Q2 2022 Acadia Realty Trust Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
And welcome to Acadia Realty Trust second quarter 2022 earnings conference call. At this time, all participants are in a listen only mode.
After 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 one on your telephone.
I would now like to hand, the call over to Jacob Bennett. Please go ahead.
Good afternoon, and thank you for joining us for the second quarter 2020 to Acadia Realty Trust earnings Conference call. My name is Jacob and I am a summer intern 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 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 August three 2022, 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 our 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.
As for color to give everyone. The opportunity to participate you may ask further questions by re inserting 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 will begin today's management remarks.
Thank you great job Jacob Thanks.
Thanks to you and the rest of our summer intern class for their hard work and the energy that they brought to our offices this summer and welcome everybody.
Notwithstanding the significant volatility in the capital markets and legitimate concerns around inflation, a deceleration of economic growth.
As you can see in our performance last quarter, the fundamentals of our business remain strong.
Meaningful improvements in leasing activity tenant performance tenant demand that began several quarters ago.
Our continuing.
This continuing momentum is showing up in a majority of our portfolio. It include the continued stability we are seeing in our suburban portfolio, but then more significantly in the meaningful growth that we are seeing in many key corridors throughout our street.
<unk> portfolio.
Markets in our portfolio that are experiencing strong rental growth include.
M Street in Georgetown.
So how in Williamsburg in New York.
Brush Walton in Armitage Avenue in Chicago, Melrose place in L. A and Henderson Avenue in Dallas and these markets I just mentioned.
Are not an insignificant portion of our portfolio in fact, they represent nearly two thirds of our street portfolio NOI.
Then in addition to these markets there are those streets in our portfolio that actually got a lift during COVID-19 and are continuing to show that strength, including properties in Greenwich and Westport, Connecticut.
As you may have noticed cushman and Wakefield recently reported data supporting year over year market rent growth in Soho up 13%.
And this is consistent with what we're seeing in many of the street's throughout our portfolio and in fact the rate of growth seems to be accelerating further over the last few months.
Now this does not mean that every corridor every tenant is performing as well as we are seeing in these markets and John will discuss there are both tenants and locations that have not rebounded yet.
These underperformers have and continue to be baked into our growth assumptions, but even after taking this into account.
Our internal growth for the next several years looks very solid with above trend expectations of between five and 10% NOI growth.
And as John will discuss these arent just projections for the distant future.
This growth is showing up now this year as well as in our 2023 forecast and beyond that.
That'd be clear, we recognize that the economy is cooling down.
The unsustainably hot housing market job market pent up and now shifting consumer demand it needed to moderate and it appears to be doing so.
These shifts.
Coupled with the impact of supply chain disruption and other inflationary pressures are impacting some retailers top lines as well as their bottom lines and it's certainly worth paying attention to but in our conversations with our retailers.
Both in connection with their existing stores as well as new stores. They are thinking about their real estate on a multiyear basis and what they're telling us.
Is that leases are specially but great locations at today's rents looked to be more compelling not less.
There are a few reasons for this that we should not lose sight of first of all.
Online only single channel retailing is not the future for most retailers.
As we've discussed for a while the store remains the critical channel for most retailers ranging from luxury.
Mass merchandise in an Omnichannel world second.
Sales performance.
For many of our tenants is significantly ahead of pre Covid 2019 sales and the top line is still growing.
Understandably this is being overshadowed by the compression of bottom line results for certain retailers, but that will likely shift.
Third the impact of inflation on spending patterns is uneven.
Inflation is certainly taking a toll on some consumer spending, especially for those lower wage, earning consumers, but for many of our retailers.
Given the affluent demographic up their shopper, whether it's in Soho Rush and Walton Greenwich Avenue on Melrose place for those retailers, serving this more affluent consumer pricing power remains strong.
And shopping demand remained solid in fact, while the consumer sentiment index worsened in July in general it actually improved for those.
Is there any more than $100000 a year.
