Acadia Realty Trust (NYSE:AKR) Q4 2024 Earnings Call Transcript

Acadia Realty Trust (NYSE:AKR) Q4 2024 Earnings Call Transcript February 12, 2025

Operator: Thank you for standing by, and welcome to Acadia Realty Trust Fourth Quarter 2024 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Devin Russell, Manager, Accounts Receivable, Lease Administration. Please go ahead.

Devin Russell: Good morning and thank you for joining us for the fourth quarter 2024 Acadia Realty Trust earnings conference call. My name is Devin Russell and I’m a Accounts Receivable Manager in our Lease Administration 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 uncertainties, including those disclosed in the company’s most recent Form 10-K and other periodic filings with the SEC, forward-looking statements speak only as of the date of this call, February 12, 2025, 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 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 Chief Executive Officer, who will begin today’s management remarks.

Ken Bernstein: Thank you, Devin. Great job. Welcome, everyone. I’ll give a few comments before handing the remarks over to A.J. And then since we have been highly active on the acquisition front and expect to continue to do so, I have asked our CIO, Reggie Livingston, to discuss our investment activity. And then finally, John will tie it all together in connection with our earnings guidance, our balance sheet metrics, and our outlook for the year. And after that, we’re here to take questions. As you can see from our earnings release, we had a busy and productive quarter, both with respect to the performance of our existing portfolio as well as a ramp-up of our investment activity. In light of the progress we made throughout the year, we are setting up for our strong 2025.

Now, we are not ignoring the impact on valuations from a higher-yielding bond market nor the increasing likelihood of a higher for longer interest rate and inflationary environment. But to the extent that these headwinds are due at least in part to a stronger-than-forecasted economy, this growth sooner or later should result in stronger tenant top line growth, which then translates sooner or later into rental growth. And our goal has been to make sure we own the kind of retail portfolio that is best-positioned to capture this corresponding growth sooner rather than later. As we have seen over the last few years, the street retail portion of our portfolio, which now represents the majority of our Core Portfolio, has proven to be the best segment to capture this growth.

I’ll let A.J. discuss the specifics of our portfolio performance. But the bottom line is that we have delivered over 5% same-store NOI growth for each of the last three years, most significantly driven by our street retail performance. And then looking forward, it’s our view that this segment will continue to produce the highest net effective growth and the highest risk-adjusted returns in the open air sector. The drivers of this outperformance come from a combination of factors that I’m happy to discuss in detail. But in short, they include strong contractual growth, lower CapEx, fair market value resets, a shift in retailing away from wholesale and into individual stores, the halo benefits from these stores in an omnichannel world, and then ultimately, increasing retailer demand, increasing retailer performance with limited supply.

With these trends in mind, our focus has been to position Acadia to be the dominant owner-operator of street retail in the United States with both appropriate scale and appropriate concentration to enable us to continue to drive the growth we have delivered over the past few years well into the balance of the decade. For reasons that A.J. and Reggie will expand on, the portfolio we have assembled and we’ll continue to add to is beginning to give us that scale and that concentration that will enable us both to enhance the performance of our existing assets as well as position us as the buyer of choice for continued strong external growth. You’ve seen us use this scale and synergies to drive outsized growth in existing markets such as Armitage Avenue in Chicago.

And now with our most recent acquisitions, we are building similar powerful scale and concentrations in Georgetown in Washington D.C., SoHo, Williamsburg and Bleecker Street in New York, Henderson Avenue and the Knox-Henderson corridor in Dallas. Along with the benefits of scale, it’s becoming clear that for all open-air retail, but especially for street retail, this continued retailer demand is not just a cyclical recovery. There are longer-term positive trends at play and we are capturing more than our fair share of these trends. Now, that is not to say that retail is immune to gravity. There are certainly some segments of the consumer that are stretched thin, and we are seeing the reemergence of some retailer weakness in bankruptcies. For the most part, this is concentrated with certain junior anchor retailers in the suburban shopping center portion of our portfolio.

But even here, tenant demand seems to exceed this new shadow supply. And at least from our perspective, the tailwinds still far exceed the headwinds. In complementing our strong internal growth, our acquisitions last year, both on-balance sheet, street retail acquisitions, as well as investments through our highly complementary Investment Management Platform are playing an increasingly important role in our long-term growth. Reggie will discuss the details of our acquisition activity and John will discuss our successful match funding for this activity. But in short, last year and to date, we have completed over $600 million of acquisitions with about half our Core Portfolio, the other half being investments for our Investment Management Platform.

The investments for our Core Portfolio were all strategic additions of street retail in key must-have markets, where we are already active and where we can now add, scale, and further connect the dots in those corridors. We’re focusing our street retail acquisition efforts on properties in key corridors that are accretive to earnings, accretive to net asset value, as well as acquisitions where we can extend and further fortify our long-term internal growth trajectory. As we stated in the past, we are committed to match funding our acquisitions on a discipline basis. Last year, we not only fully funded our Core investments, but also funded our anticipated redevelopment activity, while leaving a decent amount of dry powder for our current pipeline.

Then, complementing our on-balance sheet investments, we’re continuing to see opportunities to grow our Investment Management Platform, where we are leveraging our institutional capital relationships for opportunistic investments best suited for this buy, fix, sell model. Reggie will walk through the positive earnings impact of our external growth activity. But as we have said in the past, for a company of our size, doesn’t take much volume to move the needle. So in summary, as we think about 2025 and beyond, we remain very bullish in our ability to continue to add value by driving internal growth, by maintaining a strong and flexible balance sheet and by adding additional growth through strategic new investments. With that, I will thank the team for their hard work last quarter and last year and their success.

