Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Q4 2019, Acadia Realty Trust earnings Conference call. At this time, all participants are any listen only mode.
The speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone please be advised that todays conference is being recorded.
If you require any further assistance please press star zero.
Now I'd like to end the call over to your host Brendan Clark Sir. Please go ahead.
Good afternoon, and thank you for joining us for the fourth quarter 2019, Acadia Realty Trust earnings Conference call. My name is branding Clark and I'm, an analyst in our acquisitions Department before we begin.
Please be aware that statements made during the call that are not historical maybe deemed forward looking statements within the meaning of the Securities and Exchange Act up 1934, and actual results may differ materially and as indicated by such forward looking statements do do I buried yet risks and uncertainties, including those disclosing that companies. Most recent form 10-K and other periodic filings.
With the FTC forward looking statements speak only as of the date of this call February 13th 2020, and the company undertakes no duty to update them. During this call management or refer to certain non-GAAP financial measures, including funds from operations and net operating income we see acadias, earning press release push on its website for reconciliations of these new.
Non-GAAP financial measures with the most directly comparable GAAP financial measures now it is my pleasure to turn the call over to Ken bursting President and she's <unk> Chief Executive Officer will begin today's management remarks.
Thanks, Brandon good afternoon.
We had another solid quarter, but before we drilled into last quarter's results I'd like to start with a review of some of the trends that we are seeing and how we have been positioning acadia to capitalize on.
After that Amy will discuss our fund platform in our progress on that front and then finally, John will discuss our quarterly results.
Our balance sheet metrics.
And our forecasts for 2020.
First and looking back on 2019 year played out consistently with what we previously described as a bumpy bottom for retail real estate, meaning that well not ignoring that continued headwinds.
By most measures leasing demand.
Antenna performance was better in 2019.
Then it wasn't in the prior two years.
And so for this year, we see that trend continuing.
But we call a bumpy because we're still working through a slower than desirable.
Operationally to have the have nots amongst both retailers.
As well as retail real estate.
Fortunately.
As we begin to cut through the fog up the last few years, we can see with increased clarity how the recovery from this highly disruptive period is playing out.
Now this does not ignore the impact of E commerce or other headwinds.
But it is becoming increasingly clear.
Almost all types of retailers are recognizing the importance of the physical store.
And last year, we saw the following positive drivers begin to take care.
First of all there is still no simple one size fits all answer.
For what is the formula for a successful 21st century retailer.
But thankfully there are a variety of format that arts exceed one ended the spectrum retailers ranging from TJX to trader Joe's.
Both who are significant tenants in our portfolio.
They continue to drive very profitable businesses, primarily if not exclusively from their stores.
With limited investment or distraction from the rise of E commerce or the cost of free delivery.
So one driver of store demand is simply coming from this group of traditional retailers that continue to expand into solid in store business.
These retailers are being selective and they're generally using their clout to located in the best as opposed to the least expensive locations. That's our portfolio benefits from this migration of quality.
Then on the other end of the spectrum.
A second driver of new store demand is coming from several dominant retailers, who are successfully using technology combined with the benefits of their stores to drive their omni channel execution.
Both target in Walmart are great examples are retailers investing both in their stores.
As well as their online initiatives.
For instance target.
Who is the largest tenant in our portfolio.
Is differentiating itself by adding stores closer to their shoppers.
They're focused on key gateway markets throughout the country, including here in New York.
Is consistent with Acadias portfolio, we're a month or taller target locations is Sullivan center in Chicago.
Our city center redevelopment in San Francisco.
And our city point development in Brooklyn.
Then a third driver of increased demand for stores.
It's coming from the growth of DTC or direct to consumer where retailers, who formerly focused on online only sales.
Or wholesale distribution through department stores.
Our now recognizing the importance of having their own stores.
In the case of the online digitally native retailers, while ecommerce retailing.
It's going to continue to grow it is becoming clearer that investors subsidized growth without a clear pathway to profitability is becoming an increasingly difficult challenge for all but the best capitalized ecommerce companies.
Most importantly, many.
Many of these retailers are now recognizing that the store is the best pathway to profitability for them.
Retailers are can increasingly telling us.
Yeah, when they open a successful store where they previously.
Only had an online presence.
Their online sales go up in that market [noise].
As opposed to being Cannibalized.
And while we're seeing this trend play out.
Several of our key retail corridors one of the more compelling examples.
His Armitage Avenue in Lincoln Park Chicago.