Finally, while tenant performance in rent to sales is obviously, a critical metric so supply and demand and in many of our markets that pendulum is swinging quickly and also supporting rental growth. The bottom line is that new supply is both scarce and expensive.
Well with concerns around economic slowdown there are also concerns that we will have longer term inflationary pressures I get it I have discussed on prior calls the headwinds over the last decade from deflationary pressures and I'm not going to Miss them, but inflation is also something that we have to be thoughtful.
[noise] about.
Both in how we operate our assets and then structure our leases and in terms of inflationary pressures a few things to keep in mind.
As John will touch on.
Our street leases generally have stronger contractual growth.
And faster opportunity to achieve fair market that that fair market rent reset than in our suburban assets second tenant improvements in operating expenses are a much lower percentage of occupancy cost for our street based retailers that they are less impactful on net effective growth.
Third.
Rents at many of our streets are at cyclical lows and retailer sales are growing.
This means rents can grow substantially and profitably for our retailers and still be below prior peaks.
In short.
Our internal growth is strong right now and the embedded growth looks even stronger for the foreseeable future.
In fact, once we get past the shorter term challenges in the economy right now the significant top line sales growth and corresponding solid rent growth probably translate through into meaningful value appreciation for assets, especially in that portion of our portfolio.
Where we have strong annual contractual rent growth and more frequent mark to market opportunities.
In terms of the new investment side, we are certainly cognizant and responding to the shifts in the markets both debt and equity. This has caused many sellers to move to the sidelines.
And some lenders to be skittish.
Deal flow in general has slowed.
This past quarter, we closed on our Dallas, Texas portfolio, and Henderson Avenue, which we discussed in detail on our last call. So far tenant activity. There continues to exceed our expectations and this investment should provide strong multi year growth.
Inclusive of Dallas year to date, we have added almost $250 million of acquisitions to our core including a portfolio of Williams FERC Brooklyn assets in Soho.
Washington D C and L. A.
And then on the fund side, we added over $130 million.
Acquisitions year to date as Amy will discuss we recently put.
Deal under contract in fund five we sold a deal and fund four and since we have about 20% of the fund left to invest we are likely to either extend fund <unk> investment period to invest those commitments are then roll them into our fund six and we are in discussions with our investors right now and we will keep you posted there.
Elsewhere in our fund platform as Amy and John will discuss in more detail, we made strong progress in city point Brooklyn.
Earlier this week.
We successfully refinanced the property and then more importantly, we doubled down on our ownership stake in the property.
John will discuss the earnings accretion and financial metrics and Amy will give some more color on how the transaction came about and why city point is poised for growth, but the bottom line is this investment is both.
Telling.
And strategic adding city point, an asset that we obviously know incredibly well.
As a long term hold to our core portfolio. It makes all of a sense in the world.
So in conclusion, we recognized that it is hard to look past the volatility and uncertainty in the marketplace.
Our unique and high quality portfolio likely ends up on the other side of this disruption significantly more valuable than before.
Furthermore, it's hard to imagine that the turbulence that we are currently going through will not create some compelling opportunities on the other side.
But more importantly, while we all digest this volatility we will be keenly focused on the critical and impactful growth embedded in our portfolio and the multiple ways, we can create value.
Irrespective of this turbulence.
And with that I'd like to thank the team for their hard work this last quarter and I'll turn the call to John .
Thanks, Ken and good afternoon, I'll start off with some observations on our quarterly metrics followed by an update on our multi year core internal growth and then closing with our balance sheet.
Our portfolio continues to perform well above our expectations with expected year over year <unk> growth of about 15% at the midpoint of our guidance.
And this is being driven by the internal growth within our core portfolio with same store NOI growing in excess of 7% for the first half of the year.
Starting with the quarter, our second quarter earnings of 32 cents a share came in ahead of our plan and consistent with the positive trends. We saw in the first quarter of 100 basis points of profitable occupancy commenced during the quarter generating approximately $1 $5 million of ABR with the majority coming from our street portfolio.
Our collections remain strong with quarterly cash collections at 98%.