And now, I’ll turn the call over to A.J.

A.J. Levine: Great. Thank you, Ken. Good morning, everyone. So first, I want to echo Ken by congratulating the team for another strong quarter of leasing, signing another $3 million of ABR and capping off a record year where we signed over 50 new leases totaling over $13.5 million of annual rent or the equivalent of nearly 10% of our total ABR. Overall spreads for the year totaled approximately 35% with our high-growth streets leading the charge. We successfully executed our strategy of adding and extending category-leading tenants like Mango, Swarovski, Brandy Melville, Tesla, lululemon and J.Crew. And we continued to strategically replace under-market and underperforming tenants to accelerate rent growth, improve merchandising and credit, and help us better navigate any future volatility.

The majority of our growth will come from our streets, but we’re also seeing solid demand and stability from our suburban portfolio. But for now, let’s dive into some of the reasons why our streets continue to outperform and drive the lion’s share of our growth. Now, it certainly helps that despite some of the choppiness that we’re seeing from some of our suburban tenants, our high-growth streets continue to outperform the overall market. For example, in SoHo, our advanced contemporary tenants reported year-over-year sales growth in excess of 15%, and we saw consistent double-digit sales growth on M Street, Williamsburg, Madison Avenue, Armitage Avenue and the Gold Coast of Chicago. Those are just a few examples. But overall, we continue to see strong retail fundamentals and our tenants show no signs of slowing down.

So what’s driving this growth and performance? Well, first and foremost, our luxury advanced contemporary and higher-priced specialty shopper continues to overwhelmingly prefer open-air and direct-to-consumer experiences. As a result, our tenants are pivoting away from wholesale and department stores and toward our high-growth, high-traffic streets. When you look at the brands that we’ve added on our streets like ZIMMERMANN, STAUD, Alo Yoga, Vuori and Madewell, you’ll find retailers who recognize the clear benefits of direct-to-consumer or DTC where they can best control customer interaction, brand messaging, pricing and co-tenancy. It’s also clear that the halo effect is a very real force for growth. Halo effect essentially means that while the store remains the most profitable channel for our retailers, four-wall profitability and store-level sales are only part of the equation.

We know from our retailers that opening, expanding, and renovating stores has a meaningful and quantifiable impact on overall brand performance. The halo effect from the physical store will positively impact customer acquisition, e-commerce and wholesale performance. And when you layer in the halo effect with our healthy rent-to-sales ratios, which are still below historic norms, we’re seeing tenants that can pay higher rents and better insulate themselves from the roller coasters of previous cycles. The next driving factor is our ability to use our scale and geographic reach to drive rents and improve the merchandising on our streets. Ken mentioned the success we had on Armitage Avenue and our ability to use our scale as a well-capitalized institutional owner to control the curation of the street.

By hand selecting tenants like Jenni Kayne, Rails, Levain and Warby Parker, we’ve created the best ecosystem to drive traffic and promote sales growth. And as a result, our tenants on the street — I’m sorry, our rents on the street have increased by 50% over the last 12 months. That doesn’t happen without some degree of scale. And as new brands emerge and others fall behind, we can use FMV resets to prune the portfolio and continue to push rents even higher. And now that we’re the largest owner on M Street, we can apply the same strategy, identify and pivot away from underperforming tenants, use our experience and relationships to dictate curation, and lean into record sales performance to drive rents on the street. Occupancy costs for apparel tenants on M Street are hovering just north of 12%.

And with sales growth well outpacing inflation, and of course, the benefits of halo, there is significant room for an experienced owner with meaningful scale to capture outsized rent growth. Now with 20 storefronts in SoHo, including nine within our Green Street collection and 15 storefronts in Williamsburg, we are on our way to becoming the largest institutional owner in those high-demand markets as well, not to mention our significant scale in markets like the Gold Coast of Chicago, Melrose Place in Los Angeles, Bleecker Street in Manhattan, and Knox-Henderson down in Dallas. With such a diverse portfolio of high-demand streets, we can use our scale and depth of relationships to cross-pollinate our streets with the most relevant and highest-performing tenants.

So again, what all of this means from a leasing perspective is that we’re busier than ever and our tenants remain active and focused on long-term growth. Even in some of our slower-to-recover markets like Michigan Avenue, the seeds that were planted 12 to 18 months ago are starting to bear fruit. The foot traffic has returned along with some exciting and dynamic tenants. We captured our share by signing Alo Yoga and Mango, but we’re also excited to welcome tenants like Aritzia and UNIQLO to some of our neighboring assets. And at City Center in San Francisco, as we outlined in our release, we are thrilled to announce that we have successfully signed a new lease with a very large international grocer to replace Whole Foods. From an economic perspective, the re-tenanting not only replaces the rents from Whole Foods, but just as important, this incredibly vibrant tenant will undoubtedly kick-start the revival of City Center and is a great sign that the retail recovery in San Francisco is underway.

So I’ve been sworn to secrecy, but next quarter, I’ll be able to provide more clarity. In the meantime, we are confident that we can move forward without any change to our previously-stated projections. Now, turning to the suburbs, where the majority of our suburban assets reside are in our Investment Management Platform. For those assets, we continue to see strong demand and stability and our team has done a great job driving that business as well. Last year, we added several category-leading anchors and junior anchors to the portfolio, including ALDI Supermarkets, Boot Barn, Golf Galaxy, Hobby Lobby, Skechers, and Five Below. And in October, we welcomed our first Dick’s House of Sport to our Brandywine Town Center down in Wilmington, Delaware.

Since the House of Sport was announced, we’ve seen a noticeable lift in leasing volume and rents. And that’s helped us lease an additional 80,000 square feet at that center. So wrapping things up, we remain as encouraged as ever by the growth and the activity we continue to see on our streets, and we see no signs of a slowdown on the horizon. And with that, I will pass things off to Reggie.