Over the past two years, our team has successfully converted armitage from more traditional apparel retailer to some of the more exciting younger and digitally native brands and through a series of acquisitions, we control enough of Armitage.
To have been able to replace tired retailers with exciting tenants, beginning with Warby, Parker and but no bose, but now, including all birds arena and Lilly outdoor voices and several others.
And now that the vacancies on the street had been Phil.
Now that these new retailers are showing successful results.
We now have enough incremental demand.
And enough supply constraint to enable us to see attractive rental growth in fact.
We have seen market rents grow over the past two years by approximately 20%.
We're also seeing increased DTC demand.
From brands, who previously rely more heavily on department stores and other wholesale channels and are now focused on opening mission critical stores in key streets in key markets.
We are seeing this had a positive impact throughout our street and urban portfolio, but certainly.
It was part of the rationale.
Our recent acquisition in Melrose place in Los Angeles, where in the fourth quarter, we acquired a portfolio of five contiguous buildings.
For many retailers on that street, who might have previously focused primarily on wholesale distribution through department stores Narrows places now key to the rally presence.
Finally, what we found throughout our street and urban portfolio is that where we can aggregate enough buildings.
In the right locations, where we can connect the dots in the right Mark and then use our teams capabilities.
To cure rate de streets, with the right and its attendance.
This can lead to strong long term growth.
Now that being said.
Rents on many of the great shopping Carters has done a roller coaster ride.
As we have pointed out many times in years past rents grew way too fast and then corrected abruptly.
We have worked very hard to make sure we have mitigated our exposure to this volatility.
And thankfully not only were our results solid last year, but if we look at our results over the last decade.
While it has been a bumpy road.
And on why growth for our street and urban assets has averaged.
4%.
Over that extended period, and we see this trajectory continuing when we look forward over the next several years.
While our NOI this year will be impacted from some long anticipated bankruptcies of tenants like tier one and forever 21, and a couple important pre leasing we are well on our way to the profitable re leasing of these spaces.
As these positive trends continue to play out we believe acadias portfolio is well positioned to disproportionally benefit from them.
Then complementing this internal growth is the accretion from our external investment activity, both with respect to our core portfolio.
And our fund platform.
Our acquisition team did a very strong job this past year of finding and executing on compelling investment opportunities that are consistent with the trend I've been discussing during 2019, we completed over $500 million new acquisitions. The team also completed $100 million of dispositions.
Collectively this activity.
The additions from acquisitions, the Subtractions from dispositions.
Should add about five cents.
Or roughly 3% of annual FFO accretion.
More importantly in terms of our core acquisitions. They include great additions in Soho Armitage Avenue, Melrose place and are consistent with our focus on those streets.
And urban properties in key must have markets.
Where we believe we can capture outsized growth.
Over an extended period of time.
All of these acquisitions are well positioned to capitalize on the retread retailing trends I discussed earlier.
And while these portfolios are well leased today. We also have received strong retailer interest for when we have the opportunity to release some of these locations.
Then in addition to these core investments.
Subsequent.
Two year end, we closed on a structured finance loan on a retail and mixed use property in Brooklyn adjacent to industry City will get into the details of this on our next quarterly call, but the transaction is in conjunction with a borrower Madison capital, who we have done significant business with over the years and Holden.
I regard.
And a lender Blackstone, we've also done significant transactions with over the years our position in the capital stack affords us a very attractive risk adjusted return.
And a comfortable position on a price per square foot basis, as well as yield on stabilization.
Then turning to our fund investments, while our focus for our core has been in supply constrains must have markets.
In our fund platform, we have for the last couple of years been opportunistically acquiring out of favor Schubert suburban shopping centers, where through careful underwriting we've been able to achieve mid teens levered returns.
Last year, we completed $320 million worth of these investments on behalf of fund five.
So far a few years in we have acquired about 650 million of centers that has successfully maintained levered yield in excess of 15%.
It is rare to see the spread between borrowing costs.
An unleveraged yields.
Be as wide as they are now such that we can achieve achieve our return goals.
From existing cash flow with out material growth or capital appreciation.
Fourth quarter activity was quiet as sellers over the last couple of years, primarily public Reits have substantially slowed their disposition process in some cases, making acquisitions.
But now we're seeing private institutions.
Seeking liquidity for a variety of reasons and we expect our fund investment pipeline to refill.
While this transition often takes a couple of quarters.
Most indications are that there is still a lack of institutional capital to cause pricing to have moved materially from the last couple of years.
Eventually that's going to change in the interim we'll continue to Opportunistically add similar assets as attractive leveraged returns continue.
