Acadia Realty Trust Price & Performance (AKR)

Good morning and thank you for joining us for the fourth quarter twenty twenty four Acadia Realty Trust earnings conference call. My name is Devin Russell and I'm the 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 nineteen nineteen thirty four, and actual results may differ materially from those indicated by such due to a variety of risks and uncertainties, including those disclosed in the company's most most recent Form 10 ks and other periodic filings with the SEC, forward looking statements speak only as of the date of this call, 02/12/2025, 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 for reconciliations of these non GAAP financial measures the most directly comparable GAAP financial measures. It is my pleasure to turn the call over to Ken Bernstein, President and Chief Executive Officer will begin today's management remarks.

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 to continue to do so, I have asked our CIO, Reggie Livingston, to discuss our investment activity. And then finally, John, we'll 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 a strong 2025. [indiscernible] 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. 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 correspondent 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 Ajay 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 [indiscernible] in the highest risk adjusted returns in the open air sector. The drivers of this performance 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 omni channel world and then ultimately [indiscernible] 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 will 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 Armidich Avenue in Chicago and now with our most recent acquisitions, we are building similar It's a skill, 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 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 [indiscernible] Are playing an increasingly important role in our long term growth. Reggie will discuss the successful match funding for this activity.

But in short, last year, and to date, we have completed over $600,000,000 of acquisitions with about half of our core portfolio, the other half being investments for our investment management platform. [indiscernible] 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 max funding our acquisitions on disciplined basis. Last year, we not only fully funded our core investments, but also funded our anticipated redevelopment activity. 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 [indiscernible] suited for this buy fixed cell model. Reggie will walk through the positive earnings impact of our external growth activity, 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 their success Now I'll turn the call over to AJ. 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 $3,000,000 of ABR and capping off a record year where we signed over 50 new leases totaling over $13,500,000 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. 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, Armijay Avenue and the Gold Coast Of Chicago. And our tenants show no signs of slowing down. So what's driving this growth and performance? First and foremost, our luxury, advanced contemporary continues to overwhelmingly prefer open air and direct to consumer experiences. As a result, our tenants are pivoting away from wholesale department stores and toward our high growth high traffic streets. When you look at the brands that we've added on our streets like Zimmerman, Soud, Allo Yoga, Viori 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, [indiscernible] 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 Armidage Avenue, and our ability to use our scale as a well capitalized institutional owner to control the curation [indiscernible] By hand selecting tenants, like Jenny Kane, Rails, LaVine and Wabbey 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 twelve 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 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 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 twelve to eighteen months ago are starting to bear fruit. The foot traffic has returned, along with some exciting and dynamic tenants. We captured our share signing Aloe 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 replace Whole Foods. From an economic perspective, 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 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, Sketchers 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. With that, I will pass things off to Reggie. Thanks, A. J. Good morning, everyone. I'm excited to share specifics around our 2024 and year to date acquisition at and provide insight into how we're positioning the company for continued growth across our platform. In the second half of the year, we had one of the busiest periods on record.