In terms of tenant credit I wanted to touch on our core portfolio's exposure to bed Bath <unk> beyond.
We have two bed bath locations within our core and the vast majority of the ABR coming from their store in San Francisco.
The San Francisco lease has term through 2028, and historically was a high productivity story.
Over the last several years, we have attempted to recapture all or a portion of their space as the in place rents are well below market in our stores oversights for its existing needs.
And we're going to continue those discussions and if successful we think we can nearly double our current rents.
Now moving onto our 2022 guidance.
In terms of full year earnings expectations, we once again increased our 'twenty two guidance, which at the midpoint represents year over year <unk> growth of about 15%.
In terms of the drivers of the increase in our guidance is primarily being driven by the anticipated core NOI growth accelerating in the second half of the year.
Now in terms of guidance assumptions and model updates we are reaffirming the full year ranges that we provided our initial guidance for cash recoveries of prior period rats and lease terminations of $3 million to $7 million of which approximately five $5 million has been recognized to date as well as for straight line rent and below market lease amortization.
Now moving on to city point.
Amy will discuss and provide more color as to how this opportunity arose as well as a significant leasing progress we are making.
And as Ken discussed I'll walk through the balance sheet impacts of the transaction and the immediate and future earnings expectations, starting with the purchase price.
We acquired an additional 33% interest in city point for approximately $120 million inclusive of assumed debt of.
Of which 12% closed during the second quarter and about 21% closed in the last few days with an opportunity to expand further in the future.
In terms of pricing on our incremental investment.
We expect to achieve in the sixes on an unlevered basis SCE asset achieve stabilization within the next 18 to 24 months with strong growth thereafter.
I will walk through the details of the exciting new tenants that will be coming to the center.
But with a signed but not yet open pipeline of 2400 basis points of near term rent Commencements were very optimistic about its near term stabilization.
In terms of refinancing we chose to Delever the asset from nearly $300 million of debt that was spread across four separate facilities into a single facility of approximately $200 million with a strong support from two of our key relationship banks.
And reduced our all in borrowing cost in excess of 150 basis points.
Lastly, as outlined in our release, we provided a $65 million loan to our partners at a rate in the low double digits.
So I'm, putting all these pieces together, we anticipate nominal accretion initially with more meaningful accretion in 222023 and beyond as a property achieved stabilization.
Now moving onto our second quarter same store NOI with growth of four 8% for the quarter and seven 1% year to date.
As outlined in our release the strengthen our quarterly results came from our street portfolio, which grew nearly 7% in the second quarter.
We are currently trending towards the upper end of our 4% to 6% full year same store guidance.
And this is being driven by our leasing team not only achieving its leasing goals for the year.
But we are seeing rents coming in stronger than we had initially anticipated.
And now while its a little early to provide 2023 guidance I did want to provide an update on our continued expectation of 5% to 10% multi year current core internal growth.
First off we remain on track with our 5% to 10% growth expectation.
And it is also worth pointing out that this growth is prior to the accretive impact of including city point.
Which given the extraordinary growth that Amy will discuss will be meaningfully additive to our 5% to 10%.
Before diving in I want to also point out that our 5% to 10% growth has always and continues to reflect the anticipated rollover within our portfolio.
<unk>, our assets on North, Michigan Avenue in Chicago or <unk>.
Forecast has assumed this rollover will begin to occur in the second half of 2023 upon expiration of agent Abbs lease.
So notwithstanding our expectations of multi year growth I wanted to follow up on Ken's comment that these are not just projections of the distant future.
Rather it is showing up now and given the leasing progress. Our team has made to date, we have strong conviction as we look forward, particularly over the next 12 to 18 months.
We have already signed or in the final stages of lease negotiations on about 60% of the coordinates core ABR necessary to achieve our 2023 targeted growth.
And this is partially reflected in our quarterly metrics with a 360 basis point spread between our physical occupancy and are signed but not yet commenced commence rents and a 360 basis points equates to about $6 $7 million of ABR and $8 $3 million of NOI represent representing about 5% of embedded growth.