And if cap rates begin to compress materially below the 8% yield that we're now that.
Theres nothing against our profitably recapitalizing, we're selling existing buyout fund for and fund five suburban shopping centers that would be worth in excess of a billion dollars.
While our investment thesis does not require capital appreciation to achieve mid teen returns there is absolutely nothing wrong with outperforming those goals.
So in conclusion as supported by a strong performance in the fourth quarter, we see enough opportunities for growth that we can continue to drive solid and why growth in our core portfolio.
Continue to carefully and accretive link.
It assets to our core.
And then finally utilize our fund platform for opportunistic growth.
I'd like to thank our team for their hard work last year and now I'll turn the call over Dane.
Thanks, Ken.
Today I'll review, the steady and important progress that we continued to make on our son platforms by fixed so mandate.
Beginning with the acquisition.
During 2019, we completed approximately $320 million of acquisitions.
Over the past few years, we successfully aggregated in approximately $650 million portfolio of open air suburban shopping centers on behalf of fungicides and we've done so at an unleveraged yield of approximately 8%.
With two thirds leverage at a blended all an interest rate of 3.7%. We are currently clipping a high teens yield on our invested equity.
This 14 property portfolio has strong geographic diversity based on invested equity 39% is in the northeast 26% is in the south 12% is in the Midwest.
These are primarily non supermarket anchored properties and top tenants include the TJX companies Ross dress for less best buy and Walmart.
As previously discussed cash flow stability is key to our strategy to that point. We're pleased to report that these carefully selected assets continued to perform consistent with our underwritten expectations.
Turning now to dispositions during 2019, we completed approximately $100 million dispositions. This compares to approximately $75 million, a son disposition volume in 2018.
Looking ahead, we continue to actively assessed our portfolio for monetization opportunities.
Finally with respect to existing investments.
Strong leasing velocity continues at city point, our urban retail property in downtown Brooklyn.
During 2019, we executed leases for more than 60000 square feet of space and looking ahead, we have a healthy pipeline.
Our 2019 activity included an expansion of Alamo Drafthouse, which is already one of the most productive movie theaters per screen in the country.
Oh, the least another 25000 square feet at city point, which will enable it to respond to strong demand for movie goers by doubling its screen count and adding a second kitchen.
During 2019, we also executed an 18000 square foot lease with and why you dental on the fourth and fifth floors.
And on the ground floor, we were pleased to welcome camp a family experience store and Casper both now open.
Looking ahead Mcnally Jackson, a longstanding New York City based independent bookstore is planning to open up Prince Street. This month.
And we are accelerating me some discussions with other leading national brands for Prince Street space.
Overall as it relates to the spinal lease up we have remained patient and selective focused on merchandise mix and retailers ability to deliver strong sales volume at the successful project. After all our concourse level is already delivering sales of approximately $100 million.
Citypoint benefits from its strong location at the epicenter of growth in downtown Brooklyn, and its critical mass of compelling food entertainment and soft goods. He says which continued to drive strong foot traffic and anchor sales.
In conclusion, we had another productive quarter in our fund platform as we continue to execute on our opportunistic and value add investment strategy monetize our stabilized properties and create value within our existing fund portfolio now I'll turn the call over to John.
Thank you Amy and good afternoon.
I will begin with an overview of the quarter followed by a discussion on our 2020 guidance and then closing with an update on our balance sheet.
Starting with same store NOI same store NOI grew 3.9% for the year and 3.1% during the fourth quarter.
It's worth highlighting that our current quarter's growth is being driven up a strong fourth quarter 2018 comp which was in excess of 4%.
A street and urban portfolio continued to drive our same store results with growth of approximately 6% in 2019, and 1% coming from our suburban portfolio.
As a reminder, our street and urban portfolio comprises over 70% of our underlying core net asset value.
As outlined in our release, we're guiding towards 1.5% to 25% of same store NOI growth in 2020.
Now before diving into some of the details for 2020 I wanted to reiterate that our core portfolio remains on track to produce long term growth in excess of 4%.
Inclusive of a 1% contribution from redevelopment over the next several years.
Now in terms of 2020 incorporated into our guidance includes the previously discussed expiration of a handful of street leases along with the anticipated impact from a couple of known tenant exposures, namely Forever 21 and pier one.
The combined aggregate impact of our street rollover and known tenant exposure exposures is estimated to be at 150 to 200 basis point range on our 2020 same store NOI expectations.
