Q3 2023 Acadia Realty Trust Earnings Call

Okay.

Good day, and thank you for standing by and welcome to the Q3 2023, Acadia Realty Trust earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.

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Here, an automated message advising your hand is raised to withdraw your question. Please press star wouldn't want again. Please be advised today's conference is being recorded I would now like to hand, the call over to your speaker today John Tumazos. Please go ahead.

Good morning, and thank you for joining us for the third quarter 2023, Acadia Realty Trust earnings Conference call. My name is gone Tomorrow and I'm an analyst.

The next department.

Before we begin please be aware that statements made during the call.

Oracle, 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 October 31 2023.

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 per caller to give everyone the opportunity to participate.

You may ask further questions by Reinsert 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.

Thanks, John Great job.

Welcome everyone Happy Halloween.

I'll give a few comments then I'll turn the call over to a J Levine, who heads up our leasing and development.

Division.

John and after that Jon Stewart, Jay and I will take questions.

As you can see in our earnings release, we had another solid quarter driven by strong same store growth of nearly 6%.

And this growth is hitting our bottom line earnings as well.

I'll, let a J discuss the leasing environment and our achievements last quarter, but our goal of creating superior top line growth and having that growth translate into bottom line earnings growth remains on track.

On previous calls I've walked through in detail the drivers of improving tenant demand. So I'll try not to repeat myself today other than to say that even with current macroeconomic concerns the.

The consumer remains fairly resilient and more importantly, while retailers quarterly results may vary tenants are looking past the short term uncertainty.

And are continuing to execute on their multi year growth goals.

And now that we are a couple of years part past of Lockdowns of 2020, it's worth taking a moment to look at how the retail real estate recoveries playing out.

Some of what we're seeing in our results is well understood and broadly discuss the other components are.

Our only recently beginning to be appreciated.

The suburban segment of our portfolio was the first to bounce back from the early days of Covid. The resilience in this segment is pretty well understood.

Going forward, we expect market rent growth to continue at a similar rate to economic growth.

And the key issue here will be increasing capital expenditures and operating expenses, which is reducing net effective rent growth.

Then in terms of street retail.

First we saw a rebound in that portion focused on the local neighborhoods ranging from Greenwich Avenue in Connecticut to Armitage Avenue in Chicago.

For this segment.

And for a variety of reasons market rents recovered to pre COVID-19 levels pretty quickly.

And have grown in excess of 20% and in some cases as high as 30% since then.

Also since Capex as a percentage of rent is significantly smaller net effective rent growth.

Has been strong as well.

The supply demand balances again favorable to landlords tenant rent to sales ratios are healthy.

And we should be able to see net effective growth here also at or above the contractual growth rate of 3%.

The issue here is that tourism is generally not a driver of sales in the neighborhood segment and.

And increase the return to office might be a bit of a headwind.

Then what is probably most surprising and generally not yet appreciated is the recovery of major market.

Street retail, whether Soho in New York or in Melrose place in L. A where many of the other carter's in our portfolio given that over half of our street retail falls into this segment. It's a recovery we are watching carefully.

A couple of years ago it was unclear.

How key streets were going to respond to hybrid work.

Two subdued international tourism.

And two a shift by many families to the suburbs, where sunbelt cities, we have more clarity now.

Hybrid work is not a headwind for these corridors.

The recovery of international Tourism is only beginning to show up the <unk>.

The urban out migration has slowed.

And in some cases reversed.

And most importantly retailers are more focused today than ever.

On controlling their customer experience in an omnichannel world by having their own physical stores.

Retail rents for key Carters first recover to 2019 levels between one or two years ago.

And we thought they might level off from there we were wrong.

As evidenced by some of our recent leasing accomplishments in key streets market rents are now 20%.

240% above 2019 rents this means that on a net effective basis.

Market rents since 2019 have grown in the streets.

More than in any other component of our portfolio.

Our recent Broadway Prince Street lease in Soho is an example, where the recent spread of 45% after only two years.