With more than $600,000,000 of transactions split evenly between our core and investment management businesses. More importantly, the story behind the headline number is even more compelling. By adding assets to our core portfolio that delivered accretion at our $0.01 per $200,000,000 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 7% as well. We added assets that upgraded the quality of our portfolio 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 in a portfolio of 18 properties. This increased our ownership stake in that portfolio to 68% with a key local partner East Bank 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 [indiscernible] And while DC in general may still be in the 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, activity in SoHo was purposeful and strategic. We purchased more than $120,000,000 of assets with half coming from off market transactions. 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. Assets include popular tenants like Givenchy and Viore and continue our effort to connect the dots, driving curation and rent 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 And so 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 is 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 bleaker assets have strong earnings 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 Sixth Street. Where we invested more than $50,000,000 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 Lync Promenade in Las Vegas for two seventy five million one hundred and eighty thousand 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 of itself, It's also further evidence that we are well capitalized of 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 and 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. To summarize, twenty twenty four year to date, has been a period of strategic growth and disciplined execution. 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, it's been the most exciting external growth environment in my thirteen years with [indiscernible] 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. 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 seven plus percent of NOI growth that Reggie highlighted from the $300,000,000 of new street retail additions that we completed this past quarter. And this growth is driving our bottom line earnings. With 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% 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 on our internal growth strategy. During the year, we raised approximately $740,000,000 of common equity and completed over $1,000,000,000 of secured and unsecured debt transactions. And not only did we accomplish this without diluting our earnings, we accretively invested over $600,000,000 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 to 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. 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, which $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 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 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 this was driven by approximately $5,000,000 of ABR at our share coming online during the quarter. Addition to simply adding new occupancy, within that $5,000,000 was $1,500,000 of mark to market spreads from new leases that commenced during the quarter and just to clarify, the $1,500,000 is in cash spreads we are achieving on these new leases as compared to the prior lease. Just for context that our relative size $1,500,000 of mark to market, equates to over $0.01 of incremental FFO and about 125 basis points of same store NOI growth. 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 $7,700,000 at December 31. This represents over 5% of our core ABR a spread of two seventy basis points between our leased Additionally, we sequentially increased our leased to 95.8% was driven by $3,000,000 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 and new urban portfolio is around 90% leased. Meaning we still have a lot of room to run. And as a reminder, the $7,700,000 of 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 Citipoint. Which if included, were nearly double our reported sign not yet open pipeline. Additionally, the $7,700,000 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 $7,700,000 will commence at some point in 2025. And when factoring in estimated timing, it's projected to contribute incremental ABR of about $4,000,000 in 2025 with about 75% or roughly $3,000,000 of the $4,000,000 projected to show up in the second half of the year. Thus, the full impact of the $7,700,000 meaning the incremental $3,700,000 will show up in 2020 So now taking a step back as I realized that I had just thrown out a bunch of numbers.

Let me spend just a minute to pull together the pieces. Which is code for those modeling, it's time to pull out your pencil. Starting with the net positives and to recap what I just walked through. We are anticipating an incremental $9,000,000 of ABR comprised of the full year impact from the $5,000,000 of rents that commenced during the fourth quarter plus the $4,000,000 from our signed not yet opened pipeline. Offsetting this incremental $9,000,000 in 2025 is about $4,000,000 of ABR from our Pralu strategy that we discussed on our last call. As a reminder, our PRILOO 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 re lease them at current market rents. And we've already replaced this $4,000,000 with $6,500,000 of new deals, resulting in a net gain of about $2,500,000 or nearly $0.02 of incremental FFO. So while the downtime in 2025 is a short term offset in our 02/2025 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 rejected representing projected growth of approximately 5.5% over 2024. A few observations on our initial guidance. I'll start with a spoiler alert, which given our past practice, we 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. [indiscernible] where is the potential for upside to our annual guidance? First, 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 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, the single space was less than 6,000 square feet of GLA or about one basis point of occupancy, but contributed over $0.5 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 $275,000,000 of forward equity proceeds And a final point on guidance, I want to spend a moment on the retentending of City Center in San Francisco San Francisco that Ajay 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 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 $7,700,000 signed not yet open pipeline and the payments received from Whole Foods will not be included in our 2025 same store results. Doss, as we start 2025, with our embedded internal growth, along with the dry powder we have on call, We remain very well positioned to meet 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 diluted basis, we complete about $2,000,000,000 debt and equity transactions resulting in a reduction of our debt to GAV to under 30%. 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. 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 a balance sheet that is fully had 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. Please standby while we compile the Q and A roster. Our first question comes from the line of Linda Tsai of Jefferies. Your question please, Linda. 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 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 and context. Scale works when we own the right assets. In the right corridors. [indiscernible] first and foremost, If you own just the 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. Ajay, why don't you add some thoughts to how you're thinking about it? Sure. In terms of quantifying it, 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 there on British 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.

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?