Starting with expiring street leases as we've discussed on our prior call upon an extra natural expiration of the leases. We recently got back a few of our best Street locations, including spaces on Rush and Walton in Chicago Mercer Street in Soho in Greenwich Avenue in Greenwich, Connecticut.
Consistent with Ted's remarks on must have locations, we experienced significant retailer demand for these spaces and thus we have already profitably leased or <unk> or in the final stages. The vast majority of these spaces.
We will provide additional details over the coming months on the exciting retailers that we will be adding to these key streets.
Additionally, as we had previously discussed we had a single forever 21, along with four pure ones at our core portfolio.
In terms of Forever 21, we have recently taken back their location in Lincoln Park.
During the mix of working through various profitable alternatives, ranging from and as as lease up to a possible redevelopment and densification option.
As it relates to pure one while we have not yaka not yet gotten back any of the space. Our 2020 guidance assumes that we do and an anticipation we have a clear and profitable path forward with the majority of location spoken for at brands in excess of what we are currently collecting.
As rents begin to commence on these executed leases this will be a tailwind for us in the latter half the year as well and as as well as into 2021, while at the same time, creating some softness in our first half 2020 results.
It's also worth pointing out that the NOI from our most recent core acquisitions are projected to grow in excess of 4% over the near term.
We will begin reporting accretion from these investments within our same store pool, beginning with our 2021 metrics.
Now moving on to spreads we had strong spreads on conforming new leases executed this past quarter, driven by our street and urban portfolio with growth of approximately 24, and 30% on a cash and GAAP basis, respectively.
In terms of overall lease activity over the past year, our leasing team not only achieved strong volumes, but also continue to execute on brands in line with or an excess of our expectations.
Consistent with Kevin's remarks, our leasing team is experiencing an overall environment that fell noticeably more stable than what we experienced a few years ago.
Between conforming and nonconforming, new leases within our core portfolio.
Our team executed approximately $9 million of FBR on over 225000 square feet in 2019.
With over 70% coming from our street and urban portfolio.
While rollover within our portfolio creates a bit of choppiness in our short term same store NOI and FFO results. This has and will continue to be a profitable experience for us and continues to validate our underlying thesis that our core portfolio set up to generate 3% to 4%.
Sustained and alike.
In terms of earnings our fourth quarter FFO was in line with our expectations at 32 cents, a share and $1.41 for the year.
Our full year 2019 came in at high end of our initial pre transactional range.
This strength came from a combination of better than expected internal growth within our core along with the accretion on our $500 million core and fund acquisitions.
Executed during 2019.
As outlined in our release, we are anticipating overall 2020 FFO of $1.32 to $1.46 with the variability in this range being driven by potential transactional activities within our dual platform.
Well, we don't provide quarterly guidance I would point out that between the expected timing on rent commencement on the street leases I just discussed.
Along with the monetization of potential transactional activities, we see increased strength showing up in the second half of the year.
Now moving onto our balance sheet, our balance sheet continues to remain exactly where we want it in terms of overall leverage borrowing costs at maturity profile.
As Ken mentioned, we created approximately five cents of FFO in 2019 through our external growth deploying over half a billion dollars between our core and fund businesses.
We have the balance sheet bandwidth to do a similar volume in 2022 anticipated repayments on maturing loans recycled capital from our fund business and the proceeds we raise for the sale of a core suburban asset in 2019.
In summary, we ended the strong year or the strong quarter to the combination of internal and external growth. We believe we have continued to operate and assemble at best in class portfolio that is set up to drive meaningful value creation with that I'll turn the call over to the operator for questions.
Thank you as a reminder to ask a question you will need to press Star wondering your telephone to withdraw your question press the pound G. Again to ask a question press Star one [noise]. Please standby, while we compile the Q1 a roster.
Our first question comes from the line of Craig Schmidt of Bank of America. Your line is open.
Thank you.
I was wondering who you're competing with.
Regarding your acquisitions, where you get the collection of contiguous high Street assets.
It's interesting Craig because it the there is no specific.
One group.
That shows up consistently theirs.
Couple private funds that have been set up to do this one of them Astaneh group for instance is continuing to acquire although as often as not.
We're finding them not where we are in this specific time the were the ones who cash this out of our transaction you may recall in the West loop of Chicago, where we had a preferred a preferred position.
So there are very good and capable group.
But in general our biggest competition right now for these great assets is simply getting sellers.
To understand the reality of where rents are today, and thus where pricing is what we have found is when we went sellers are realistic.
