AKR - NYSE

Good day, and thank you for standing by. Welcome to the Acadia Realty Trust First Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chantal Voss, Director of Leasing. Please go ahead.

Good afternoon and thank you for joining us for the first quarter 2025 Acadia Realty Trust earnings conference call. My name is Chantal Voss and I'm Director of Leasing in our Leasing 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, April 30, 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.

Thank you, Chantal. Welcome, everyone. Notwithstanding significant volatility in the capital markets and increased uncertainty for the overall economy, when we look at the key drivers of our business, we see that they continued to deliver in the first quarter. And more importantly, as we look forward, we see this momentum continuing. The first and most significant driver for our business is our internal growth, primarily from the Street retail segment of our portfolio. We saw this outsized growth again in the first quarter. And as A.J. Levine will discuss with a nice combination of long-term contractual growth and incremental lease-up, we see no signs of slowdown. Now retailers are certainly not ignoring the current challenges around tariffs and the economy. But in discussions with our retailers, they are moving ahead with their leasing needs, especially for mission-critical locations like those in our portfolio. This continued momentum in leasing is likely due to a combination of the lack of the new high-quality supply then along with several longer-term or secular demand tailwinds that our industry is experiencing, especially for street retail. We have discussed these tailwinds on previous calls, but in short, the strong tenant demand we have seen over the past couple of years was not just a COVID recovery. It was coming from retailers, recognizing the increased importance of having their own physical store in an omnichannel world, both for relevancy and profitability. In prior years, retailers and leading brands could rely on selling just through department stores or just online or just in malls, now for most brands to be relevant, they must have stores in the key shopping corridors where they can connect directly with their customer. Our retailers are telling us that while online sales will remain important, they need to continue to build out their fleet of stores that meet this direct to consumer need. These stores are, especially critical in the must-have high conviction corridors that dominate our street retail portfolio. Now we appreciate that there are increased concerns around both inflationary pressures from tariffs and simultaneously an economic slowdown, creating so-called stagflation. In terms of the inflationary side of the equation, given that this is a policy-driven inflationary disruption, it is subject to very sudden changes in corrections. And to the extent that the ultimate impact from the final tariff policy changes are more moderate, which is what is generally anticipated, those inflationary pressures will likely be highly disruptive in the short-term. But then more of a onetime increase in cost of goods once the uncertainty settles down. Now the sooner that this is resolved the better since the risk of a policy-driven recession increases, the longer that this continues. But most of our retailers are telling us that they are prepared to navigate this volatility. And keep in mind, cost increases in and of themselves are not necessarily a headwind. As we saw in 2022, when inflation and supply chain disruptions were met with strong demand, it was actually a tailwind for top-line tenant sales and that also translated through into growth in market rents. All things equal, will take inflation over deflation as long as demand remains stable. So while not ignoring the challenges to retailers margins or supply chain issues, it is a long-term decline in demand that would be more of a concern. And we're watching this carefully. Here's what we're seeing so far. Consumer spending has remained surprisingly resilient to-date, especially for the more affluent consumer. The decline in consumer sentiment could predict the decline in spending in a recession. The consumer sentiment surveys are more often misleading indicators as opposed to leading indicators. We also appreciate that discretionary retail, in general, might fare worse in a recession. But the consumers served by our tenants in our must-have markets tend to be some of the most affluent in our economy and their spending habits tend not to correlate as closely with these broader economic indicators. Most importantly, Economic cycles and slowdowns are inevitable and tenants prepare for them, and we do as well. When a tenant signs a 10-year lease, they know that they are subject to these inevitable cycles. Thus, the feedback from our tenants as to why they are continuing full speed ahead makes sense. And given the limited new supply barring a significant worsening of economic forecasts, tenants tell us that they expect to continue with their growth plans. Second key driver of our business is external growth. In the first quarter, we were quite productive and looking forward, we see this momentum also remaining intact. Reggie will discuss our most recent acquisitions and how they continue to meet our goals. But taking a step back, our external growth goals and focus remain as we have discussed on prior calls. First, for on-balance sheet acquisitions, our goal is to add street retail properties consistent with our focus of being a dominant owner-operator of street retail in key mission-critical corridors where our shareholders will benefit from the scale and operating leverage that we are already beginning to see in several of our markets, including Georgetown, Armitage Avenue. And now North 6th Street in Williamsburg. We will make sure that these additions are accretive both from an earnings and a portfolio enhancement perspective. And that they continue to drive our superior long-term NOI growth goals. Then second, with respect to our investment management platform, our focus will remain to opportunistically add assets, utilizing our core competencies in open air retail and leveraging our institutional capital relationships. Over the last 12 months, we have closed over $800 million of acquisitions, about half being street retail properties for our core portfolio and then the other half were transactions for our investment management business. That transaction volume is a significant needle mover for a company of our size. We recognize that in connection with the current volatility in the market, cost of capital has increased. It is true for private buyers who are generally seeing their cost of secured debt increase and public companies like ours who have seen an impact on our cost of equity. But we don't see this materially sidelining our external growth for a few reasons. First, with respect to core acquisitions, given the strength of our balance sheet, enhanced by having raised approximately $800 million last year and to date, we can weather the volatility and then opportunistically invest during this period. And given that there is substantially less bidding competition for street retail than other formats of open-air retail, we will stay focused on motivated sellers who are prepared to transact. As Reggie will walk through, the majority of our transactions were negotiated either off-market or in conjunction with our buying out existing partners. And we have found sellers who are ready to transact today and have been reasonable in taking into account the current market volatility. And then for our investment management platform, where we utilize capital from our private institutional partners, the volatility and headwinds in the public markets probably are net positive. So in short, we don't wish for this current volatility, but it is very likely to create some additional buying opportunities, both for our street retail investments and our investment management platform. Then finally, with respect to our balance sheet, our leverage and other metrics are right where we want them. And as John Gottfried will discuss, we have dry powder to continue to execute our growth plan. And with that, I'd like to thank the team for their hard work last quarter and turn the call over to A.J. Levine.