Reg, do you want to stick your neck out on that? 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 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're going to only do the deals that make sense that we can find that can deliver outsized returns. So little more difficult to predict on that end of the spectrum.

Thank you.

Thank you. Our next question comes from the line of Florist Van Dijkkem of Compass Point. Your line is open, Floris. Hey, thanks. Good morning, guys. 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 have $81 or something like that assuming market rents are higher. What's the impact of every 1% increase in your occupancy And what was your peak street and urban occupancy John, you want to cover that? Hey, good morning. Flor. So starting with the last question, peak occupancy is in the I think it was in the 97% range and we put out the other guidance. I was to look out several years. Dollars 30,000,000 to 40,000,000 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 on what lease, what street we sign, whether it's multiple levels, single level space. So, Floriss, I would love to tell you just slap $500 a foot for every square foot we lease. But it's going to matter space by space building. 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%, 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 eighteen months or so, we 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. I'd mislead you.

Fair enough. Let me ask you a follow-up question. You've got obviously, you've got the ATM in place, so $275,000,000 of additional investments As you're thinking about where to deploy that capital, how would you obviously, you've been focused so far on 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 to maybe put some money into San Francisco But Or are the [indiscernible] simply not attractive enough at this point. Maybe you can talk a little bit about the various markets and the the attraction that you see and the opportunities you see?

Sure. Reggie, let me Start and then add in certainly as to where you see our additional current focus on our pipeline and otherwise. First of all, Floriss, the good news and one of the reasons that we have our dual platform [indiscernible] expands our aperture, meaning if we see early stage recovery, highly opportunistic, situations that may not [indiscernible] 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 uninvestable. And I 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?

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 6 or on Henderson Avenue in Dallas. There is supply constraints because it's a 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 at Ben Contrarian. And if it's something where we can build scale, where we are the buyer of choice, than expect to see us to add in Soho on Henderson, in Melrose Place or anywhere else. Rich, what else What are we working on right now and how does that fit in? 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 Gail, we are the landlord of choice with a buyer of choice.

So one of the benefits of that scale is getting those calls, we're underwriting faster because we have the tenancy and the rent information and etcetera. 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.

Thanks guys.

Thank you. Our next question comes from the line of Andrew Reel of Bank of America.

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? Yes. So no, and Andrew, we do lay out detail by detail line item by line item. So we you could see where the where the variability is, right? So I think within core NOI, we have a pretty 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 what in our promote. So I think there it's one between our our various funds and things that Reg and his team are looking to 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 wider ranges is around the around the promote. So So I think we're going through there. I As you can see the individual line items, but we feel pretty good.

And again, our guide, it's only less than twenty four 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. 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 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 and A is evolving?

Yes. So there has been increased competition for all Open Air retail as institutions have gotten 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 [indiscernible] 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. Of that increased volume. Bridge, I don't know what you want to add about relative cap rates as well as how we're getting our deals done.

Yes. Well, I would say one additional thing with With the sellers that are coming to the market all of a sudden, yes, there are more buyers, but there are more sellers too. Sellers who were 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'd 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 welcome the increased competition because we think we operate and execute well in that in that environment. Thank you.

Thank you. Our next question comes from the line of Craig Mailman of Citi. Please go ahead, Craig. We'll go to the next question. Our next question comes from the line of Michael Mueller of Jefferies.

Question please, Michael.

Is my line open? [indiscernible] I guess, first thing, it looks like the guidance, there's a footnote talking about the Citipoint 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?

Yes. So Mike, that's right. It could 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. Got it. And then maybe one other one on the street physical occupancy, 80 fourseven at year end. What does guidance assume that that ramps up to by year end 2025? On a physical basis? Yes. So on 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 sign not yet open is again coming from our street. So think we'll be in close to to 90.

Okay. Okay. Thank you.

Thank you.

Our next question is from Craig Mailman of Citi.

Please go ahead, Craig.

Hey, guys. Sorry about that issue.

You can hear me okay now, right?