With over 85% of these leases expected to commence in the second half of the year with the majority in the fourth quarter.
Which results in about 15% of the $8 $3 million of NOI is showing up in 2022 and the balance of 'twenty three.
Keep in mind that for <unk> and GAAP purposes, as we typically start accrual accrual accounting upon tenant possession of the space.
We had been recognizing straight line rent on about 60% of our signed but not yet open spaces.
Over the next two years, we are expecting about 15% growth from our street portfolio and as I mentioned this is inclusive of the anticipated rollover on North Michigan Avenue.
And this two year growth is being driven by both lease up along with positive mark to markets.
Our Soho, leading the way, we expect that our NOI in Soho will double over the next two years and in fact, we feel pretty good about this growth as over 90% of the leases.
As well as the fair market value reset renewals have already been executed or in the final stages of completion necessary to achieve this growth.
And we're seeing similar strength across our high growth markets that Ken discussed.
Which compromise as he mentioned the majority of our street portfolio with growth in Washington D. C are about 40% along with double digit growth in L. A Armitage Avenue in Russia, and Walton in Chicago, along with Greenwich, and Westport, Connecticut.
As well as our most recent acquisitions in Williamsburg, Dallas in city point, which are further complementing this growth.
Lastly, as we think about our portfolio and the potential for ongoing inflation as Ken discussed, we think our street portfolio, maybe uniquely benefit too.
Two benefits should this persist with two key advantages first are the common area charges that are passed through to our tenants and part of its overall occupancy cost.
Common area cost as a percentage of ABR ABR on our streets, because about a third of our suburban lease thus in an inflationary environment operating costs are much less of a factor in our streets, which provides us with an advantage to further drive brands.
Second and also the street lease up structure itself.
In addition to the 3% contractual growth our street leases have a shorter duration, along with fair market value resets, where on average we have an opportunity to mark to market our leases in under five years as compared to nearly 15 years in our suburban portfolio.
And using today's rents, we see low double digit mark to markets across many of our streets, whether it's Green Street in Soho Armitage Avenue, a rush street in Chicago or Melrose place in that way.
Lastly, I wanted to touch on a few items on our balance sheet, we have ample liquidity with no meaningful core maturities over the next few years and we are well hedged against rising interest rates with about 90% of our core debt either fixed or fixed with interest rate swap contracts.
And following the refinancing and recapitalization of city point at a lower all in borrowing cost, we anticipate that our pro rata variable rate debt exposure inclusive of both our core and fund to be in the 15% to 20% range and.
In summary, we had a very strong quarter with a strong outlook, we are well poised for multiyear internal growth and I will now turn the call over to over to Amy to discuss our fund it.
Thanks, John today, I'll provide a brief update on our fund platform beginning with fund five.
First over the past few years, we've thoughtfully assembled a 6 million square foot high yield shopping center portfolio.
Today, the cost basis is approximately $1 billion and the value is significantly above that.
Remember when we started acquiring these properties at eight caps back in 2016, when suburban shopping centers were out of favor.
Fast forward six years, and we've now allocated about 80% of our $520 million of fund five capital commitments to the strategy.
This includes fund side, 20th property, which is currently under contract for about $50 million.
We still have approximately $100 million and allocated equity, which translates into about $300 million of buying power with leverage and as Ken said, we'll finish up investing these dollars via a fund five extension or a roll forward into a fund six.
At the same time, we've now owned several of these fund size properties for more than three years, and we're getting closer to the point where portfolio monetization and a recognition of our embedded profits might make sense.
Fund five existing 19 property portfolio is located across 15 states with one third concentrated in the northeast another third in the southeast and about 15% in the southwest.
These properties ranked in the top 6% among shopping centers within their respective 10 mile radii based on number of visits which is consistent with our best game in town and only game in town investment strategies.
Top tenants include the P. J X brands Ross shop rate Oswald in Burlington.
This is a portfolio that has been carefully curated and while we evaluate different alternatives. We're still clipping a mid teens leverage return on equity and that feels pretty great.