Thanks, Ken. Good afternoon, everyone. So Ken touched on many of the secular trends that continue to drive our internal growth. And I want to build on that by sharing what we’re seeing firsthand, both within our portfolio and on the ground on our streets. The scale that we continue to build across some of the most mission critical corridors for our tenants, including Williamsburg in Brooklyn, M Street in Georgetown, Henderson Avenue in Dallas, SoHo in New York, and most recently in the Flatiron Union Square neighborhood in Manhattan. We benefit from unique visibility into a wide spectrum of tenant performance and fundamentals. And what the data is telling us, and just as importantly, what our tenants are telling us, is that our core consumer continues to spend and there has been no meaningful change in plans around long term growth. In fact, our leasing velocity and sign not open pipeline are both accelerating and none of our top retailers are signaling any signs of a slowdown. To that end, so far this year, we’ve signed new core leases totaling over $5 million in ABR with 95% of that income coming from our streets, which will continue to provide the highest contractual growth moving forward. That includes over $1 million in new leases for the month of April, which puts us well ahead of our pace from last year. And with a robust leasing pipeline of over $6 million of additional leases in advanced stages of negotiation, it is reasonable to conclude that barring the unforeseen, we will exceed last year’s record leasing volume of $12.5 million. In fact, we’ve already done all of the leasing we need to hit our stated goals for 2025. But of course, it’s only April and we still have plenty of time to build on that momentum. Now similar to our tenants, the relatively affluent consumer that chops our streets also shows no signs of slowing down. Looking at Q1 '25 versus Q1 '24, we’ve seen double digit sales growth on average across key street markets like SoHo, The Gold Coast, Armitage Avenue and M Street. When we look at our brands, like a well known at leisure tenant that operates multiple stores in our portfolio, we see sales that continue to significantly outpace the broader market. It’s important to remember who our core customer is, whether it’s the Fiori or Givenchy shopper in SoHo, the Saint Laurent and Veronica Beard customer on the Gold Coast, the Chloe and Oscar de la Renta shopper on Melrose Place or the Aritzia and Aloe Yoga faithful on M Street. Our core consumer is a high earning, gainfully employed homeowner that has consistently proven to be the most resilient and best equipped demographic to absorb price increases, whether those increases are driven by inflation or tariffs or otherwise. And so far the data shows that our shopper continues to spend. But you don’t have to take my word for it. I would strongly encourage you to walk all of our streets and see it for yourselves. Go see firsthand the crowds at SKIMS on M Street, the lines outside our Brandy Melville or Jenny Kane in Chicago, or the traffic at our Sephora’s in both Williamsburg and at City Point. It’s absolutely remarkable. Now that said, at the end of the day, we always look at everything through the lens of tenant health and occupancy costs. And top line sales and health ratios are still the number one metric our tenants look to as they plan for long term growth. That’s not to downplay the importance of short term margin fluctuations, but our tenants are thinking long term, signing ten year leases, and top line sales growth is still the best indicator of long term success. Regardless, it is helpful that our tenants tend to operate at relatively high margins, but more importantly, occupancy costs on our streets remain healthy and top line sales continue to grow. So our focus remains on leveraging our scale and using that scale to curate our key corridors, like M Street in Georgetown, where we are the largest landlord on the street. First quarter apparel sales in our Georgetown portfolio were up 15% year over year. And to reinforce the power of scale since increasing our ownership on the Street in Q1, we signed two new leases with average cash spreads of over 50%. In Williamsburg, with our most recent acquisitions on North Sixth Street, we are quickly becoming the largest landlord in that high-demand market as well. Our portfolio in Williamsburg already includes top performers like lululemon, Abercrombie, Sephora and Alo Yoga. And with our recent acquisitions, we now have the scale to curate and influence the performance of not just our building, but the overall market. On Armitage Avenue in Chicago, Q1 sales in our portfolio were up 12% year-over-year. We've heard from our newest tenant rails that the Armitage opening was the strongest they've ever had and so far, the store is exceeding even their wildest expectations. And just this week, we executed another lease on the Street as part of our pry loose strategy, and we can share those details next quarter. In SoHo, despite the incredible growth we've seen over the last several years, rents are still not back to their prior peak. So, while the remainder of our portfolio is well below current market rent, as we've discussed, we recently shed our last above-market lease, which will be reflected in our Q2 results. We don't usually accelerate where rents usually celebrate rent through it backwards. But in this case, we're able to significantly upgrade merchandising and credit by signing an exciting new brand owned by Richemont. And finally, in markets that have been slower to recover, we are now seeing an acceleration in positive activity. Last quarter, we talked about the clear momentum on North Michigan Avenue with brands like Mango, Alo Yoga, UNIQLO and Auryxia all committing long-term to the Street. And this quarter, I'm happy to report that we are also seeing meaningful traction in San Francisco. As we discussed on the last call, in Q1, we signed a 50,000 square foot lease at City Center with TNT supermarkets. TNT is Canada's largest Asian grocer and a subsidiary of Loblaws, which is Canada's largest retailer. By now, the news has gone viral in San Francisco with both Mayor Lurie and Councilman Cheryl sharing their excitement on Instagram. And of course, we greatly appreciate their support. As we expected, the community's response to the announcement has been overwhelmingly positive. If you've been to any of TNT's other locations, you would immediately feel the energy they bring to the center and the quality of the co-tenancy they attract. Even before permits are finalized, we've already received interest from several top-tier brands looking to cluster around them. I've been doing this for a long time, and I can't think of any other grocer that can elicit that level of excitement from both shoppers and other tenants. And the momentum in San Francisco doesn't stop there. Next quarter, we should be able to share another equally exciting update. So those are just a few examples of the momentum we've carried into 2025. And while we'll continue to keep a close eye on the potential impact of tariffs. In the meantime, we remain very encouraged by the high levels of performance and demand on our key streets. So congratulations and thank you to the team for their hard work and another strong quarter. And with that, I will hand it over to Reggie.