Yes, sure. Glad to have you back.

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 $300,000,000 of forward teed up 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.

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 had 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, Rex. How is the market feeling and how is the pricing [indiscernible] Relative to let's say supermarket anchor or otherwise. 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 timeframe 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 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. From a relative, we love from all of OpenAir, we really love the opportunity and the pricing and the basis that we're finding. In street retail, namely the combination of basis and growth. 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 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 will find our fair share of those to do.

So Craig, as you pointed out, we have the capital on call. We're seeing the deal flow. Stay tuned. And 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, you're around a 5.8 based off today's pricing. You guys talk about where maybe your debt costs 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?

Yes, Ken, why don't I start. So to answer your question on where that is and I have not looked where the ten years ran since we've been on on the call. But I think we'd probably be in the 6% pretty close to the 6% range. Where we think we could get get ten 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 that if our core portfolio is growing five plus percent right now, I think for a deal that Reggie brings to us, 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 when 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.

Yes. And as 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 seventh. So checks that box. And then the cash yield gets into the sevens as well. Which thus confirms the IRR and other things. For patching in.

Great. Thanks. Thank you. Our next question comes from the line of Ki Bin Kim of KeyBanc. Your line is open.

Sorry if I missed this, but could you talk about the going in yield for your acquisitions in 4Q and what those might stabilize to in the next couple of years?

Brad, why don't you take a crack?

Yes. Focus on our GAAP yields. 6.5% mid-6s, Gap yield going in that will stabilize in the 7% from a cash yield standpoint. It is 7%.

Okay. And I know it's early into the Trump administration, but If we play out what Doge might do and shrink the size of government, and I realize the spending isn't isolated to DC, 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?

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

Yes.

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 dose versus a but keeping in mind, that was during a period of time when Downtown DC 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 [indiscernible] if you've been reading, while there might be some headwinds associated with that, Georgetown from a residential perspective is on [indiscernible] and all those folks bidding up those homes, are coming to M Street to shop. So AJ, I don't know in terms of tenant performance or any tenant feedback you've gotten around that. Yes. Look, I think generally speaking, whenever there's change over 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 overly concerned at this point.

Okay. Thank you.

Thank you. Our next question comes from the line of Todd Thomas of KeyBanc Capital Markets. Your line is open, Todd.

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 $200,000,000 of core investments equate 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? Let me Rich, I'll touch that first.

Todd, the thing that we have to remember on this side of our business is deals price one month to as much as six month basis, So pricing changes that we feel on our screens hourly don't necessarily trans move up in the ten 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 the earnings accretion, but I'd say it's holding up just fine. When your team is looking at the deals to buy.

It's holding up just fine. And I'll tell you, it's one of the metrics of NAV and FFO accretion 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 [indiscernible] exceeds our targets. Okay.

And then in Georgetown, is there any line of sight toward 100% ownership of that portfolio?

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% it's all good.

On that front, Okay. And then if I could just ask one more real quick on rent growth.

In 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 rate Where do you think that should be in Georgetown?

Town? 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?

Yes. Look, I think 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. But it becomes unaffordable. We are well below where we were at the prior cycle. And just given where rent growth has been outpacing inflation, I'm not necessarily concerned about that. Halo effect, etcetera. I mean, occupancy costs can get well into the upper teens before we really have to start paying that much attention. Just add to that, different segments of retailers can pay different percentages. The off price retailers in the suburbs our single digit rent to sale ratio restaurants, start choking once they get to 10%. And so age 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.

Okay. What was the prior peak in the prior cycle that you saw in Georgetown? In terms of rent to sales in the 20s, A. J. Yes. In the prior cycle, we were getting up into the 20s, right.

Different world now. Omni channel 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.

All right. Thank you. Great.

Good talking to you. Thank you. I would now like to turn the conference back to Ken Bernstein for closing remarks.

Thank you all for joining us. We look forward to speaking with you next [indiscernible] This concludes today's conference call. Thank you for participating. You may now disconnect.