Is a good approximation of market recovery there since 2019.

But we're also seeing meaningful growth in Melrose place, the Gulf Coast of Chicago, and Street, and Georgetown and as opposed to other segments of our portfolio.

These markets are in earlier stages of recovery and based both on tenant demand and tenant health market rents for this segment seem to have more room to run beyond this current rebound.

And along with strong contractual growth, we should be able to recognize this NOI growth sooner as well since we have more mark to market opportunities. In this segment now to be clear not all markets and our portfolio of get recovered markets that have lagged some our downtown San Francisco North.

Michigan Avenue in Chicago and.

In Madison Avenue here in New York, but in recent months Madison Avenue has quickly recovered and I'd expect other markets to follow as well.

Now I appreciate that it is still hard.

For some to reconcile this tenant demand and performance.

With the perceptions are around return to office, our urban flight. Additionally, we recognize that this growth may not be fully appreciated until we are past some of the macro concerns around a looming recession and the elevated interest rates.

But as we continue to post these gains they become harder to ignore.

That's as it relates to internal growth, we are on track for our multi year growth goals.

And while we expect a slowdown in the economy will eventually create a reduction in tenant demand we're not.

Not seeing it yet.

Turning now to the capital markets.

Well the good news as it relates to the consumer the job market.

And our leasing performance is the bad news are headwinds in the fed's focus on reducing inflation. Furthermore, the inverted yield curve and elevated interest rates are not just impacting borrowing costs, but also creating uncertainty as to real estate values.

Thankfully as it relates to Acadia and as John will discuss we have nicely hedged our interest rate exposure for our core portfolio and our maturity schedule for the next couple of years is also in good shape.

The real question is the impact on the value of high quality cash flow and real estate.

The markets are fairly divided on this issue while no. One believes we are quickly returning to the era of free money.

Sellers want buyers to assume that the 10 year Treasury recovers to its recent 3.5% radar lower and that the economy has a very soft land.

And buyers want to transact on the assumption that the 10 year Treasury is at 5% forever and that the landing is hard.

And thus we have a wide bid ask spread.

And limited transaction activity.

While this date debate continues.

The inverted yield curve is also causing too many investors to remain focused on short term investments and debt like instruments, rather than taking duration and equity risk.

This pricing impasse will likely end over the next few quarters, we're beginning to see some distressed and turnaround opportunities emerge and we'll make sure we position ourselves to participate in them.

We'll be respectful not to add unnecessary complexity.

Not to lever, our balance sheet and not to grow for growth's sake, but given our institutional capital relationships and our ability to identify opportunities even when our stock price is not advantageous such was the case in Lincoln Road in Miami after the GSE.

Or our participation in the privatization of Albertsons supermarkets or that doesn't other transactions that we participated in we will come up with ways to see that our shareholders benefit as external growth opportunities arise.

And since it doesn't take much volume to move the needle for us even a few acquisitions whether on balance sheet in conjunction with capital recycling.

Or utilizing our institutional capital relationships, they can meaningfully add to our external growth as it relates to fund five investments, we have an asset under agreement, which fits our target profile and investment returns and we will round out the balance of fund five with that for future investments of the style where in a continue to rely on our <unk>.

Institutional relationships to add to that platform.

Given our 20 year track record of raising and managing third party capital for the benefit of both the institutional clients as well as the public shareholders. The key is first and foremost finding the right opportunities and as time marches on we suspect those opportunities will show up.

So to conclude it was another quarter of validation of our thesis solid topline growth hitting our bottom line as you will hear from a J.

Our leasing activity is robust and as you will hear from John our multiyear above trend NOI growth plan is intact.

And with that I'd like to thank the team for their hard work this last quarter and I'll turn the call over to a J Levine.

Great. Thanks, Ken Good morning, everyone. So just to introduce myself I oversee <unk> leasing and development team, which is ultimately responsible for driving organic NOI growth for our $5 billion opening our portfolio ranging from best in class Street assets to open air shopping centers, both wholly owned and in our funds and <unk>.