Thanks, A.J. Good afternoon, everyone. I'm excited to share specifics around our Q1 2025 and year-to-date acquisition activity and provide insight on how we're positioning the company for continued growth. As noted in our earnings release, we completed over $370 million of acquisitions year-to-date, including approximately $175 million, not previously announced. Consistent with our strategy, the total included a target of Street retail acquisitions on balance sheet and value-add opportunities for our investor management business. And while the market has been volatile over the last few weeks, our focus remains consistent. The hallmarks of our external growth business on balance sheet, our FFO accretion, NAV accretion, strong CAGR, and increasing our concentration in key supply-constrained markets that are must-have locations for our retailers. And Q1 was another quarter of delivering on that potent mix. Year-to-date, we've constructed a portfolio delivering accretion consistent with our $0.01 per 200 target with an attractive going-in gap on in the low-6s and 5-year CAGR in excess of 5%. So let's take a closer look at the transaction not previously announced. First, for $61 million, we acquired three new storefronts in Williamsburg, Brooklyn located at 95, 97 and 107 North 6th Street. These tenants include great contemporary brands such as lululemon, Abercrombie in Missouri consisting of a strong combination of lease term and mark-to-market opportunity in the future. This is our third acquisition on street in the last three quarters where we now own seven total storefronts. This nine-month run is our latest example of our ability to scale quickly and must have core doors for our retailers. We are on our way to being the dominant landlord on the prime three block stress of North 6th Street with more to come, so stay tuned. Second, in the vibrant, Flatiron/Union Square Market in Manhattan, we acquired 85 5th Avenue for $47 million. This asset is on the key corner in the market and leased to a Global Fortune 100 company to be announced. This marks our fourth store front in this submarket where we see a favorable supply-demand dynamic that should continue to drive rent growth. On the investment management side of our business, we acquired Pinewood Square and Lake Worth Florida for $68 million. This asset has a first-class lineup of high-performing tenants, including T.J. Maxx and HomeGoods and a trade area with a dense and growing population. Our business plan to achieve high-teen returns through a combination of marketing shop-based rents to market and executing multiple pads [indiscernible] with Credit tenant. This transaction is part of our strategy to use our balance sheet to acquire an asset and match it with an institutional investor in due course, a wash rents and repeat formula that enables us to deliver certainty of execution to sellers and allows us to continue to move the needle at our size. Now while our execution continues, we certainly have taken note of the volatility that began a few weeks ago. If this turns into a prolonged period of disruption, we feel uniquely positioned to continue to grow in that environment for two main reasons. One, while it's possible sellers would access price the perfection and looking for a deep bidder pool, which a offer the market that has never been a significant part of our pipeline. For example, all $300 million Core Street acquisitions closed year-to-date across five different transactions were either off-market or buying out existing partners, containing a trend in the previous years. Our sourcing capabilities rooted in our reputation and relationships will ensure we get our fair share of consummated deals in any environment. And second, our investment management platform has a multi-decade history are profitably taking advantage of disruptions and dislocations in the market. We expect opportunities on this side of our business to increase. And while it's too early to articulate where exactly these opportunities arise, most market disruptions create a scenario where owners and investors are looking for either outright liquidity, capital infusions, better operating partners or some combination of such, all of which speak to the strength of this platform. And while the cause of disruptions vary from cycle to cycle, the winning formula remains the same. Being a well-capitalized, trusted counterparty with deep relationships and in-house expertise should once again allow us to declare victory on the other side of the current headwinds. So to summarize, our activity this year continues to be a period of strategic growth and disciplined execution. On the balance sheet platform, our acquisitions continue to connect the dots in key corridors with long-term rent growth potential. And on the investment management platform, we continue to find interesting value-add opportunities to leverage our talent and institutional capital relationships. I want to thank the team for their hard work and dedication this quarter, and with that, I'll turn it over to John.