And cognizant of what's going on that we're in a uniquely good position because there is much less capital formation today for these kind of assets and then in the last 510 15 years.
Great and then on on the DTC the direct to consumers.
How big of a trend do you see this being in how successful have.
These vendors been in terms of opening their own stern upping operating them profitably.
So I'll start with the question to you how bullish are you about the rebound of the department store.
[laughter].
Okay, I will take I'll take that as a non answer and I want to answer it either but one component of this is coming just from the reality that until that channel remains the best way for so many brands to connect with their consumer on a cost effective.
Basis, where they had a lower cost per acquisition of that customer higher.
Repeat sales and frankly higher profit margin HM that they're recognizing that they have to be good at retailing.
Not easy it's a tough business not everyone will succeed, but we are seeing increased demand from that side of DTC.
The other side of direct to consumer is the digitally native.
Where you have now seen enough headlines over the last year that you do not have a pathway to profitability.
In a relatively short period of time.
That is really hard to grow your business online only one the cost per acquisition of customer is going up not down.
To the profit rate for that pure online sale.
He is very low and difficult and the business is hard to scale and then when those DTC tenant show up and we talked about that on Armitage Avenue.
They are seeing four wall profitability.
They are also seeing what we refer to as the Halo effect, which is that their online sales in fact go up and it kind of makes sense because you get to try something on when you go into all birds and whether you buy it in that store.
Or online they don't really care and it makes returns easier and it.
Increases the customers connection with the brand. So we're seeing all of that right now that being said I should tempur everyone's expectation none of these brands articulating to us that they are going to replicate the thousand store fleet of years past, so we're having to be very selective.
About which corridors do we see this working.
I give our team a lot of credit fund, making sure we are in front of.
All of these brands and understanding who's going to succeed and who may not that were structuring these leases carefully and that we're prepared for the appropriate level of turnover that comes with this trend. So do not expect this component of our business to compete with the revenues were collecting from target.
But do expect to see a level of excitement on those carters a level of rental growth and then I think over a long time a longer period of time, you're going to see this resonate in a permanently.
Thank you.
Sure.
Thank you. Our next question comes from Floris van but.
Huh.
[music].
Compass point your line is open.
Great. Thanks for taking my question guys I had a couple couple questions number one.
John maybe if you could walk us through you talk about your peer one and forever 21 impact and and some of the total reserve that you are taking up a 100 5200 basis point impact on your same store for 2020, how much of that is.
Bad debt reserve versus no.
Tenet tenants, leaving.
[noise] Xplore, so I would say first starting with forever 21 that we actually recaptured right at the end of the ended the year. So forever 21 is not in our bad debt reserve. We in fact habit backend and that's that's fully out in terms of pure one you're going back to what I said on the on the call.
Our guidance assumes that we're getting so we have four spaces, we assume we get all of that back and the assumptions we get that back early early early in the or what I can tell you is that right before the call.
Confirm that pier, one paid I can't confirm the check cash, but I can confirm they did pay February ran but we do have them coming out it early in early in the year.
So what we did given that we haven't got the spaces back I'm not entirely sure when we'll get them back other than we're assuming we do we built and what I mentioned on the call 150 to 200 basis points sort of reserve into our same store for the expected recapture for that which inclusive of the street rollover that we've had as well is baked into that.
So then getting back to your question on reserve. So pier one is I'll call. It in the beginning of the year. So.
Without giving you the exact month, it's it's effectively out and on top of that we've put a 1% reserve in our credit which is consistent with what we had last year.
Great.
Another question, maybe the wide range in guidance I guess is largely due to the.
The activity in the fund platform and there's a pretty wide range and John or any maybe a is that dependent on.
A number of transactions happening is it also the size of transactions that you're looking at that could that could vary.
Yes, the both right I think we're still early on the year and don't want to go through the specific deals of what you know what and when it could unwind other than we'd just highlighted that expected to to happened in the latter half of the year, but it's a number of potential things floors that we think could show up as they do.
As I as I do each year.
Okay, Yeah, but could you walk us through maybe the the pace setter transaction I believe you sold the asset but provided a loan to the to the to the buyer as well.
Sure. So this one is one of the you may recall in the third quarter call. We had two grocers that that that we were visibility to re tenant and and we did have them retenanted.
The grocer on the Pacesetter asset came with a in Investor group and wish to purchase the asset.
And at an incredibly attractive price that as we put on a release, we were able to two incredibly reinvest that and as part of that they gave a very secure first financing that doesn't go out very far.