Turning to dispositions during the second quarter, we completed the $41 million sale of Lincoln place.
270000 square foot power center in their view Heights, Illinois.
During fund for his ownership, we re tenant at about 60000 square feet of space.
This includes replacing Hh Gregg in here today with Aldi in total wine respectively.
At exit the property was 96% leased and this investment delivered a 14% IRR and a $1 eight multiple on equity with a sub 7% exit cap rate.
Now onto city point as John mentioned this week, we successfully refinanced our city point that more importantly, we more than doubled our ownership, which now stands at 62%.
This opportunity arose when one of our fund investors sought liquidity in the secondary market for a larger basket of opportunity funds that included our fund too.
We were afforded the opportunity to carve out our fund two at very attractive pricing.
We offer the same city point in pricing to our other investors and when certain investors expressed an interest in selling a portion of their ownership we jumped on the opportunity.
Our increased ownership of city point is consistent with our long stated goal to earn more of this well located asset which has significant embedded growth that we plan to realize over the next few years.
Remember that this 550000 square foot property anchored by target trader Joes and Alamo Drafthouse is located at the heart of downtown Brooklyn, which is still in the early stages of a significant development boom.
If you go to city point today, you will still see a fair amount of construction fencing as our neighbors projects wrap up over the next couple of quarters.
Over the past decade, the population within a 10 minute walk of city point has grown more than 50% approximately 18000, new residential units have already been added since the neighborhood was rezoned with another 5000 units under construction and another 6000 units in the development pipeline.
These steps include the units in Brooklyn's tallest tower located immediately adjacent to our property.
Construction is also underway on the new one acre park across the street from our shop space in phases, two and three with an expected completion next summer.
In the meantime foot traffic is up 20% since earlier this year and this is before prime arc opens later this year, replacing 70% of the space, formerly occupied by century, 21, and nearly 100% of century 21 rent.
The current leasing velocity at the property is also the strongest in the projects' history with a 75% leased rate.
And a strong pipeline of leasing activity.
Beyond that our existing tenants continue to prove the power and productivity of this irreplaceable property with another small shop recently of protein sales of $2000 of thought.
So in conclusion, our fund platform remains well positioned with a successful capital allocation strategy and our portfolio of existing investments that continue to march towards stabilization.
I'll now open the call to your questions.
As a reminder to ask a question you will need to press star one one on your telephone please standby, while we compile the Q&A roster.
Our first question comes from the line of Todd Thomas of Keybanc.
Your line is open.
Hi, Thanks.
A couple of questions on city, 0.1st I appreciate some of the detail there and the 6% Unlevered IRR.
That you are expecting a stabilization can you share what the the initial NOI yield looks like on the $120 million acquisition.
Yeah, Todd just just to just to repeat it's a 6% unlevered IRR, so not levered yield unlevered yield sorry, unlevered yield sorry, how that's just that's just to correct that so it's a 6% on our yield on our initial cost.
And that should kick in in the next.
12 to 24 months time.
Okay and.
Okay, and then it sounds like there could be that you are expecting or that there could be some additional opportunities to further increase your interest at city point.
Any sense on the potential timing for some of those opportunities to maybe buy additional LP interest.
Yes, it's probably within the next 12 to 24 months, Todd I would say that would that would come up.
Okay.
Yes could you give a little color further color.
And then Amy did a very good job of explaining.
In that finite life fund there.
There were a couple of investors who were fund of funds.
And they are very much finite life and one of them went to the secondary market that's what.
Set the pricing and then the rest of our finite life investors. Some of them held some of them said, we'll sell a portion and we will see as we achieve stabilization, we want to be fair and transparent to everyone.
They enable us to increase our liquidity, but our expectation is that would be the case, because our investors have been there.
<unk> supportive of this becoming a long term hold assets.
And that is more favorable for us to own more not less.
Okay and.
Just a question I guess around.
Maybe the value or evaluation around that asset more broadly if we go back to 2015, maybe 2016 I think the total gross value of the full build out for city point was in the sort of mid $400 million range and I know you sold air rights and there were some other transactions but.