Thanks, Reggie, and good afternoon. Before diving into the quarter, I want to start with a quick update on the three key drivers of our business, starting with internal growth. Our expectation of multi-year core internal growth remains intact, both in terms of the rents we are achieving, along with the timing and velocity of leasing activity that's necessary to meet, if not exceed, our goals. And our confidence in this growth was reaffirmed this quarter. We achieved 6.8% same-store growth from our street retail portfolio. Additionally, we further increased our core operating signed not yet open pipeline by over 15%, signing new leases at cash spreads in excess of 50%. Secondly, our balance sheet is rock solid. With an untapped revolver and forward equity contracts remaining, we have both the liquidity and balance sheet flexibility to navigate through any potential headwinds, as well as dry powder on call to fund our external growth strategy. Third is our external growth. Over the last six to nine months, as Ken highlighted, we have closed on over $800 million in core and investment management transactions. And these investments met our earnings accretion target of a penny of FFO for every $200 million of gross asset value. In addition, as Reggie had mentioned, our team is actively engaged in several exciting investment management opportunities. And while this differentiated and highly profitable portion of our business lends itself to making our earnings somewhat variable year to year, our investment management business is built to capitalize through economic cycles. So putting these key drivers together, our quarterly results were clean and came in ahead of our expectations with the street retail portion of our business driving our results. And it was this strength coupled with a successful closing of nearly $400 million of accretive external acquisitions during the quarter that gave us the confidence to raise our full-year guidance. And now let me fill in a few details. Our first quarter earnings came in at $0.34 a share, which includes a $0.06 from Whole Foods that was discussed on our last call. As a reminder, the $0.06 is comprised of $0.04 relating to rents and recoveries with a balance attributable determination payments. And for those modeling, we have included the entire amount of these payments within other income in our supplemental outside of net operating income. A.J. gave a great overview of our excitement for T&T's planned 2026 opening at City Center. So while I won't repeat any of his observations, I certainly share his enthusiasm. I now wanted to spend a moment outlining our 2025 FFO expectations, as well as the building blocks for core NOI growth for the balance of the year and going into 2026. Starting with FFO, we remain on track, if not ahead, particularly in the street retail portion of our portfolio, with the key assumptions that we laid out in our initial guidance. Additionally, although we did say that you shouldn't expect us to raise our guidance after a few short weeks, we did caveat that our guidance did not factor in further external growth, but as Reggie highlighted, we added an incremental $175 million of previously unannounced external investments during the quarter, which coupled with the continued strength we are seeing in our portfolio, gave us the confidence to raise our full-year guidance. In terms of quarterly earnings cadence, we anticipate that our Q2 earnings should fall within the $0.32 to $0.34 per share range and targeting $0.34 to $0.36 of quarterly FFO for the second half of the year as our acquisition accretion continues to kick in and our signed, not yet open pipeline comes online. And now moving on to core net operating income. We are seeing two key drivers that are fueling our conviction on achieving, if not exceeding our 2025 goals as well as optimism heading into 2026. First, is our Signed Not-Yet-Open Pipeline. And secondly, is the robust pipeline of leasing deals in advanced stages of negotiation that A.J. mentioned in his remarks. Starting with, our Signed Not-Yet-Open Pipeline which as of March 31st increased by, over 15% to approximately $9 million of ABR in our share. In terms of timing and impact, substantially all of this $9 million of ABR is expected to commence at various points during 2025. And based on projected opening dates, we anticipate that approximately $4 million of the $9 million will be recognized in 2025, with 75% of it or roughly $3 million of the $4 million showing up in the second half of the year. Thus, this leaves us with an incremental $5 million in 2026. Additionally, and it's worth reminding everyone, that the $9 million I just discussed, relates solely to our core assets in the same-store, NOI pool. Meaning it excludes the Signed Not-Yet-Open Pipeline for core assets and redevelopment, which if included, adds an additional $6 million and in terms of timing and impact, we expect a nominal amount of this to be recognized in 2025 and $3 million to $4 million projected in 2026. So again, a lot of numbers, but for those modeling, these two pieces of our same-store and redevelopment Signed Not-Yet-Open Pipeline are projected to add a combined $8 million to $9 million of incremental ABR heading into 2026. Secondly, in addition to our Signed Not-Yet-Open Leases, the second driver of growth for 2026 is the robust pipeline of pending deals and active negotiation that A.J. discussed. As he mentioned, we are at advanced stages of negotiation on over $6 million of new core leases and just to be clear and to reiterate A.J.'s remarks. We don't need to sign any of these leases to meet our 2025 goals. But with a lot of days less in 2025 in active retailer interest this gives us, plenty of runway to further drive our 2026 core NOI growth. So while it's too early to give 2026 guidance, but between the $8 million to $9 million of ABR from executed leases within our Signed Not-Yet-Open Pipelines as well as our expectation and optimism of continuing to execute new leases and with the approximately 2.5% contractual growth embedded in our existing leases. We are feeling pretty good about achieving five-plus percent core internal NOI growth in 2026. And just to be crystal clear, our target is to achieve that five-plus percent growth in 2026, even when including the payments received from Whole Foods in our 2025 NOI. Now moving on to occupancy, which is highlighted in our release, declined as we had anticipated by approximately 140 basis points during the quarter. Again, and as a reminder, occupancy percentages for us are far less insightful, given the wide range of rents between our street and suburban portfolios, but we also appreciate that the headline percentage is a data point. As we highlighted in our release, the drop in our occupancy percentage this quarter was primarily due to the anticipated termination of a local suburban tenant at Maribo Plaza. This suburban tenant previously occupied over 50,000 square feet of space, at about $10 a foot in rent. The space has already been released at a positive spread and is expected to commence in the third quarter of this year. So between this new suburban, tenant along with the leases commencing within our Signed Not-Yet-Open Pipeline, we expect that our year-end core physical occupancy percentage to increase to the 94% to 95% range by December 31. In terms of same-store NOI, in line with our expectations, we reported 4.1% of same-store NOI growth with a street retail portion of our portfolio growing 6.8% for the quarter. Our Street outperformed our suburban assets by over 400 basis points, driven by mark-to-market and occupancy gains in SoHo and Chicago. In terms of our quarterly same-store NOI cadence, we are seeing increased strength in the second half of the year, driven by the $3 million from the signed not yet open pipeline, that I mentioned a few minutes ago, driving our confidence that we remain on track to achieve our targeted 5% to 6% of full year same-store NOI growth. So while we are all facing various degrees of uncertainty in the current environment, we remain optimistic that our portfolio is well poised to deliver strong NOI growth for the balance of the year and into 2020. Additionally, and as I will discuss now, our balance sheet is rock solid with both the liquidity and dry powder on call to not only manage any unforeseen economic events but also to fund accretive, core and investment opportunities that we anticipate will continue to arise. We reported debt-to-EBITDA inclusive of our share of debt from the investment management business of 5.7 times for the quarter. Now keep in mind that given the timing and funding of the significant acquisitions we completed during the quarter, our reported quarterly debt-to-EBITDA metrics are going to vary a bit. But when annualizing the full impact of our acquisitions, along with the forward equity contracts we have on call, we remain well within the 5.5 times to six times targeted debt-to-EBITDA range with dry powder available to invest. We will not take our balance sheet advantage for granted, and we'll remain disciplined in our external growth strategy, which means when we put capital to work, it will be pre-funded, there will be earnings and NAV accretive and will complement our existing internal growth. And additionally, our goal is to not only retain our balance sheet strength but to further improve. And as we think about our funding sources, we have numerous avenues of capital available to us, including the equity markets, institutional capital, asset sales from our core investment management business, repayments from our structured finance book and retained cash flow. And with that, I will now turn the call over to the operator for questions.

