often as not — it’s probably as good a time as it might be for them to exit these kind of assets.

The going in yields have an artificial floor on them, and let me explain what I mean by that. For retail, in general, there is a hesitancy by institutional investors and then other similar investors. There is a hesitancy for retail in general to enter in at yields lower than borrowing costs, and I’m talking about private market borrowing costs. Now that is true for supermarket anchored and that’s probably the most crowded of the trades, and so it’s true for a variety of other components as well. And what that means for Street retail, which should have about twice the growth rate as what we’re seeing in our supermarket portfolio, that creates an interesting opportunity. The stars have to align, they’re not there yet, but it’s feeling real close for on-balance sheet acquisitions that pencil out.

Then in terms of utilizing other funds. If we were talking a year ago, I would tell you that institutions were at best what I refer to as retail curious. They were thrilled to take meetings and hearing about retail after not having invested in it in many years. What we’ve seen in the last three to six months is a shift, a recognition that they want best-in-class partners, and we’re now in a position to partner with a variety of different institutions. So if we are unable to acquire accretively on balance sheet, for Street retail, we absolutely will utilize some of those relationships. And then irrespective of whether or not we grow Street retail on balance sheet, if you look what we did with our Fund V power center acquisitions, we’ve been highly successful.

I have every reason to expect us to continue to do that. And then to the extent that special situations, distressed debt, other kind of workouts and restructurings become viable, we are being asked by a variety of capital sources to partner with them to be their retail solution in what might be pools of debt or complicated transactions. So you put it all together and I’m not going to predict which hits, because it’s so dependent on a bunch of moving pieces. But I am willing to tell you that whereas in 2023, I was cautious about even thinking about external growth, now I am much more excited based on what we see in our pipeline, the deal activity and the outreach from both investors and sellers.

Craig Mailman: And I don’t want to get to over your skis in terms of guiding on potential acquisitions. But from what you’re seeing in the pipeline, kind of what would be a base level that you’d be disappointed maybe if you don’t get to over the next 12 to 18 months given what’s in the pipeline? And are there any new markets, especially on Street that you guys are closer to today than you were previously?

Ken Bernstein: So I want to be very, very respectful of your request for us not to get too far over our skis. So John, I think said there is zero in our earnings growth associated with that. And I would be very disappointed if that is the case. But don’t forget what A.J. Levine was just talking about, we have really good internal growth. So I don’t feel a need to do something prematurely just to do it. We will remain opportunistic but disciplined. And keep in mind, every $100 million, $200 million of acquisitions whether done on balance sheet or through our investment management platform can add half a penny to a penny per $100 million historically, and I think that could be the case going forward. So it could really move the needle if the deals make sense.

In terms of new markets, here’s what we saw kind of heading into COVID and now out. There was what I referred to feared of a zero sum game that SoHo loses and, let’s say, Nashville wins. It turns out not to be the case. It turns out our retailers for a variety of reasons are recognizing there are just more key markets that they need to control their own store and format. You’re seeing this for a variety of reasons and in a variety of geographies. One of the reasons is wholesale is generally shrinking, a lot of retailers, whether they’re luxury or otherwise, are recognizing while the department store can still be an important component and an important channel for them, there are just fewer doors and there is more desire to have their own location.

So with that added distinction plus some of the migration we’ve seen over the last few years, markets that were experimental just a few years ago, like a Nashville, like Tampa, I could go on with a variety of them. I picked those two because A.J. mentioned them. These are now locations that our retailers are saying, if you build it, we will come, we need a location there, we want to be around, our other retailer, for a variety of reasons, there’s strong demographic demand. So you add those at the same time, I’m more than happy to double down in Williamsburg, Brooklyn because the tenant sales and the demand there is strong as is SoHo, and A.J. mentioned Madison Avenue coming back. So make new friends but keep the old ones seems to be a logical way for us to continue to expand Street retail.