Our diverse portfolio, we have a unique perspective on what's happening [noise] excuse me.

Across that.

Across asset classes and within retail.

And I and my team have direct access to a wide range of retailers from top line luxury to grocery F&B specialty retailers, all the way to our discounters.

Cardiac the whole foods from Lululemon to T J X.

So today, we'll discuss what we're seeing at the asset level on our streets in our shopping centers and what we're hearing from our retailers.

And what we're seeing today is incredibly strong demand from retailers across the board.

As Ken mentioned, our retailers continue to tell us that because of their performance over the past 18 to 24 months and because of their focus on the importance of the physical store towards achieving and sustaining profitability. They are seeing past any short term choppiness and remain focused on long term growth.

We're also seeing a continuation of the landlord friendly supply demand dynamic that started in 2022, and that's again driven by strong retailer performance.

Flight to quality healthy tenants in terms of both balance sheets and rent to sales ratios and record low levels of supply.

And that's all translating into consistent rent growth in most of our core markets and helping us make significant progress towards our goal of increasing core NOI by $30 million to $40 million over the next several years.

So what does this progress look like we'll start out with leasing volumes and just to clarify my team is completely agnostic to core and fund leasing our focus will always be on best execution across platforms, but the numbers I'm about to mention our for our core only at our pro rata share.

Unknown Attendee: Good day and thank you for standing by.

So last year meeting full year 2022, we have one of the most productive leasing years, we've ever had on record certainly over the five years that I've been with Acadia.

Unknown Attendee: Welcome to the Q3 2023 Acadia Realty Trust Earnings Conference call. At this time, all participants are in a listen only mode.

Unknown Attendee: After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again.

My team signed nearly $9 million of new core leases, representing about six 5% of our in place ABR.

Now fast forward to 2023, and this year is stacking up to be even stronger.

Unknown Attendee: Please be advised for these conferences being recorded.

The team has already signed over $8 million of new leases. During the first nine months of 2023 and were expecting to sign another $2 million to $3 million of deals during the fourth quarter, resulting in a total of $10 million to $11 million of ABR of new deals in 2023, or a 20% increase over an exceptional 2022.

Unknown Attendee: I would like to have the conference over to your speaker today.

John Demoulas: John Demoulas, please go ahead. Good morning and thank you for joining us for the third quarter 2023 Acadia Realty Trust Earnings Conference call. My name is John Demoulas and I'm an analyst in our finance department.

John Demoulas: 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[inaudible] including funds from operations and net operating income. Please see Acadia's earnings press release posted on its website for reconciliation of these non-GAF financial measures with the most directly comparable GAF financial measures.

In the aggregate, that's about $20 million of ABR or about $25 million of NOI from new leases.

So I say this not just to give the team some well deserved recognition they certainly deserve it but really to highlight the meaningful progress that we've already made towards achieving our internal growth goals.

In addition to beating our volume goals, we are consistently exceeding our budgeted reps. This is true for our suburban portfolio as well as on our streets for instance, what we accomplished in New York City in the third quarter is a great example of what we're seeing across our high growth streets.

During the quarter, we signed three new leases in New York City with two new leases signed in Soho at cash spreads of 45% and 95% and we also signed a lease in Williamsburg, Brooklyn at a 55% spread and our payback period for the capital that we had to put into those deals was about a year of rent on average so that's one.

One of the benefits of street versus suburban leasing those significantly shorter payback periods. Another benefit of street leasing is fair market value resets, which gives us another bite at the Apple to mark to market rents and over the past 12 months, we benefited from five fair market value resets across our high growth streets at approximately 25% Mark.

John Demoulas: 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.

Ken Burns: Now, it is my pleasure to turn the call over to Ken Burns, the President and Chief Executive Officer, who will begin today's management remarks. Thanks, John. Great job.

Market and that was done at no cost to Acadia and the spreads alone equates to just under a penny of <unk>.

So for a company of our size operating in a street and urban leasing environment with the growth that we're seeing today, we can meaningfully impact <unk> with a relatively small number of lease transactions.