Thank you. At this time, we'll conduct a question-and-answer session. [Operator Instructions] And our first question comes from the line of Linda Tsai of Jefferies. Your line is now open.

Yes, hi. John, do you think the SNO continues to accelerate and will be higher by year-end 2025, could it grow to be more than 6% of ABR

Yes, it's a great question, Linda. So I think we have a bunch of, as I mentioned in my remarks, 3 million of that is going to start rolling into the second half of the year. But I think A.J. is successful as we think we are in converting these polices. We think we replenish that. So fingers crossed, we remain on track to continue to grow.

And then a question for Ken or Reggie. Can you just talk about opportunistic investing during downturns? Who are the sellers typically? And who is the seller pool today maybe versus the GFC?

Ken, do you want to

Sure. I think it's a little early, Linda, as far as how this one will play out. I think big picture, as I said in my prepared remarks, a lot of these, whether it' institutional guys that are saying, "Hey, we want to get out of retail, we need liquidity, we need different operating partners. I think it could come from anywhere, frankly. And the actual sellers, really does depend on the specifics. So it's a little early to tell exactly how it plays out. What we've seen though, just from us and what we've been able to execute is when those opportunities arise, we have the relationships to be able to take advantage of them, from a sourcing standpoint and from a capital standpoint and just from our execution and being vertically integrated, which I think a lot of these institutional investors are looking for. And so we feel confident that when it materializes will be there, but it's very difficult to say exactly how it's going to play itself out.