Ted to accommodate they had a 10 31 money that they had to put to work. So short term financing that we bridge to get there they are permanent financing.
Got it so the expectations, that's going to get paid up pretty quickly if I recall, okay. Maybe one last question.
For me rent.
You talk about Armitage, clearly, where you're seeing rental growth already would you call rents bottoming out in so and then maybe if you touched upon some of the other New York markets that tend to get a little bit more press like fifth Avenue or time square, where do you see rents a bottoming out I've, we reached that stage, yet and maybe if there's.
Some particular evidence you can talk about in Soho about why you feel so confident about that market.
Sure and its building by building Street by Street, and I am less comfortable talking about other people's assets than our own.
Hmm with the following caveat asking rents are a very peculiar animal, especially on streets because people can ask whatever they want and asking rents very well may still decline.
For a significant period of time, because we've seen a meaningful decline in execution rents.
22, as much as 50%, but that doesn't require a landlord to reduces asking rents. So don't be surprised to see asking rents continue to decline.
What we are seeing.
Our portfolio on the streets that we're active in Soho, specifically as opposed to a year or 24 months ago tenants are showing up.
While there are all certainly focused on where rents are that's frankly, just one piece of an overall puzzle of why did they want to open a store what's the cost of opening a store how mission critical is it and what we're hearing from tenants throughout the country and throughout the world is.
Now that rents have reset and so it's one of those markets, where they can present themselves to their customer in a unique way.
There are a lot of other choices and you could think in New York City alone you could say well what about here and what about their and I'm not gonna mentioned, those but need needless to say times square is a much different shopping experience than so times square is.
Providing a significant marketing importance to a variety of retailers were not currently invested there. So I won't comment on where those rents are relative to market.
But specifically Soho, we are seeing that rebound in and that's why we have been adding there.
Great. Thanks, guys.
[music].
Thank you. Our next question comes from Vince to Bone of Green Street Advisors. Your line is open.
Hey, good morning, I'm, just curious if you know how much you're looking to grow the structured financing portfolio over the next let's say a year or two or is this something you're considering more seriously now that maybe over the last few years or this you know the current deal more of a one off how do you just way that business as a source of funds our use of funds rather comparative.
Core acquisitions.
Yeah.
So what we had said in the past and continues to be the case is our that component of our book has been reduced pretty significantly over the last several years somewhat because of where rates have gone, but also because we never want it to be more than 10%.
Of our overall gross asset value and now its considerably less we have been paid back successfully on a bunch of deals and its situational Vince meaning if there is the right opportunity.
We will pursue it, especially if it's an asset that we think is long term consistent with something that we'd be prepared to own yes.
The opportunity arose that being said this latest deal we will make a high single digit and under certain.
Circumstances, low double digit IR.
We're very safe in the capital stack and on a risk adjusted basis. We said you know what that's probably pretty good place to put some dollars over the next several years. It is not something that we're going to.
Do or grow significantly or I don't anticipate in assets that were not passionate about.
Got it makes sense and then next question is on the acquisition on print and Broadway just curious how did you how you underwrote the tenant roads there given the space is currently at least the paying there's some uncertainty without retailer or are you expecting you'd that's be back is that how you underwrote the the building.
Absolutely.
They have a few years left and we.
We'd be happy to take it back sooner a indications are that that won't be the case. So we have plenty of lead time, <unk>, but we look forward to getting that space back and re tenanting. It if through the transactions that occur they become.
More aggressive more passionate than we certainly would be happy to talk to them as well.
Interesting all right. Thank you.
Sure.
Thank you. Your next question comes from Todd Thomas of Keybanc Capital markets. Your line is open.
Hi, Thanks, John first question I have is on the same store growth and and the same store pool and the guidance implies growth and core property NOI of about 1.5%, 1.6%, but the same store NOI growth forecast, one and a half the two and a half.
I appreciate the clarification about the 150 to 200 basis point same store reserve, but can you help us understand.
What assets are maybe moving in and out of the same store pool.
For the year, either for redevelopment purposes, or otherwise as youve taken back some some space Susan.
Recaptured some some space.
No absolutely today, the first one would be if you look in our supplemental.
And this is one we had mentioned last quarter, we had an ACMI at our Elmwood Park property. So that one we've taken that back we will be demolishing the former ACMI space as we as we transition that too to legal and additional expansions beyond that so that one is out of the pool and redevelopment forever 21 is.