Can you maybe provide some parameters around what you think.
<unk> stabilized or current market value of that asset is weather.
It's.
Sort of around replacement value or on a per square foot basis, maybe from comps in the market.
Yes. So again, we don't think the 6% yield is indicative of where the market is for that kind of a high quality asset.
With trader Joe's and target and everything else that Amy discussed in terms of the future growth well beyond the fix it so I wouldn't look at.
But.
Current pricing of this secondary is indicative of that and and my sense is given the population growth given the sales performance given everything that's going on around this part of downtown Brooklyn is that the valuation that we looked at a year or two ago holds.
And then some so we feel pretty darn bullish.
The long term value creation of this asset.
Okay, Alright, thank you Sir.
Thank you our next question.
Comes from the line of.
<unk> bin Kim of Truest, keeping Kim your line is open thanks Tom.
Thank you.
Just to follow up on Paul's question, when you say, 6% yield on cost.
Assuming the property stabilized Thor at seven 5% occupancy.
So that 6% yield on our incremental investment. So that's the 120, we put in keeping in that that will be our 6%. We expect to get when we achieve near term occupancy and as Ken mentioned the next 18 to 24 months. So that it's not just the 75% there is a bunch of other leases that you'll be hearing about.
And the next quarter or two.
That are embedded into that as well.
But okay.
Even once we get those leases signed there.
A lot of opportunity for future growth.
Given just the vintage of some of the leases the contractual growth and some of them. So it's not a one and done.
Getting it to 90% and then it's.
Fully stabilized there there is growth over the next 135 and beyond years.
Okay. Thanks for that clarification.
Just to go back to your comments about the H and at least in Michigan Avenue can you just provide some more color around that I think the barriers around $6 million. Please correct me if I'm wrong.
You just talked about the most likely outcome.
What the prospects look like what the mark to market might look like as well.
Yeah, So Kevin I think just repeating that what was in my remarks is that our assumption.
As we get that space back end and in the second half of the year has always been part of our forecast and our 5% to 10% growth.
I also say is that north, Michigan, and we've said this for a while I was one of the slower markets to to recover so in terms of price discovery, where rents are it's a bit early.
And we will see what 18 of them ultimately does and we've talked about what our assumption is.
And I'm not aware that they found an additional location, but we're assuming that it's it's we get that that space back and we'll keep you posted as we see more transparency and price discovery on the street just Hasnt Hasnt happened, we've seen signs of life. There is a big tenant that Richie I moved in industry at a nice rent. So we're seeing tenant interest in it but not not enough that I want to.
Two.
Put a more bullish in a number.
Number of my model at this point.
Okay.
And just last one for me.
Where does your pro forma leverage on a debt to EBITDA ratio looked like ended the year, because there's a few moving pieces, especially with the acquisition of three points.
Yeah. So I think we're I think we're on track to still be in the in the sixes. So I think as you think about the various levers we have between our fund business recycled capital et cetera et cetera.
We're still targeting to be in the mid sixes by the end of the year.
And consolidated or look through.
On the core came in the core okay.
Okay.
Thank you.
Thank you. Our next question comes from the line of.
Craig Mailman of Citi.
Craig Mailman. Please go ahead.
<unk>.
Want to just go back to city point.
Two follow ups there.
The first one.
The decision to de lever the asset.
Some of that over to the.
On the corporate balance sheet was that a function of the tightening lending market and you guys not being able to get the proceeds or what's.
Was there a different kind of.
What drug are there.
Craig Great Great question, and there the strategy and I think very consistent with our increased ownership, which we've looked at is that we wanted to bring that to core level leverage right. So I think that was part of it and when we had the opportunity to.
Increase our ownership, that's where you wanted to put an appropriate amount of debt at the asset. So I think we were able to get financing. There there was a tricky financing market for sure as you've probably heard from others, but certainly was a financing market, but best execution and part of our long term strategy was to get the leverage at a level.