And the only thing I'd add, Linda, it is premature to say, the lease to equate the current policy-driven volatility that we've seen over the last 30, 60 days to the global financial crisis where, frankly, the plumbing in our financial system broke down. There's nothing that we're seeing that would indicate that. And my guess is the opportunistic plays we'll see now, are going to be driven by value-add re-leasing opportunities. Our team willing to step-up roll up our sleeves and deal with re-tenanting and other issues like that as opposed to bank failures or anything along those lines.

That's a fair point. In light of your Flatiron acquisition, do you expect more office REITs to be selling their Street Retail?

I'll let them respond to where their focus is, but what we are seeing is that Acadia has now established itself as a dominant acquirer of Street Retail at a time when there's just less competition. There's less people focused on this. There's fewer groups with the expertise we have. So we like our highly differentiated focus and almost irrespective of where the sellers come from. We are on that short list to continue to see the kind of deals that Reggie and his team have found so far over the last 12 months.

And then I think your Street portfolio post-COVID turned over quite a bit. Could you just discuss broadly what tenant types went away? What came in, how you think about the resilience either from a consumer demand perspective or tenant credit perspective?

Yes. A.J., maybe you want to touch that. And Linda, this is the last question we can respond to, because there's other people.

Yes. I don't think there was a huge amount of turnover coming into COVID. I think most of the deals that we've signed are with exciting brands that were very relevant to today's consumer that runs a spectrum.

Yes. So let me just add a little color heading into the Retail Armageddon. There were a bunch of what we referred to as digitally native retailers online only that began to emerge and replace some of the legacy retailers who had lost their way. Fast forward to the last year or two, and what we're seeing is a confluence of high-quality retailers, whether they started digitally native think Warby Parker. But then also other ones who regained their stature and all of them are recognizing that they have to have their own stores. They can't rely just on online or just apartment stores. That confluence of healthier retailers with strong demand controlling their own brands is really what has driven this multiyear growth in demand, growth in rents and thus our success.

Obviously, 30 seconds just on the credit side, Linda, which is what I would look at. I would say the credit today is very different than it was heading into that. And two things. One is the occupancy cost ratios, the health of the tenants that are here today versus in 2019 as well as the strength of the retailer's balance sheets behind that. So, I think it is a different credit portfolio in tenant health than it was at that point in the cycle 2019.

Thank you.

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

Hey guys. My first question is in regards to your Street portfolio. Maybe if you could comment, John, a little bit on the -- you've in the past said that you expect this portfolio to average something like 10% underlying growth for the foreseeable future. How confident are you in that forecast today? And will you be able to achieve that in 2025?

Yes, Floris, when we look at the signed not yet open portion of our pipeline, the vast majority is that coming from the Street. So I think between -- in that number is the mark-to-market that we've been generating. So we feel confident that the Street is going to continue to be the key driver of our growth.

And maybe as a follow-up, and this might be more for A.J., but talk a little bit about the mark-to-market opportunity in Williamsburg. I believe you're your average ABR in place there is now 123-ish or thereabouts, where is the market? And where are you signing new leases in that quarter?

Yes. I mean the market is up fairly substantially from that number. I mean, right now, leases are trading at multiples of that number. So, there's definitely embedded mark-to-market opportunity in what Reggie is buying. We're going to unlock a good portion of that over the coming years, and we should be fairly successful.

And I were to--

Just -- so people, I think were, intentionally not giving out numbers. The rents per foot vary so much on Street retail, depending on depth, depending on a whole variety of issues is that it's not just an easy double or triple those numbers, but you could probably double or triple those numbers.

Great. Thanks guys.

Thank you. Our next question comes from the line of Andrew Reale of Bank of America. Your line is now open.

Hey, good afternoon. Thanks for taking my questions. I guess just to go back to the latest on Street retail transaction markets. Just to clarify, I mean have there really been any meaningful recent changes in behavior from either sellers or buyers versus, I don't know, say, a quarter ago? And then do you see this broader macro uncertainty as a situation where competition starts pulling back and you find yourselves with a greater opportunity set? Or is that more negligible if most of your deals are off market anyway?

So let me touch on a few pieces of that. First, as I said before, it's still very early days. But I do think that we were heading into a period, let's say, the fourth quarter of last year, where we did see some buyers showing up with very aggressive growth goals for given streets, whether we have always said, look, the rental growth over the last year or two has been fantastic, but we would never want to underwrite that level of growth going forward. It's just not sustainable. And some buyers were appearing to say that they expected 10% market rent growth for several, several years to come, and that would be extraordinary. To the extent that this volatility has tempered some of that expectation, some of that competition may go to the sidelines, and that's fine by us. Sellers, in general, have been, I have found relatively realistic. They're going to go with the most aggressive bidders out there, and there has been a nice recovery. But my guess is where we stand right now is there will be fewer tourists. And I don't mean shopping tourists, I mean people who say, "Oh, maybe it's a good time to go buy street retail. It's a tough business. We have spent decades working on it. So I think there'll be a little less competition there, but we're prepared to deal with the competition as it comes forward and get our fair share of deals either way. But I'll end with where I started. The last 30 days, it's just too soon to know exactly how this all shakes out. We are in a position where we can take our time, we can be patient. We will be disciplined and let's see where the economy settles over the next 30, 60, 90 days.