Ken Burns: Welcome, everyone. Happy Halloween. I'll give a few comments.

Ken Burns: Then I'll turn the call over to AJ Levine, who heads up our leasing and development division, then to John. And after that, John Stewart, AJ and I will take questions. As you can see in our earnings release, we had another solid quarter driven by strong, same-store growth of nearly 6%. And this growth is hitting our bottom line earnings as well. I'll let AJ discuss the leasing environment and our achievements last quarter, but our goal of creating superior, top line growth and having that growth translate into bottom line earnings growth remains on track.

And that leads me to another important point.

My team is constantly looking for opportunities to mine the portfolio and proactively take back space. When conditions are right. We are in a moment in time right now where an engaged hands on team can make a material incremental impact by unlocking these spaces and bringing them to market. So this is not just.

About leasing update P&C for two of the leases we signed this past quarter, we proactively recaptured those spaces before the previous tenant's lease expired.

Ken Burns: On previous calls, I've walked through in detail the drivers of improving tenant demands. So I'll try not to repeat myself today other than to say that even with current macroeconomic concerns, the consumer remains fairly resilient and more importantly, while retailers quarterly results may vary, tenants are looking past this short term uncertainty and are continuing to execute on their multi-year growth, and now that we are a couple years past the lockdowns of 2020, it's worth taking a moment to look at how the retail real estate recoveries play out.

And from constantly speaking with our retailers we knew about several tenants that wanted those spaces at market rents, which were substantially higher than what we were getting at the time, approximately 45% and 55% that's the double digit growth that Ken mentioned and that we're seeing across our streets.

This is all driven by sales that remained well above 2019 levels and the incredibly low supply we are seeing in our streets in Soho for instance, most of the prime space has already been spoken for.

Melrose place in Armitage Avenue are both 100% occupied with a waiting list and Greenwich Avenue is not far behind.

On M Street for those smaller to medium sized spaces. They are at a premium.

Ken Burns: Some of what we're seeing in our results is well understood and broadly discussed, but other components are only recently beginning to be appreciated. The suburban segment of our portfolio was the first to bounce back from the early days of COVID, the resilience in this segment is pretty well understood. Going forward, we expect market rent growth to continue at a similar rate to economic growth, and the key issue here will be increasing capital expenditures and operating expenses, which is reducing net effective rent growth.

Leading to spillover onto Wisconsin Avenue, where we also own as our specialty apparel and aspirational brands continue to push to secure market a secure space in the market.

Again, thats driven by healthy competition, where that's driven healthy competition for space, both vacant and occupied and multiple offers for us to choose from and it's giving us meaningful pricing power and allowing us to hand carried our streets with tenants that will improve the overall market, that's where we really excel. So think Armitage Avenue is a perfect example of that.

But to be clear this is not unique to Soho in Williamsburg. This is not unique to Armitage. This is consistent with what we're seeing on most of our streets last quarter. The story was Melrose place at 30% spreads this quarter story of Soho.

Ken Burns: Then in terms of street retail, first we saw a rebound in that portion focused on the local neighborhoods ranging from Greenwich Avenue and Connecticut to Armada Javanue and Chicago. For this segment and for a variety of reasons, market rents were recovered to pre-COVID levels pretty quickly and have grown in excess of 20% and in some cases as high as 30% since then. Also, since CAPACS as a percentage of rent is significantly smaller, net effective rent growth has been strong as well.

Now shifting to our suburban centers, our suburban portfolio continues to be quality top line growth and stability, we're seeing very healthy competition for our junior boxes.

Although those deals do tend to come with more relative cost and a longer payback period.

Some exciting news from the quarter, we delivered our house of sport to Dick's Sporting goods down and Brandywine and Wilmington, Theyre expecting to open in late 2024 and that was one of our two former bed bath and beyond boxes in our core portfolio.