That we believes appropriate appropriate at the asset level.
Okay, and then the 65 million that you.
<unk>.
What's the rate on that debt.
Interest income kind of embedded in the 6% return on your new equity stake what was that.
Yeah. So I think we don't give specific rates on any individual loans, but want to put enough out there that it's and it was determined by a third party is the the first parts of it was third party and it's in the low the low double digits and is absolutely not part of the 6%.
And then just one last follow up here.
You kind of look at your new blended basis, which we estimate is in kind of that $430 million range.
On the full 62%.
What's the like long term IRR that you guys are expecting now with the anticipated lease up on that kind of fully loaded number.
Yes, so and.
I want to be very careful that there's a few ways. We think about IRR is one is on a levered basis in our fund business using more traditional fund leverage and there. This.
Investments should provide high teens low 20, if you looked at it on that apples to apples basis.
How we discuss it with our investors, whether they were exiting staying in or increasing their investment.
Then.
As you are.
De levering the asset and having it for a longer term hold it's more about.
Yeah.
Annual growth rate.
And less about trying to figure out the terminal exit cap rate, but also again should be a very recent investment, especially it should be a very attractive IRR relative to other investments we see in the marketplace. John I don't know if you had anything yeah, that's about right and I think if we go into.
At.
Blended without blending and we do this at a six and I'm optimistic we get above 4% growth you can do the math on that that we're hopefully in the 8% to 10% Unlevered pretty pretty conservatively.
And then just one last quick one is there any additional promote opportunity in the fund that could lower the basis further or is that more opportunity fully exhausted.
So the albertsons pieces separate and we've talked about that and the potential monetization of that but they are not intertwined.
And we've given our forecasts around albertsons.
Great. Thank you sure.
Thank you. Our next question comes from the line of Craig Schmidt of Bank of America, Craig Schmidt. Your line is open well. Thank you.
Just wondering do you have an opening date for prime Mark at City point.
Amy Yeah. They are on track for their opening it should be second half of this year. We haven't provided a specific date, but the good news is that all signs are that they are on track to open when they said they would.
Well, thank you Craig.
Just a little color on that tenants like to control those announcements more so.
But.
It will be.
They'll be there for holiday.
Full speed ahead, and we're excited to see that addition.
And is your expectation primarily.
B, a better draw than century 21 or comparable.
Yes, we think it will.
And it's not like we had a choice on century 21 exit they went chapter seven they were a good local retailer.
But prime market is very excited about this location.
And I think it's just first of all imagine right now if you are there cross the street the tallest.
Residential tower in Brooklyn is finishing up but it's still under construction.
The Prime arc location is under construction the park across the street is under construction and finishing up and now think about when all three of those.
<unk> been up primarily will be a critical anchor, but so will the new residential towers sold the park. So Craig I think it's a confluence of all those things and I don't have to pick which of our tenant past our future is going to be better I think I think they'll all be additive.
Great and then it sounds like you are signed but not open.
We will drive the occupancy so are we expecting a higher occupancy number than the 95 by the end of the year.
So.
So Craig I guess, what and just to be clear, we're often citywide wherever you're exactly right and thats, what youre talking to the court on that city point right.
Yes of course, sorry.
So again and I have to put the caveat for the for the new listeners that I think while occupancy is an important metric for us. It gives its very imperfect given just a wide range of rents within our within our portfolio and I think it was masked this quarter, where we saw occupancy remained flat, but when we brought online.
I was at a higher rent sort of offset that so I want to put that out that that for us occupancy in and of itself is a a very imperfect.
<unk> and to answer your question, Craig the 360 basis points of growth.
And the $8 $3 million of NOI that we have rolling into next year will certainly increase our occupancy as that translates into two physical occupancy so that will offset and you do expect to increase occupancy as we worked through there.
Alright, thank you.
Thank you our next question.
Comes from the line.
Linda I'm, sorry, Linda Tsai.
Jeffrey Linda Tsai your line is open.
Hi.
Just on city point again in terms of the 6% pricing.