Okay. That's helpful color. And just a quick follow-up question. There's been some leasing spread volatility from period to period in recent quarters. Just any color on how you're thinking about spreads trending through the balance of the year?

John, do you want to?

Yeah, Andrew. So they are, just given the nature of our portfolio, they are inevitably going to vary, right? And it's generally a smaller sample set, which as we've talked about in the past, we create value by combining cutting up spaces. So I think it's a little bit more difficult given we don't have a homogeneous pool of multiples of leases to really project quarter-by-quarter trajectory there. But as A.J. mentioned, we feel that our leases are in a very good spot in terms of where they are in relation to market. But as a straight percentage, I don't think that that's really practical.

Okay. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Craig Mailman of Citi. Your line is now open.

Hey, guys. Just want to follow up on the $6 million of leases in advanced negotiations. Just kind of curious, has there been any kind of change in the frequency of kind of touch points with these tenants as post April 2 or any kind of elongation of gestation periods? Or is it similar to what you guys are talking about that your tenants are continuing to make decisions and it's just business as usual despite some of the macro uncertainty?

Yeah. I mean we haven't seen any noticeable change in the velocity of leasing or the responsiveness of our tenants post April 1. Look, sales are up. Our tenants have a good amount of cushion in their margins. Our consumer, again, like we said, wealthy, resilient, continues to spend. And I think that, that's translating through to tenant demand, and we haven't seen any sign of a slowdown yet.

The only increase in velocity, I think, that A.J. would add to that is the number of times per day I walked down the hall to his office saying, anything new because obviously, the headlines are grabbing everyone's attention. And the good news is so far, and we would know. But so far, our retailers are saying these are mission-critical locations they must have.

Okay. That's helpful. And then just on the investment side, I know you guys talked a little bit about the investment management aspect of the business. Can you just talk about the appetite of some of your newer partners that you've created some JVs with to put capital out the door today versus maybe a month or two ago? Is it still pretty high? And from that perspective, how could you -- how much capacity could you have on a gross deal volume knowing that your share of the acquisition would be a little bit less?

Right. Let me first set the table, Reg, and then maybe you can give some specific. The way we think about our investment management platform is matching the right kind of deals and risk-adjusted returns with the right capital and think about it as core, although that's really not what we do. It's more core plus than value add and opportunistic. Opportunistic dollars have had a hard time finding retail assets, and there's a very good chance that the high teens IRR investor is going to be aggressively ready to step up and swoop in when we see those opportunities. And we have great relationships there. And I would expect some increase on that side. Again, early days to predict a major shift, and there is nothing that we are seeing to indicate that this is anything like the global financial crisis, but we do see increased opportunities there. We are also seeing an increased desire in the Core Plus area for retail, for open-air retail, and we may see increased participation there and opportunities, especially given that a lot of the shopping center REITs seem to be pausing right now. So private capital may jump in there. But Reg, why don't you add some color to that?

Yeah, just, I guess the only thing I would add to that is what these institutional investors, and I speak with them every week, what they really have realized is that in order to go after these value-add opportunistic deals, they need a qualified operator, right? Retail is very specific. It's very idiosyncratic. It depends on the relationships with the tenants. It depends on understanding rent to market and the like. And so a lot of these -- frankly, we've gotten inbounds from groups that are saying, hey, we want to put more institutional dollars to work, but we need to do it with a group that we can trust that has their own capital that has a multi-decade, multi-cycle track record. And so we feel really good about being able to place capital with these opportunities.

Great. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Todd Thomas of KeyBanc Capital Markets. Your line is now open.

Hi. Thanks. Good morning. In terms of leasing or merchandising either street or suburban centers looking out? Are you having conversations at all internally about strategy around targeting certain categories or retailers any differently today than you were before April 2?

Not necessarily. I mean, look, we’re curating our streets, so we want to make sure that there’s a good mix between, say apparel and beauty, for instance. But really it all comes down to making sure we’re picking the right tenants that can operate at healthy occupancy costs, that can do the volume that we need for them to do to pay these rents. So we’re always looking in any environment at balance sheets, but also sales history and sales comps from comparable markets where they’re operating today.

The only thing I’d add to that, Todd, is virtually every lease deal that then comes to my desk. We have the conversation about supply chain. And is that retailer overly dependent on one country, China, for instance? Have they managed, diversify their supply chain. And for the most part, the leases we are signing are with retailers who have diversified their supply chain already. So we are certainly screening for that and thankfully, encouraged by what we’re seeing.