I I mentioned on the call. We are you at this point still evaluating what what is the most profitable real estate built deal for us so to the extent, we do a demolition of that in and we we would put that into the redevelopment pull so that's one that we will give more clarity as as we have it.
So that is a possibility that could be in there and then on the pure ones, we haven't gotten the space back yet so we can definitively make a call, but there's a handful of those that that would be redevelopment cat.
Possibilities, including one we haven't in Lincoln Park that we would you would actively look to redevelop so well keep will provide more clarity as as as we have it.
Okay got it but but as it stands today, the one and a half the 2.5%. So so that includes forever 21 being taken back and pure one is still in that range as well.
Yes, I think forever 21, we do have it back right. So I think there as I mentioned my notes it'll be in as this lease up which we would have few months of downtime or it would be redevelopment and we will update you for certain on that on the first quarter call.
Okay. Okay.
And then Ken in terms of core acquisition. So you know your cost of capital has risen a little bit here in the in recent months and I understand you don't have anything or.
Thanks for reminding me [laughter].
I understand you don't have anything embedded in the guidance for the core I'm, assuming that you're in the market, having discussions with with sellers and and brokers. How how quickly are you able to.
Turning on and off those discussions and does that impact your ability in the long run to win deals and and source investments just given the sensitivity that you have to your stock price.
Yes, so so the short answer and.
There's always a balance if my acquisition team.
Ben every hour looking at the stock price they've never get to field.
And generally these deals take a long period of time, where stock can move considerably.
During a negotiation period, so given our historic track record of match funding.
Given our historic track record of making sure that our acquisitions are one and Avi accretive to generally oh accretive and three consistent with our long term focus.
I don't intend ever to abandon that and say what the half were just going to lever up.
That being said as John alluded to in the prepared remarks, we are there we have other sources of capital coming back in we have capacity within our balance sheet. So that if something was compelling to day, even though I would not issue stock at todays level, we certainly.
Sidra.
That being said so the stars have to align in order for us to do a core acquisition you need to check the boxes I, just said, but I would still argue today. The biggest challenge is finding realistic sellers.
When we find realistic sellers, one way or another we find a way to get these deals done we have very good strong institutional relationships for capital, we obviously have our fund business.
So my biggest concern.
He is not our cost of capital although that is certainly a focus it is still making sure we find the right deals the right realistic sellers.
And when we do we have historically found a way to get those deals done.
Is there another equity source of capital, perhaps an institutional investor or otherwise that you would consider.
Looking to bring in two to help with core investments just to help mitigate some of the volatility.
Yes.
Yes.
We have done that successfully with our funds.
And we certainly would consider it otherwise it is a very bizarre time, where you have risk free returns.
As low as they are right now.
Capital surrounding a whole bunch of other areas of real estate and retail still remember it still is a dirty work. So there is capital starting to form <unk>, but.
Frankly, it's still more on the sidelines and then not several institutions have reached out and would welcome the opportunity to partner with US if that's the most accretive way of getting deals done I can tell you with confidence we have not walked away from a deal recently.
Over stock price, it's again, just a matter of educating sellers as to where the reality of the private market is today and I am confident we can compete.
Successfully with the private market when those opportunities arise.
Okay got it and just one more for John or maybe maybe Amy as well.
The six to 10 cents of net promote another transactional income that that's embedded in the guidance can you talk about the level of fund dispositions that are.
Imbedded in that assumption and then I know that Theres a debt maturity at city point in a few months 200 million its 53 million. It at Acadia share is there any fee or transactional income associated with a potential re fire recap of that asset Thats included.
No there's no fee associated with that embedded in our guidance.
Todd So no and I think in terms of dispositions or be it could just very widely and as we have has historically done. We've just not provided disposition got disposition guidance and our when we put this out so just don't have enough with that up.
We need to leave something for you to guess about hot.
Alright.
Sounds good thank you.
Thank you. Your next question comes from my Linda Tsai of Jefferies. Your line is open.
Hi, how do you feel about 70% of your any the being street and urban portfolio. Do you think this would be subject to change materially over time, given the disruption you're seeing in retail and across different markets.
So what we have found.
Is that over any extended period of time.
Where we can own the rights supply constrained assets in the right market Street, and urban, especially so that they have provided for us up about 200 basis points is superior and NOI growth.
But you've got a time it right. So that you are not buying top of market rents and that you're also not overpaying from a cap rate perspective.
So with those caveats in mine, where we can add street and urban retail.
What our tenants are telling us what we're seeing in general is that where we will for our core portfolio be able to deliver the highest risk adjusted returns.