Reggie Livingston: Thanks, A.J. Good morning, everyone. I’m excited to share specifics around our 2024 and year-to-date acquisition activity and provide insight into how we’re positioning the company for continued growth across our platforms. In the second half of the year, we had one of the busiest periods on record with more than $600 million of transactions split evenly between our Core and Investment Management businesses. More importantly, the story behind the headline number is even more compelling. The bottom line is, we hit on all cylinders by adding assets to our Core Portfolio that delivered accretion at our $0.01 per $200 million target with an attractive going-in GAAP yield in the mid-6s and five-year CAGR in excess of 7% that will drive our cash yield into the 7s as well.

We added assets that upgraded the quality of our portfolio through transactions accretive to NAV. And we added assets that increased our concentration in key supply-constrained markets that are must-have locations for our retailers. So let’s take a closer look at some of those transactions. In the Georgetown market, we acquired an additional 48% interest and a portfolio of 18 properties. This increased our ownership stake in our portfolio to 68%, with a key local partner, EastBanc Inc., owning the balance. We now own a majority position in a significant portion of all the prime storefronts in Georgetown. And with this additional investment, we are certainly the undisputed landlord of choice in the top street retail market in D.C. And while D.C. in general may still be in early stages of recovery, M Street tenant sales are in excess of prior peak with room to run on rent growth.

And just like those investments in Georgetown, our activity in SoHo was purposeful and strategic. We purchased more than $120 million of assets with half coming from off-market transactions. This included 92 to 94 Green Street on the best block in SoHo, a high-profile corner property at 106 Spring Street and another exciting asset at 73 Wooster. These assets include popular tenants like Givenchy and Vuori and continue our effort to connect the dots, driving curation and rents in the submarket. And as A.J. said, these deals bring our total holdings in the submarket to 20 storefronts, making us one of the largest institutional landlords in SoHo. However, it’s important to note, this still represents less than 10% of the total prime storefronts in the market.

So this should allow for future acquisition activity that will drive our growth there. And while SoHo and growth in SoHo are certainly a priority, don’t forget our previously announced deal on Bleecker Street in the West Village, yet another example of how we know how to identify submarkets with rent growth characteristics where we can scale. These Bleecker assets have strong going-in yields with positive mark-to-market opportunities as it continues to be a coveted landing spot for many of our younger advanced contemporary brands. Heading across the bridge, the Williamsburg market in Brooklyn has been one of the more active and desired retail markets over the last few years, as you all know. Complementing our existing holdings on Bedford Avenue, we added new assets along North 6th Street, where we invested more than $50 million.

These deals contain a mix of below-market leases, credit tenants, leasable vacancy and even a small parcel where we intend to build an additional storefront. It represents an optimal mix of yield and growth that frankly exemplifies our focus on well-rounded portfolio construction. And while we’re excited about our balance sheet transactions, we’re equally enthusiastic about the execution within our Investment Management Platform. In addition to our previously-announced transaction with JPMorgan, we executed two additional joint ventures in the fourth quarter. First, we formed a joint venture with TPG Real Estate to acquire the LINQ Promenade in Las Vegas for $275 million. This 180,000 square foot open-air destination offers retail, dining and entertainment options along with accretive re-leasing potential and ancillary revenue opportunities.

And while the deal is compelling in and off itself, it’s also further evidence that we are a well-capitalized and experienced operator that is a desirable partner for leading institutional investors. And second, with respect to the previously announced power center purchase of the Walk at Highwoods, we entered into a joint venture with Cohen & Steers, another leading institutional investor. This value-add opportunity will allow for repositioning to better tenancy in Tampa, Florida, one of the fastest-growing Sunbelt markets in the country. So to summarize, 2024 and year-to-date has been a period of strategic growth and disciplined execution. For our Core platform, our acquisitions reinforce our commitment to targeting high-quality assets with strong long-term growth potential.

And for the Investment Management business, we found interesting value-add opportunities that not only leverage our talent, but also our strong institutional capital relationships. On a personal note, this has been the most exciting external growth environment in my 13 years with the company. And looking ahead, our pipeline reflects continued momentum. However, as with last year, we will remain disciplined and add assets that are compelling and continue to drive our long-term growth. I want to thank the team for their hard work and dedication to our peer-leading external growth execution last year. Thank you for your time today. And with that, I’ll turn it over to John.

John Gottfried: Thanks, Reggie, and good morning. Before diving in, I want to spend a moment highlighting our team’s accomplishments over the past year and how those efforts are driving our results in 2025 and beyond. First, driven by the strength of our street retail portfolio, our same-store NOI grew by 5.7% for both the quarter and the full year. And we see these trends continuing with 5% to 6% same-store growth projected in 2025 and in the years following, particularly when factoring in the 7-plus percent of NOI growth that Reggie highlighted from the $300 million of new street retail additions that we completed this past quarter. And this growth is driving our bottom line earnings with the year-over-year FFO growth of 5% in 2024 and the expectation of 5.5% growth in 2025.

And keep in mind, the 5.5% of anticipated growth in 2025 is before factoring in any further external acquisitions. Secondly, we accomplished our balance sheet goals and put ourselves in a position to successfully execute on our external growth strategy. During the year, we raised approximately $740 million of common equity and completed over $1 billion of secured and unsecured debt transactions. And not only did we accomplish this without diluting our earnings, we accretively invested over $600 million of gross asset value between our Core and Investment Management businesses, along with leaving ourselves with a few hundred million dollars of dry powder to fuel further external growth. And while a lot of activity, the take away is clear. As the capital markets windows opened up and the bid-ask spread on new investments narrowed, we hit it hard.