Ken Burns: The supply demand balance is again favorable to landlords, tenant rents, sales ratios are healthy, and we should be able to see net effective growth here also at or above the contractual growth rate of 3%. The issue here is that tourism is generally not a driver of sales in the neighborhood segment and increased return to office might be a bit of a headwind. Then what is probably most surprising and generally not yet appreciated is the recovery of major market street retail, whether Soho in New York or Melrose Place in LA or many of the other corridors in our portfolio.

And finally city point in downtown Brooklyn, the momentum that we continue to see in downtown Brooklyn is just incredible keep in mind. This is a market. That's already added 27000, new residential units, including 1200 directly above our project <unk>.

<unk> has a tech campus in downtown Brooklyn, with 7500 students.

Home to the Barclays Center, it's home to Brooklyn Borough Hall, the Metrotech center with over 25000 employees directly across from city point and in response to this incredible growth and the accelerated maturation in the market. The curation at city point remains very unique not only do we have anchor tenants like target and trader Joe's, but we also have an.

Ken Burns: Given that over half of our street retail falls into this segment, it's a recovery we are watching carefully. A couple years ago, it was unclear how key streets were going to respond to hybrid work, to subdued international tourism, and to a shift by many families to the suburbs or sunbelt cities. We have more clarity now. Hybrid work is not a headwind for these corridors. The recovery of international tourism is only beginning to show up.

Alamo Drafthouse, that's one of the top theatres in the country in terms of volume per screen. We have a 60000 square foot prime market that opened last year and continued to drive tremendous traffic to the center.

We're averaging over 600000 visitors a month and traffic has increased 16% year over year.

We're also home to the largest food hall in Brooklyn, with 40 unique vendors that is exceeding its pre pandemic sales volume on a personal basis and is now 95% leased.

Ken Burns: The pace of urban out migration is slow, and in some cases reversed. And most importantly, retailers are more focused today than ever on controlling their customer experience in an omnichannel world by having their own physical stores. Retail rents for key corridors first recovered to 2019 levels between one and two years ago, and we thought they might level off from there. We were wrong. As evidenced by some of our recent leasing accomplishments in key streets, market grants are now 20%.

Forgot to Chow, who we signed earlier in the year is on schedule to open in December so they're going to they're going to anchor the north side of our Prince Street passage CT.

<unk> opened this past quarter, that's 20 20000 square feet of indoor tenants up on the fourth floor and speaking of openings. The one plus acre park directly across from our Gold Street retail is on track to open in the first quarter of 2024, so that part will be downtown Brooklyn, backyard, and really a connection point for everything thats happening in the neighborhood and with the <unk>.

Park's opening we're finally able to activate some of our most valuable spaced on the street that we've been strategically holding back from the market.

Ken Burns: 240% above 2019 rents. This means that on a net effective basis, market rents since 2019 have grown in these streets more than in any other component of our portfolio. Our recent Broadway print street lease in Soho is an example where the recent spread of 45% after only two years is a good approximation of market recovery. There since 2019, but we're also seeing meaningful growth in Melrose Place, the Gold Coast of Chicago and Street in Georgetown.

And perhaps the most exciting news for city point. This past quarter is that just last week, we signed a new lease with sephora to anchor our south entrance. So they'll join a lineup that already includes lemon and Mcnally Jackson enjoy bird and Thats, an absolute game changer for city point at a major validation of our team's efforts.

So now we have both entrants is anchored with bogo to chat on the north end and Sephora in prime Mark on the shelf and we can continue to curate and fill in the remaining spaces with young relevant exciting tenants and.

And we're doing this all while exceeding our budget both top line and on a net effective basis and we remain on track to meet and exceed our projections. So stay tuned for more on city point, we should have more exciting news to announce soon and hopefully that gives you a flavor of what we're seeing within our portfolio and on our streets, so with that I.

Ken Burns: And as opposed to other segments of our portfolio, these markets are in earlier stages of recovery and based both on tenant demand and tenant health market rents for this segment seem to have more room to run beyond this current rebound. And along with strong contractual growth, we should be able to recognize this NOI growth sooner as well since we have more market opportunities in this segment. Now to be clear, not all markets in our portfolio have yet recovered.