Okay. And then appreciate the comments around the consumer and leasing activity through April and some discussion around the SNO pipeline. Curious with regards to that pipeline today, 8.9 million of ABR, how would you characterize the risk around changes to the extent that some of this policy uncertainty persists? Do you see risk today around either delays or even cancellations, or is there any concern around anything in the pipeline where there might be a little bit more exposure or a little bit more economic sensitivity that could lead to, I guess, some potential changes or fallout?

Let me start, AJ, and then chime in. First thing I would point out, and this is probably an important underlying factor in why retailers are continuing to step up. 2020-2021, there was a lot of availability and what we saw was a decade’s worth of so called availability on these key streets especially got absorbed in a year or two. And those retailers that missed out in 2022 and 2023 or 2024, they are still licking their wounds for not having delivered the stores that their customers demand. And so while institutional memory tends to be short, it’s not that short. And retailers are recognizing that if these are locations that they need and if they’re wrong and they think that waiting somehow is going to create an opportunity, they’re going to miss out and that is going to be painful. So call it fear of missing out or FOMO. I still see retailers saying these are locations we have to have and we’re going to take them. In terms of pipeline, there’s always that risk time. If we go and are heading into a hard landing, I would expect a lot of difficult conversations notwithstanding all of the positive tailwinds we’ve discussed. So far, the only real concerns we’re hearing is tenant build out costs and supply chain issues or inflationary costs on the build out side. And it’s not that tenants are looking to change the economics. They just want to see some level of protection if costs were to store on that side. But otherwise, A.J., I don't know if you have anything on it.

Yes. Just to expand upon your final comment, I think we're at somewhat of an advantage in that the average cost of build on a street market relative to rent is much lower than in the suburban market. I also think we have a competitive advantage in that sense in that we are well capitalized, right? And we have the ability to absorb some of that shift in TI dollars from the tenants to the landlords. We haven't seen it yet. We haven't seen really any of our tenants that are in the existing pipeline sort of indicate any trouble sourcing materials or a desire to slow down. And then I'll just end with, again, it's important to point out that the markets we're in our mission-critical markets, right? When the slowdown or if a slowdown were to happen, we don't expect it to happen in markets like a Soho that is mission critical to a lot of these retailers.

Okay. Thank you.

Sure.

Thank you. One moment for next question. Our next question comes from the line of Michael Mueller of JPMorgan. Your line is now open.

Yes. Hi. Just curious, what portion of your core portfolio tenant roster do you get monthly sales from? And then what would you do differently if you're getting those monthly sales and you see spending starts to stall?

Yes, Mike, so officially, meaning the lease mandated mandates it. It's about, call it, 15% to 20% we get it. But unofficially, given our leasing team, property management teams, et cetera. I'm not going to call it 100%, but pretty close to 100% as to what -- how the tenant is performing there. So we have a very good view on it. And I would say that the way we use that data is most importantly is given, as A.J. pointed out, where our rents are related to market where we start to see the sales slip, that's where candid be is how do we get that space back, how do we bring that, accelerate that space to market. So that's how that's how we're -- I would say, using it Aga, I don't know if you want to add anything

Yes. Look, I would say, just generally, we have much more visibility into the performance of our Street tenants than we do on the suburban side, it's just much more common that they're reporting sales. But it goes back to the Prius strategy, which we've had a lot of success with, right? We look at the sales every day, every month, we identify the underperformers, right? And we engage with them about even proactively taking back space with a positive mark-to-market. And again, operating in streets, we have the benefit of an FMD reset, for example, where if we see a tenant that's underperforming, that we don't think is sustainable long term, we can lean into the FMV reset, again, preset that space back and re-lease it to a tenant, nice, of course, to get a higher rent, but just as importantly, can operate at a higher sales volume and be more successful in the market.

Got it. Okay. And then second question, Street portfolio, it looks like it's about 84% as of March

Would you repeat?

Sorry about that. Yes, the -- let me start again here. Street portfolio is about 84%. I think you previously said you expected that to be at about 90% by year-end. I guess how much of that is locked in versus where the -- how much is there still wood to chop basically?

I would say there is a good portion of that's locked in, given that our S&O pipeline s predominantly street retail. So a good portion of that's locked in mine. But I think there's also -- when we look at our goals going into 2026 that hopefully, we can accelerate some of that, but we feel pretty good about it.

Got it. Okay. Thank you.

Reg, do you want to

Yes we want to not answer that. We tend to stay away from the specifics around going in cap rate. I mean some of it, frankly, is a -- can be a misleading metric because a lot of it, particularly on the street side is based on mark-to-market lease term and et cetera. But as I said earlier, low 6 GAAP yield. We certainly -- is how we think about the portfolio we were able to deliver on

Thank you.

Thank you. I'm showing no further questions at this time. I'll now turn it back to Ken Bernstein for closing remarks.

Great. Thank you all for joining us. Look forward to speaking with you next quarter.