And our team will continue to make hay so long as the sun is shining as these windows don’t last forever. And while the volume of activities that our team accomplished in the last six months or so would be impressive for virtually any of our REIT peers, at our relative size, the impact on our business was transformational. And now let me fill in a few details starting with our fourth quarter results. Our fourth quarter earnings came in at $0.32 a share, representing year-over-year growth of approximately 15% over the $0.28 that we reported in the prior year comparable quarter. Our quarterly results were slightly impacted by the timing of our equity raise and the closing of the acquisitions in our pipeline. But as we got our deals across the finish line in January, our 2025 earnings goals are on track.

Additionally, we achieved 5.7% same-store NOI growth for the quarter. And this was driven by growth in excess of 12% from our street retail portfolio. And the growth we’re seeing from our street portfolio is being driven by a powerful combination of the 3% contractual growth that’s built into our street leases, occupancy gains, and increasingly more impactful, the mark-to-market spreads we are achieving on new leases. And I want to spend a moment to elaborate on the impact of occupancy gains and the mark-to-market spreads that occurred during the fourth-quarter. Starting with occupancy, our Core physical occupancy sequentially increased by 140 basis points. And this was driven by approximately $5 million of ABR at our share coming online during the quarter.

In addition to simply adding new occupancy within that $5 million was $1.5 million of mark-to-market spreads from new leases that commenced during the quarter. And just to clarify, the $1.5 million is included within the $5 million of commencing ABR. And it represents the cash spreads we are achieving on these new leases as compared to the prior lease. And just for context, at our relative size, $1.5 million of mark-to-market equates to over $0.01 of incremental FFO and about 125 basis points of same-store NOI growth, with about 90% of this coming from our street portfolio. And as we think about further occupancy gains, I want to provide a quick update on our signed not yet open pipeline, which was $7.7 million at December 31. This represents over 5% of our Core ABR and a spread of 270 basis points between our leased and physical occupancy.

Additionally, we sequentially increased our leased occupancy by an additional 110 basis points to 95.8%, which was driven by $3 million of new Core leases that were signed during the quarter. But as we’ve said before and it’s worth repeating, all occupancy percentages are not created equal, meaning, while our overall occupancy is 95.8%, our higher dollar street in the urban portfolio is around 90% leased, meaning, we still have a lot of room to run. And as a reminder, the $7.7 million signed, not yet open is at our pro-rata share and represents Core same-store only, meaning, it excludes any leases signed in our Core redevelopment pipeline and our Investment Management Platform, including City Point, which if included were nearly double our reported signed, net yet open pipeline.

Additionally, the $7.7 million represents incremental ABR as it excludes any leases that we have executed on space that is currently occupied. From a timing perspective, we anticipate that all of the $7.7 million will commence at some point in 2025. And when factoring in estimated timing, it’s projected to contribute incremental ABR of about $4 million in 2025 with about 75% or roughly $3 million of the $4 million projected to show up in the second half of the year, thus the full impact of the $7.7 million, meaning the incremental $3.7 million will show up in 2026. So now taking a step back, because I realized that I had just thrown out a bunch of numbers, so let me spend just a minute to pull together the pieces, which is code for those modeling, it’s time to pull out your pencils.

Starting with the net positives and to recap what I just walked through. We are anticipating an incremental $9 million of ABR comprised of the full year impact from the $5 million of rents that commenced during the fourth quarter, plus the $4 million from our signed, not yet open pipeline. Offsetting this incremental $9 million in 2025 is about $4 million of ABR from our pry loose strategy that we discussed on our last call. As a reminder, our pry loose strategy refers to the active asset management of our portfolio, primarily within our key streets to pry loose below market leases from underperforming tenants and release them at current market rents. And we’ve already replaced this $4 million with $6.5 million of new deals, resulting in a net gain of about $2.5 million or nearly $0.02 of incremental FFO.

So while the downtime in 2025 is a short-term offset in our 2025 NOI, as we turn the spaces, it sets us up for outsized growth in 2026 and beyond as we bring these new tenants online. Now moving on to our 2025 earnings guidance. As outlined in our release, we have initiated 2025 guidance of $1.35 at the midpoint, representing projected growth of approximately 5.5% over 2024. A few observations on our initial guidance, and I’ll start with the spoiler alert, which given our past practice, really shouldn’t be too much of a spoiler. You should not expect that when we announce our earnings in a few weeks that we beat our first quarter earnings. But where is the potential for upside to our annual guidance First, and let’s start with credit and leasing.

In terms of credit, we have assumed about 125 basis points of bad debt in our guidance. And this feels pretty conservative as it’s more than what we have needed over the past few years, particularly when considering that our single container store lease was assumed without modification and we have limited exposure to the other announced bankruptcies. But as we always do, we believe it makes sense to build a bit more reserves into our initial guidance. And as it relates to leasing, our team has already signed all the deals necessary to achieve our 2025 results. Which means that given the nature of our street retail assets, it’s actually not unrealistic to assume that we have the opportunity to sign a new lease and start collecting rent during the year.

And just to illustrate this point, during this past fourth quarter in the Gold Coast of Chicago, our new tenant, Brandy Melville, toured a space at the end of September. They signed a lease a few weeks later, opened the store and began paying rent in mid-November. And to elaborate on the impact, this single space was less than 6,000 square feet of GLA or about 1 basis point of occupancy but contributed over $0.005 of annual FFO. And the second opportunity for upside to our guidance is external growth. Our $1.35 of projected FFO does not include any accretion from external growth. So while I share Ken and Reggie’s enthusiasm about putting more accretive capital to work in the near term. Our 2025 earnings guidance hasn’t factored any of this in.