I'll hand things over to John.

Sure.

Thanks, a J and good morning, we had another strong quarter as Ajay walked us through the volume of deals and the rates. We are achieving are continuing to exceed our expectations.

And notwithstanding the rapid rise in interest rates, we have substantially mitigated our earnings exposure for the next several years through our use of interest rate swaps to manage debt maturities.

Ken Burns: Markets that have lagged some are downtown San Francisco, North Michigan Avenue in Chicago and Madison Avenue here in New York. But in recent months, Madison Avenue is quickly recovering and I'd expect other markets to follow as well. Now I appreciate that it is still hard for some to reconcile this tenant demand and performance with the perceptions around return to office or urban flight. Additionally, we recognize that this growth may not be fully appreciated until we are past some of the macro concerns around a looming recession and elevated interest rates.

And this gives us increased confidence to reaffirm our multiyear same store NOI growth projections.

And more importantly that this top line growth will continue dropping to our bottom line earnings.

Now I'll provide some further color on each of these starting with our third quarter results, we reported <unk> of 27 per share and it's worth reminding.

Finding everyone that as we had anticipated embedded in our third quarter results as the NOI impact from the tenant rollover on North, Michigan Avenue and bed Bath <unk> beyond that we have been discussing for the last several calls.

Ken Burns: But as we continue to post these gains, they become harder to ignore. As it relates to internal growth, we are on track for our multi-year growth goals and while we expect a slowdown in the economy will eventually create a reduction in tenant demand, we're not seeing it yet. Turning now to the capital markets. Well, the good news as it relates to the consumer, the job market and our leasing performance is the bad news or headwinds in the Fed's focus on reducing inflation.

And with this known rollover, our third quarter core NOI is at its trough with meaningful growth in front of US as are signed but not yet open pipeline starts to kick in.

And in a few moments I'm going to walk through our preliminary 2024 earnings bridge that highlights our current expectation of once again delivering same strong same store NOI growth as well as year over year earnings growth in 2024 and beyond.

In terms of our 2023 full year earnings expectations for the FERC third time. This year, we have increased our <unk> to $1 26 at the midpoint after adjusting for the five the <unk> gain that we discussed last quarter.

Ken Burns: Furthermore, the inverted yield curve and elevated interest rates are not just impacting borrowing costs but also creating uncertainty as to real estate values. Thankfully as it relates to Acadia and as John will discuss, we have nicely hedged our interest rate exposure for our portfolio and our maturity schedule for the next couple of years is also in good shape. The real question is the impact on the value of high quality cash flowing real estate and the markets are fairly divided on this issue.

And at $1 26, this results in year over year earnings growth of about 6%.

Now moving to same store NOI.

Driven by the profitable lease up within our street portfolio, We reported same store NOI growth of five 8% for the quarter, which once again exceeded our internal model.

And with growth of five 9% for the nine months, we remain on track to come in at the upper end of our initial 5% to 6% full year 2023 guidance.

Ken Burns: While no one believes we are quickly returning to the era of free money, sellers want buyers to assume that the ten-year treasury recovers to its recent three and a half percent rate or lower and that the economy has a very soft land. And buyers want to transact on the assumption that the ten-year treasury is at five percent forever and that the landing is hard, and thus we have a wide bid aspect and limited transaction activity.

And it's worth highlighting the correlation between our topline growth meeting same store NOI to our bottom line earnings growth both of which we anticipate being about 6% in 2023, and we expect that this trend should continue in 2024 and in the years following.

Although a bit premature to release, our 2024 guidance I wanted to spend a few moments highlighting a few preliminary observations on our core portfolio.

Which comprise the vast majority of our NAV and earnings.