That being said that meant a few years ago, just navigating around a lot of volatility and thankfully, we did that successfully and I mentioned in the prepared remarks over an extended period of time, we have seen outperformance by that street and urban and then when we think about going forward.
The same applies but we have to be patient we have to be careful you have to be disciplined.
My guess is you will see as you did over the last couple of years that 70% continues to grow even if we don't do something with our suburban.
But there's also a chance it could grow over the next several years by us somehow monetizing our suburban whether it would be in conjunction with also as we discussed our fund five assets.
But the demand for yield in the capital markets is strong and one where another we'll figure out how to monetize that's a long answer too.
Expect us to continued at street and urban assets on a disciplined basis and then just the law of none.
Denominator et cetera will increase that but it could also be more substantial.
Thanks for that and then I'm kind of rent bumps are written in the leases for the street and urban portfolio. No did this change at all with the vintage leases that were signed in 2019 versus prior years.
A little bit less so so in general if you had to pick one number be 3%.
That's not to say that certain retailers, especially as you're talking about larger format.
More also suburban retailers, that's not to say that those rent bumps with the TJX or target would be 3% they would be lower but for the most part 3% the biggest change.
And I would argue its landlord and tenant favored is the lease terms have shrunk.
I don't mind, a shorter initial lease term as long as theres not a series of perpetual options with low growth as the state of the art today is shorter lease term on the initial term and then the.
Option to renew by the tenant.
Tends to be fair market value or something closer to that so shorter lease term, but if these tenants succeed.
And then after 357 years.
The had a reset to fair market value and networks quite fine for us as well.
Thanks.
Thank you. Your next question comes from Christy Mcelroy of Citigroup. Your question. Please.
Thanks, Good afternoon, I am I correct me, if I'm wrong I'm not sure. If I heard this right did you say that forever 21 is out of same store pool Pier. One is in the same store pool.
Yeah, So what on Forever 21, Christy what that when we have the asset that we have the property back so as a 12 31. It was in the pool all of 2019 and in Q1, we will have a definitive decision whether or not it is in or out of out of of the pool reason being as we're looking at a number of alternatives, whether we lease as is and then have.
Little bit of downtime or do we effectively demolished the building and again, we're going to look at that from what's the right thing for the real estate at which point would be out of the pool. So haven't yet made a firm decision on it but we think should have a nominal impact the same store in a life based on their reason.
Okay. I guess, we're just trying to sort of bridge the gap as Todd mentioned between sort of the same store growth of 2% at the midpoint, but then the total NOI growth of 1.6 at the midpoint, especially given that you know the 2019 acquisitions are still out as the pool and those are growing at 4% as you said.
Yeah. So I think in terms of the overall bridge, maybe we can go through that post call turnover confuse it but can walk you through what sort of Vienna, why build up between those two because there's a number of moving moving pieces in there.
Right.
Yes.
Yeah. So I guess, just maybe sort of bridging the gap between you know what do you think about your five year plan, and then that 4% total NOI growth, including redevelopment impact sort of getting from that 1.6% and 2022, you know I am more higher growth rate back to that sort of.
Target in 2021 and kidney care.
Yeah. So keep in mind, the 4% is inclusive of 1% redevelopment rights I think we look at that our total NOI growth through and starting with 18 as the baseline through 2022, we think we grow 4% or 3% on a same store base. So 2019, I think we had a solid year with 3.9%.
We think we and based upon our 20 guidance, we're going to be a bit softer if we plan to two but think we're well on track to get to that to get to the all in 4% with 3% on average over that period.
Okay, and then just I'm sorry, if I Miss that's in his remarks, just in terms of the promote income that you're expecting 2020, what's what's driving that what's your what's putting you in that promote condition and how do you think about sort of what you're harvesting this year versus expectation for future recognition.
Yes, so we'll provide more color specifically on that Crist is a year progressive just early in the year. There is just a number of moving moving pieces that that we feel could and should unwind in the latter half of the air but just.
Just want to Ah, let me give us some more time before we provide color on that.
Okay. Thank you.
Thank you again task.
The question. Please press star wanting a touchtone telephone or.
Our next question comes from Michael Mueller of Jpmorgan. Your line is open.
Oh, Hey, I tried to jump out you've taught ask my questions earlier.
Oh, it's good to hear your voice.
There yet [laughter]. Thanks.
Thank you at this time I like to turn the call back over to tune Bernstein for closing remarks, Sir.
Thank you all for joining US today, we look forward to speaking with you again next quarter.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
[music].