And as outlined in our release, we have $275 million of forward equity proceeds on call to fund it. And a final point on guidance, I want to spend a moment on the re-tenanting of City Center in San Francisco that A.J. discussed and we outlined in our release. While we are limited to what we can share at this point, we want to reiterate that the economics from this new lease, coupled with the reimbursement for Whole Foods for rental recoveries, there is no material impact to our short- or long-term earnings. And while we shouldn’t get too far ahead of ourselves, our team believes that we have a good shot of beating our goals, given the retailer interest that we anticipate that our new addition will bring to the center, but stay tuned for more information in the coming weeks.

And just as a reminder, City Center is included in our Core redevelopment pipeline, which means that neither of these leases are included in the $7.7 million of signed, net yet open pipeline and the payments received from Whole Foods will not be included in our 2025 same-store results. Thus, as we start 2025 with our embedded internal growth, along with the dry powder we have on-call, we remain very well-positioned to beat our expectations for the coming year and in the years following. And before opening up to questions, just a quick balance sheet update. During 2024 on a non-dilutive basis, we completed about $2 billion of debt and equity transactions, resulting in a reduction of our debt to GAV to under 30% and brought our debt-to-EBITDA ratio down a full turn to 5.5 times, which includes our pro rata share of the non-recourse debt from our Investment Management business, which means that if we were to look that we would be in the mid-4s if we were to look solely at our Core debt-to-EBITDA metric.

And while today’s hotter-than-expected CPI report puts pressure on interest rates, we wanted to remind everyone that we have no meaningful Core maturities until 2028, along with the balance sheet that is fully head for the — fully hedged for the next several years. Which means that our internal growth will drop to our bottom line. And with that, I will now turn the call over to the operator for questions.

Q&A Session

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

Linda Tsai: Thank you. How do you think about the concept of scale in your street portfolio? How do you build it and how do you know when you’re achieving it? Are there certain metrics or indicators.

KenBernstein: Yes. So let me add a little color to it because I’m the one who brought it up and then A.J., maybe you could add some numbers in context. Scale works when we own the right assets in the right corridors. So first and foremost, if you own just a generic portfolio of stuff, I’m not sure scale does that much benefit. Where we own in these key corridors, we are seeing our ability to both drive rents but also better curate, better defend the corridors to be the case. Second point I’d make is the acquisitions we have made and will continue to make have to stand on their own individual acquisition, has to be accretive, has to check all of the boxes irrespective of the long-term scale. A.J., why don’t you add some thoughts to how you’re thinking about it?

A.J. Levine: Sure. In terms of quantifying it, and of course, it’s going to depend on the market, right, you want markets, of course, where there’s significant barriers. But generally, I’d attribute about 10% in terms of the upside, in terms of rent growth when you have significant scale. We obviously saw what happened in Armitage Avenue where we well exceeded that 10%. But really from my perspective, it’s important to note that this isn’t about convincing tenants to overpay, right. This is about curation. It’s about improving co-tenancy, promoting overall sales growth, promoting increased traffic. And rent is really just a byproduct of all of that. So combination of scale, experience, access to capital, access to data, that all plays into the equation.

Linda Tsai: Thanks. And then in terms of acquisition volume in 2025, what is the percentage split of Core and Investment Management and how are you thinking about the opportunity set?

KenBernstein: Reg, you want to stick your neck out on that?

ReggieLivingston: Sure. So, hi, Linda. So I would say big picture, from a Core standpoint, we think as long as the sun is shining and the stars are aligned, there’s no reason we can’t duplicate what we did last year this year. From an asset — from an Investment Management Platform standpoint, by definition, it’s more opportunistic. And so it’s hard to give guidance around that because we only do the deals that make sense that we can find that can deliver outsized return. So a little more difficult to predict on that end of the spectrum.

Linda Tsai: Thank you.

Operator: Thank you. Our next question comes from the line of Floris van Dijkum of Compass Point. Your line is open, Floris.

Floris van Dijkum: Hi, thanks. Good morning, guys.

KenBernstein: Good morning.

Floris van Dijkum: Good morning. Question, I’m intrigued by your low occupancy on your street and urban portfolio of 90.6%. And maybe if you can talk a little bit — it seems like average rents of $81 or something like that, presumably market rents are higher, what’s the impact of every 1% increase in your occupancy? And what was your peak street and urban occupancy in the previous cycles?

KenBernstein: John, you want to cover that?

John Gottfried: Hi, good morning, Floris. So starting with the last question, peak occupancy is in the — I think it was in the 97% range and we put out the guidance that was to look out several years, $30 million to $40 million of internal growth. We were not getting to that peak occupancy level, but that’s where we did get to. We’re peaking in that guide at the, call it, 94%, 95%. And I know everyone hates this answer that it actually really, really depends on what lease, what street we sign, whether it’s multiple level, single level space. So Floris, I would love to tell you just flat $500 a foot for every square foot we lease, but it’s going to matter space by space, building by building. But what I would say is that we are generating — we look at this quarter, we delivered 12% of street growth.

We see till we get to that 95%, we think we’re going to be in that 10-plus percent or in that 10% range, why don’t we say, for the next couple of years while we get that occupancy back up and running, which I think we said in the past, this is we think within the next 18 months or so we get there. So it’s not — I know I’m not giving you the math to get there, but we could spend the time to walk through what markets and where we see rents. But it’s — well, I’d love to give you a blanket rent per foot. Just really can’t do it admissively.