Ken Burns: While this debate continues, the inverted yield curve is also causing too many investors to remain focused on short-term investments and debt-like instruments rather than taking duration and equity risk. This pricing impasse will likely end over the next few quarters. We're beginning to see some distress and turnaround opportunities emerge and we'll make sure we position ourselves to participate in them. We'll be respectful not to add unnecessary complexity, not to lever our balance sheet and not to grow for growth sake, but given our institutional capital relationships and our ability to identify opportunities even when our stock price is not advantageous, such was the case in Lincoln Road in Miami after the GFC or our participation in the privatization of Albertson Supermarkets or the dozen other transactions that we've participated in.

We are on track to deliver 5% plus same store NOI growth in 2024, and secondly. In addition to projected same store growth. We are also on track to achieve total NOI growth in 2024 inclusive of our redevelopment projects and this is even in factoring and the meaningful rollover that we have been discussing for several years.

Airs on North Michigan Avenue. In addition to the bankruptcy of bed Bath <unk> beyond.

With that in mind, I'm not going to walk through the key drivers that bridge. The 27 cents of <unk> that we reported this quarter to our projected 2024 quarterly run rate.

That we expect to land in the 30 to 34 range, which if you're so inclined to annualize the midpoint mathematically gets you to $1 28 for the year.

Now, let me walk through the pieces.

Starting with our first and most impactful driver of our core portfolio.

Ken Burns: We will come up with ways to see that our shareholders benefit as external growth opportunities arise. And since it doesn't take much volume to move the needle for us, even a few acquisitions whether on balance sheeting conjunction with capital recycling, or utilizing our institutional capital relationships, they can meaningfully add to our external growth as released to fund five investments. We have an asset under agreement which fits our target profile and investment returns and we will round out the balance of fund five with that for future investments of the style we're going to continue to rely on our institutional relationships to add to that platform.

We anticipate that the growth in our core portfolio will add an incremental one to three store quarterly run rate.

With this growth being driven by the $8 $3 million of ABR or nearly $10 million of NOI coming from are signed but not yet open pipeline as adjusted for our current expectations of potential tenant rollover and reserves.

With a potential upside in the 1% to <unk> quarterly range coming from our team continuing to beat our leasing goals.

Secondly, notwithstanding the significant rise in interest rates, we anticipate reducing our 2020 for quarterly interest expense by about a penny or two which we expect to achieve without earnings dilution, primarily through reducing leverage with retained cash flow monetizing non and low EBITDA contributing assets along with <unk>.

Ken Burns: Given our 20-year track record of raising and managing third-party capital for the benefit of both the institutional clients as well as the public shareholders, the key is first and foremost finding the right opportunities. And as time marches on, we suspect those opportunities will show up.

Other balance sheet initiatives.

Third through a combination of fully deploying fund five the continued realization of fund profits and promotes.

Ken Burns: So to conclude, it was another quarter of validation of our thesis, solid top line growth hitting our bottom line. As you will hear from AJ, our leasing activity is robust and as you will hear from John, our multi-year above trend NOI growth plan is intact.

NOI growth at city point, along with G&A initiatives, we anticipate that this increases our quarterly run rate by another penny or two.

Thus when putting together these pieces we are on track to achieve strong year over year earnings growth in 2024, particularly after adjusting for the <unk> of the noncash gain that we recognized in the second quarter of 2023 and keep in mind. This run rate is before layering in any accretion from 2020 for external growth assumptions.

AJ Levine: And with that, I'd like to thank the team for their hard work with this last quarter and I'll turn the call over to AJ Living. Great, thanks Ken.

AJ Levine: Good morning, everyone. So just to introduce myself, I oversee a Katie as leasing and development team which is ultimately responsible for driving organic NOI growth for our $5 billion open-air portfolio, ranging from best-in-class street assets to open-air shopping centers both wholly owned and in our funds. And because of our diverse portfolio, we have a unique perspective of what's happening, excuse me, across asset classes and within retail. And I and my team have direct access to a wide range of retailers from top-line luxury to grocery, F&B specialty retailers all the way to our discounters, from cardiate the Whole Foods, from Lulu Lemon to TJX.

I also wanted to quickly share how we're thinking about city point from a 2024 earnings perspective.

<unk> already talked about all the exciting progress we have made over the past few months at the asset level.