Acquiring your partner's interest.
Not being really reflective of the real estate value in terms of getting a bargain.
The front structured in any kind of special manner that would allow you to get this favorable pricing.
So let me be very clear on this.
As required the cooperation of our investors, which we're very appreciative.
The recognition over the years, we don't do this often right over the years, we buy fix and sell.
But this was a unique asset and those who want to stay in long term, we've encouraged them and hopefully they will so thats why I have no promise that we're going to acquire more.
But.
Within the fund there was one investor group during the global financial crisis that.
Wired interest from an endowment so it was a finite life fund very cooperative very supportive they were liquidating or going to the secondary market on all of their investment separate of Acadia, having nothing to do with that and that afforded a.
80 at a attractive price and that's how we got to where we are today, but there is no nor where fiduciary we don't look too.
<unk> investors Opportunistically as a matter of right. This was as a matter of cooperation.
Thanks for that clarification.
Sure.
Okay.
Thank you. Our next question comes from the line of Michael Mueller of J P. Morgan Michael Mueller. Please go ahead.
I'm curious for city point for the remaining 25% of.
Leasing that you needs to stabilize the asset.
Would you how would you categorize what portion of that is still pretty speculative at this point versus you have a pretty good idea of who's going in there, even though it's not far enough along to consider at least.
So.
In vertical retail it is best to lease from the top there and that we are successfully doing meaning you may recall when we got back century 21, we were able to re tenant.
About 70% of this space with Prime Mark It left us some fourth floor space and stay tuned, but I think youre going to see some good news there and as we pointed out we are making money on.
Rent that we are collecting the.
<unk> of all of that will be very profitable for us. So that's where I think youll see the next big step than the <unk>.
Retail facing that park the future Park.
Is kind of the next big step.
We certainly didn't want to lease it when it was just a construction zone, but now that thats nearing.
Completion tenants are beginning to step up at real rents. That's the next step the final big piece of this will be the lease up and stabilization of the most valuable spaces, which is Prince Street.
And Amy you want to guests 12, 24 months, that's where most of that happens if that sounds right and then there will be roll Michael as we continue to see growth there will be rental contractual rental growth plus the opportunity to mark to market. Some of the leases that we did either during COVID-19 or earlier.
Got it okay.
That was it thank you.
Sure.
Thank you we have a follow up question from Kieran Kim Truest, keeping Kim your line is open.
Thanks for taking me.
Just a couple quick follow ups on the signed but not opened.
Pipeline.
Hear you correctly that 60% of that is currently being accrued in the run rate.
That we have record core net income statement exactly. So there is that we have been recording straight line rent on that that's right.
And just to go back to your comments about the 5% to 10% multiyear growth.
The trajectory for your company.
I'm curious if 2023, if the growth in 2023.
<unk> also seen a 5% 10% or is there should we expect some type of like J curve into that growth rate because.
Perhaps some of the vacancies and each of them or whatever other leases.
Yeah again, it's I don't want to give our 2020 through 2023 same store today, Kevin, but I think we have targets. Our leasing team is at if not exceeding them and we have 60% of the leases signed today that we need to do to get to above this year same store growth. So again were made great progress.
And just to add thanks John .
To add some additional color on top of that just so that none of this is lost in translation.
Between.
Occupancy versus NOI, not only are we stacking up better for 'twenty three than this year, but we're doing it with less square footage, meaning the rents are coming in higher than John and I forecasted or then our leasing team forecasted 612 months ago.
<unk>.
So we will you will see occupancy gains and as John pointed out it is a very imprecise blunt instrument for us because obviously Soho NOI on small square footage is substantially different than a T. J maxx somewhere in our suburban portfolio up but.
Rents per foot are coming in higher and better than we forecasted a year ago.
Thanks, Ken.
Sure.
And at this time I'd like to turn the call back over to CEO , Ken Bernstein for closing remarks, Sir.
Great. Thank you all for joining us this summer.
We'll see you in very short order post labor day, but until then everybody have a great end of summer.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
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