Floris van Dijkum: Fair enough. Let me ask you a follow-up question. You’ve got the — obviously, you’ve got the ATM in place, so $275 million of additional investments. As you’re thinking about where to deploy that capital, how would you — obviously, you’ve been focused so far on your Core markets of SoHo, Williamsburg and M Street. Where do you see the greatest opportunities today? And would you consider — I mean, wouldn’t it be a contrarian bet to maybe put some money into San Francisco, which seems completely out of favor? Or are the returns simply not attractive enough at this point. Maybe you can talk a little bit about the various markets and the attraction that you see and the opportunities you see?

KenBernstein: Sure. Reggie, let me start and then add in, certainly, as to where you see our additional current focus in our pipeline and otherwise. First of all, Floris, the good news and one of the reasons that we have our dual platform is it expands our aperture, meaning if we see early-stage recovery, highly opportunistic situations that may not work for our Core additions, we’ll team up with the right partners for our Investment Management Platform. And yes, there are markets that as recently as a year or two ago, people said were uninventable, and I suspect they’re quickly becoming investable. But most importantly of how we think about which markets we want to add to our portfolio, it’s first and foremost a conversation with our retailers.

Where do they want to be? And then it’s an analysis of where do we see supply constraints because we need to buy into corridors. And if you think about what we have recently added, whether it’s in Williamsburg, Brooklyn on North 6th or on Henderson Avenue in Dallas, there is supply constraints because it’s a finite amount of square footage and very difficult to expand on it. So once we find markets that retailers are excited about and that have adequate barriers to entry and supply constraints, that’s where we’ll execute. If it’s early-stage recovery and priced accordingly, it might end up more opportunistic and we have done those and have been contrarian. And if it’s something where we can build scale, where we are the buyer of choice, then expect to see us to add in SoHo, on Henderson, in Melrose Place or anywhere else.

Reg, what else? What are we working on right now and how does that fit in?

ReggieLivingston: Yes, I would say it fits perfectly. I mean, the new assets have to — the new markets have to fit those characteristics. But I would just note that when we talk about the 20 storefronts or so we own in SoHo, that is a fraction of the prime SoHo market. So even if we didn’t pick a bunch of new markets, there’s substantial growth in the markets that we are already building scale where we can connect the dots more. And I think a lot of what we’re seeing too is when we build that scale, we are the landlord of choice with a buyer of choice. So one of the benefits of that scale is we’re getting those calls. We’re underwriting faster because we have the tendency to rent information and et cetera. So I think even in the markets where we’ve done a lot, there’s a lot more to do and we can continue to build in those markets.

Floris van Dijkum: Thanks, guys.

ReggieLivingston: Sure.

Operator: Thank you. Our next question comes from the line of Andrew Reale of Bank of America. Please go ahead, Andrew.

Andrew Reale: Good morning. Thanks for taking my questions. Your guidance range is somewhat wide, and of course, not contemplating any external. So could you just discuss in some more detail the other swing factors that are going to drive 2025 to the top or bottom of that range? I mean, John, I know you mentioned credit, but just curious what other factors are at play here.

John Gottfried: Yes. So no. And Andrew, we do lay out detail by detail, line item by line item. So we — you could see where the variability is, right? So I think within Core NOI, we have a pretty narrow range. given that we’ve locked in the leasing to date. But as I mentioned, we have upside to that above and beyond that. You’ll see in — we do have variability in our promote. So I think there, it’s one between our various funds and things that Reggie and his team are looking to monetize where we’re getting close on. We could see that’s where it would drive it because that’s probably one of the wider ranges is around the promote. So I think we’re going through there as you can see the individual line items, but we feel pretty good.

And again, our guide, it’s only less than 24 hours old. Don’t want to talk it up just yet, but we feel pretty good that between the external growth and what we’re hearing from our tenants and the strength of our teams leasing that we’re feeling pretty bullish about this year.

KenBernstein: Let me just add a little more color, Andrew. At the highest end of our guidance range, that could certainly include some external growth. Wherever it shows up to the extent that we’re getting to the high end, John, I’m sure we’ll be happy to take it.

Andrew Reale: Okay. Thanks. And just as a follow-up, on the external side, there’s been some talk lately just about broader buyer pools and increasing competition for certain retail assets. But just curious if you could talk about how competition for street retail M&A is evolving.

KenBernstein: Yes. So there has been increased competition for all open-air retail as institutions have woken up recently realizing that they are under-allocated to a very strong asset class, meaning, open-air retail. Reg, I’ll let you give some of the specifics of the different components. But for street retail, while it is getting arguably less attention and is less crowded than some of the others, there are some very smart, capable institutional buyers that are playing in that area. It’s a net positive to us for a bunch of reasons. One of them is it is causing more sellers to show up and then we’re getting more than our fair share of that increased volume. Reg, I don’t know what you want to add about relative cap rates as well as how we’re getting our deals done.

ReggieLivingston: Yes, well, I would say one additional thing. With the sellers that are coming to the market, all of a sudden, yes, they’re more buyers, but they’re more sellers too, sellers who are sitting on their property saying, oh, maybe I don’t want to sell my retail right now, they’re coming to the market. So yes, there’s more competition. But what I like about this environment, particularly for us, is when you have that additional competition, sellers are focused more on reputation, relationships and speed, and we are built for those things. And that’s how we’ve been able to get our fair share of those deals. So we welcome the increased competition because we think we operate and execute well in that environment.

Andrew Reale: Thank you.

Operator: Thank you. Our next question comes from the line of Craig Mailman of Citi. Please go ahead, Craig. Craig, your line is open. Please make sure your line is unmuted. If you’re on speakerphone, lift your handset. We’ll go to the next question. Our next question comes from the line of Michael Mueller of Jefferies. Your question please, Michael.

Michael Mueller: Is my line open?

KenBernstein: Yes, it is, and Mike is from JPMorgan.

Michael Mueller: Yes.

Operator: I’m sorry. That is JPMorgan. Apologies, sir.

Michael Mueller: Got it. Okay. I guess, first thing, it looks like the guidance, there’s a footnote talking about the City Point loan. The assumption is it stays outstanding all year. I guess as you sit here today, what’s the likelihood of that happening? Because I think it can be paid back in June, right?

KenBernstein: Yes. So Mike, that’s right. It could be paid back, but I think that conversations with partners, performance of the asset and really just the value of the loan and their equity, we have every indication to believe that they’re going to continue to stay in it. But as we said in the past that the conversion net once upon stabilization will be more accretive for us if they do decide to convert, but that was just our base case assumption we put in there.

Michael Mueller: Got it. And then maybe one other one on the street physical occupancy 84.7% at year-end, what does guidance assume that that ramps-up to by year-end ’25 on a physical basis?

KenBernstein: Yes. So in a physical, we should be probably — I would say we’re going to be in the 90s, Mike, because I think if we look at our SNO, a good chunk of our signed, not yet open is again coming from our street. So I think we’ll be in close to 90%.

Michael Mueller: Okay. Okay. Thank you.

Operator: Thank you. Our next question is from Craig Mailman of Citi. Please go ahead, Craig.

Craig Mailman: Hi, guys. Sorry about that issue. You can hear me okay now, right?

KenBernstein: Yes, sure. Glad to have you back.

Craig Mailman: Perfect. I was just going to follow-up on the acquisitions. I know it seems like purposefully, you guys aren’t talking about the potential pipeline here of deals you’re underwriting, but you already have almost $300 million of forward teed-up. So I’m just kind of curious maybe if you could give some sense of what the magnitude you’re looking at, how quickly you think you could deploy that capital, that would be helpful.

KenBernstein: Sure. Let me start, Reg, and then you can add any color and specifics. One of the sillier things that I have found over the years, and periodically, we do it anyway is providing forward-looking pipeline because as you can imagine, sellers are more than capable of reading these transcripts as well. And one of the dumbest things we could do before we have completed our due diligence before we are certain we are going to close is indicate to sellers that we’re talking about deals with, about them that are going to get done. I’ve seen others of our peers do it and pay the price when the deals don’t check out. That being said, Reggie touched on and why don’t you get more into it on the Core specifically, Reg, how is the market feeling and how is the pricing for street retail relative to, let’s say, supermarket anchored or otherwise?

ReggieLivingston: So street — I’ll go backwards. So street retail, one of the things that we’ve seen when we kind of check street retail versus grocery is that street retail used to trade inside of grocery, 150 bps or so inside of grocery depending on the time-frame that you’re looking at. And that’s obviously because of the growth profile and the growth differences between street and supermarket. What we really like about street in this moment in time is that when you take prime street and prime grocery, call it Southeast prime grocery, the cap rates are very near to each other still, even though we have a double, sometimes triple value proposition from a CAGR standpoint. So from a relative, we love from all of open-air, we really love the opportunity and the pricing and the basis that we’re finding in street retail, namely the combination of bases and growth.

And as far as pipeline, we feel really good. I can expect more of the same, all of these markets where we are becoming the landlord that people are calling the buyer that people are calling, it allows us to be selective as well. So we try to have a lot more than we end up closing on because we always want to make sure it checks the boxes. We’re not going to just do volume for volume sake or scale for scale sake. It has to check the boxes and we will find our fair share of those that do.

KenBernstein: So Craig, as you pointed out, we have the capital on call. We’re seeing the deal flow. Stay tuned.

Craig Mailman: I appreciate the redirect there, Ken. I guess, my follow-up, if you look at where the midpoint of your guidance is on an FFO yield that you’re around at 5.8% based off today’s pricing, could you guys talk about where maybe your debt cost would be today and the prospect of continuing to use ATM either forward or spot to fund given what seems to be kind of cheaper equity at this point versus debt?

John Gottfried: Yes, Ken, why don’t I start? So to answer your question on where debt is and I have not looked where the 10 years ran since we’ve been on the call. But Craig, I think we’d probably be in the 6% — pretty close to the 6% range where we think we could get 10-year money. But to your question on equity, what I would say about this and this goes — this all goes back to how we think about capital allocation that our Core Portfolio is growing 5-plus percent right now. I think for a deal that Reggie brings to us, if we’re going to use our equity for it, that’s got to grow at least, if not better than that for us to raise our equity. So that’s how we think about it that, yes, the initial going-in yields might get us some day-one accretion, but creates long-term dilution.

So that’s really how we think about allocating capital or putting new — buying new assets is we have the growth, we don’t have to buy it, and we say disciplined, it’s — we’re going to expand our equity base. It’s going to be with those assets that exceed the growth that we already have.

KenBernstein: Yes. And as Reggie mentioned, just to emphasize, our going-in GAAP yield was well in excess. It was in the mid-6s. Our CAGR was in the 7s, but the deals that we closed last year, the growth was in the 7s, so checks that box and then the cash yield gets into the 7s as well, which thus confirms the IRR and other things. Thanks for patching it, Craig.

Craig Mailman: Great. Thanks.

Operator: Thank you. Our next question comes from the line of Ki Bin Kim of Truist. Your line is open, Ki.

Ki Bin Kim: Thank you. Sorry if I missed this, but could you just talk about the going-in yields for your acquisitions in 4Q and what those might stabilize to in the next couple of years?

KenBernstein: Reg, why don’t you take a crack at it?

ReggieLivingston: Yes, focusing on GAAP yields, 6.5%, mid-6s, GAAP yield going-in that will stabilize in the 7s from a cash yield standpoint.

John Gottfried: And the CAGR on that is 7%. [indiscernible] 7% CAGR.

ReggieLivingston: Yes, 7% CAGR.

Ki Bin Kim: Okay. And I know it’s early into the Trump administration, but if we play out what those might do and shrink the size of government, and I realize the spending isn’t isolated to D.C., but just any kind of larger thoughts on what potential impact you might see if indeed the government starts to shrink a little bit more?

KenBernstein: And I assume you mean in relation to our M Street assets.

Ki Bin Kim: Yes.

KenBernstein: Yes. So what has been fascinating to observe is the rebound in M Street over the last couple of years. And A.J., you may want to add a little color to this. Keeping in mind, and I don’t want to pretend to overthink Doge versus — but keeping in mind, that was during a period of time when downtown D.C. was really suffering because so many of the federal workers were remote often outside of the area. So not clear to me that any of those shifts will impact the shoppers who are a wider variety of ranging from students to tourists. And if you’ve been reading, while there might be some headwinds associated with that, Georgetown from a residential perspective is on fire. And all those folks bidding up those homes are coming to M Street to shop. So A.J., I don’t know in terms of tenant performance or any tenant feedback you’ve gotten around that.

A.J. Levine: Yes. Look, I think generally speaking, whenever there’s a change over to administration, there’s a little bit of a dip on M Street, usually earlier in the year. Tenants don’t seem overly concerned. We speak about this often. And I think it’s important to stress that our customer base is much more than just government workers. The university itself is a huge component of our shopper. Tenants don’t seem overly concerned at this point.

Ki Bin Kim: Okay. Thank you.

Operator: [Operator Instructions] Our next question comes from the line of Todd Thomas of KeyBanc Capital Markets. Your line is open, Todd.

Todd Thomas: Yes, hi, thanks. First question, I just wanted to follow-up and maybe Ken or Reggie, just given your comments around street retail pricing, you mentioned the math $200 million of Core investments equates to about $0.01 per share of FFO. Is that math today any different? Has the spread improved a little bit just given both the improvement in your cost of capital and the asset pricing that you’re discussing?

KenBernstein: Let me — Reg, I’ll touch that first. Todd, the thing that we have to remember on this side of our business is deals price on a one-month to as much as six-month basis, so pricing changes that we feel on our screens hourly don’t necessarily translate through one direction or another. So what we’ve seen over the last several months is a move up in the 10-year treasury, a fair amount of buyer interest. But my guess is that we’re going to see some interesting buying opportunities as a result of some of this volatility. And then Reg talk about is the earnings accretion, but I’d say it’s holding up just fine when your team’s looking at the deals to buy.

ReggieLivingston: Yes, It’s holding up just fine. And I’ll tell you, it’s one of the metrics of NAV and FFO accretion that we talk about literally all the time. And so when we construct a portfolio, some may be behind, some may be ahead. But what you will see, just like we did last year, is we feel very confident we can construct a portfolio that exceeds our targets.

Todd Thomas: Okay. And then in Georgetown, is there any line of sight toward 100% ownership of that portfolio?

KenBernstein: That’s not our focus right now. Our local partners have been great. Frankly, when we owned only 20%, we had a seat on the bus. Now, we’re driving the bus. I think that they are net additive to what we’re doing. But A.J. touched on some of the scale benefits. And we will seize upon those irrespective of we own 70% or 100%, so it’s all good on that front.

Todd Thomas: Okay. And then if I could just ask one more real quick on rent growth and the mark-to-market opportunities within the portfolio. I think there was a lot of talk around the strength of your tenants and double digit retail sales. A.J., you mentioned the occupancy cost ratio of around 12% in Georgetown. Where do you think that should be in Georgetown? And how would you frame that up today maybe across the street and urban portfolio a little bit more broadly? Is there any way to quantify what that looks like within the street and urban portfolio or within other key markets?

A.J. Levine: Yes. Look, I think I’m comfortable where it’s at today just being north of 12% on M Street, but I think it still has a lot of room to run before it becomes unaffordable. We are well below where we were at the prior cycle. And just given where rent growth has been, well outpacing inflation, I’m not necessarily concerned about that. Halo effect, et cetera, I mean, occupancy costs can get well into the upper-teens before we really have to start paying that much attention.

KenBernstein: And to just add to that, different segments of retailers can pay different percentages. The off-price retailers in the suburbs are single-digit rent-to-sale ratio, restaurants start choking once they get to 10%. And so A.J. is really referring to our advanced contemporary retailers. And the point that we made about curation is as important as growing the rent-to-sales ratio, which is if we get the right tenants in, their sales grow. And so we may never get past 12%. It may stay at 12%. But if sales are growing at 15% year-over-year, we are going to capture more than our fair share of rental growth. And that’s how it’s been playing out over the last couple of years.

Todd Thomas: Okay. What was the prior peak or the peak in the prior cycle that you saw in Georgetown?

KenBernstein: In terms of rent-to-sales in the 20s, A.J.?

A.J. Levine: Yes, in the prior segment, we’re getting up into the 20s, right.

KenBernstein: Different world now. Omnichannel world, the tenants are very happy. And let’s focus on making sure their top line and their bottom line grow, and then the rest of this should fall into place. But we’re in a very healthy position and it feels much different and nothing like prior peak.

Todd Thomas: All right. Thank you.

KenBernstein: Great. Good talking to you.

Operator: Thank you. I would now like to turn the conference back to Ken Bernstein for closing remarks. Sir?

Ken Bernstein: Thank you all for joining us. We look forward to speaking with you next quarter.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.