I won't repeat any of those updates.

As a reminder, last quarter, we estimated and are reaffirming net incremental earnings accretion of four to six.

This accretion factors in both the additional NOI growth that we're projecting upon stabilization along with the potential to further increase our ownership.

And as we mentioned last call. If we were to increase our ownership in city point prior to stabilization.

This would likely create short term earnings dilution.

However, based on recent discussions with our partners.

Our expectation is that our ownership will remain unchanged and thus we are projecting that our partners' loans will remain outstanding throughout 2024 and.

AJ Levine: So today what I'll discuss is what we're seeing at the asset level, on our streets, in our shopping centers, and what we're hearing from our retailers. And what we're seeing today is incredibly strong demand for retailers across of the Board. As Ken mentioned, our retailers continue to tell us that because of their performance over the past 18 to 24 months, and because of their focus on the importance of the physical store towards achieving and sustaining profitability, they are seeing past any short-term choppiness and remain focused on long-term growth.

Should any of these assumptions change we will certainly provide you with an update.

Now transitioning to core leasing and occupancy as a J mentioned, we signed several new leases in New York City during the quarter at average spreads exceeding 50%.

And these leases represented over $4 million in annual base rents at our share and just to put this in context.

50% spread on these handful leases created incremental and on budget at the NOI of about $1 $5 million.

AJ Levine: We're also seeing a continuation of the landlord-friendly supply-demand dynamic that started in 2022, and that's, again, driven by strong retailer performance, a flight to quality, healthy tenants in terms of both balance sheets and rent to sales ratios, and record low levels of supply. And that's all translating into consistent rent growth in most of our core markets, and helping us make significant progress towards our goal of increasing core NLI by $30 to $40 million over the next several years.

<unk> over 1% annual <unk> growth as compared to our prior in place rents.

Now moving to occupancy.

During the quarter, we increased our core leased occupancy to 95, 3% at September 30.

Resulting in a 20% sequential increase in our signed but not open pipeline to $8 $3 million of ABR at our share or about 6% of our in place ABR.

And in terms of timing, we anticipate that approximately 15% of the $8 $3 million will commence during the fourth quarter of this year.

AJ Levine: So what does this progress look like? We'll start out with leasing volumes. And just to clarify, my team is completely agnostic to core and fund leasing. Our focus will always be on best execution across platforms, but the numbers I'm about to mention are for our core only at our pro-rata share. So last year, meeting full year 2022, we have one of the most productive leasing years we've ever had on record, certainly over the five years that I've been with Acadia.

With an expectation of about 50% commencing in the first half of 2024 and the remaining 35% in the second half.

And as a reminder, this $8 $3 million relates solely to our core operating portfolio, meaning.

Meaning it excludes any signed but not yet opened leases from core assets that are in redevelopment are those residing on our fund business, including city point.

Which if we were to include our share of these leases it would nearly double our pipeline with an additional $7 million of ABR of executed leases that have not yet commenced over $15 million at our share when aggregated with the $8 $3 million.

AJ Levine: My team signed nearly $9 million of new core leases, representing about six and a half percent of our in-place ABR. Now, fast-forward to 2023, and this year is stacking up to be even stronger. My team has already signed over $8 million of new leases during the first nine months of 2023, and we're expecting to sign another two to three million dollars of deals during the fourth quarter, resulting in a total of 10 to $11 million of ABR of new deals in 2023, or a 20% increase over an exceptional 2022.

AJ Levine: So in the aggregate, that's about $20 million of ABR, or about $25 million of NLI from new leases. So I say this not just to give the team some well-deserved recognition, they certainly deserve it, but really to highlight the meaningful progress that we've already made towards achieving our internal growth goals. In addition to beating our volume goals, we are consistently exceeding our budgeted rents. This is true for our suburban portfolio, as well as on our streets.

Lastly, I wanted to touch on a few items on our balance sheet.

With nearly $900 million of interest rate hedges, coupled with minimal upcoming core maturities our balance sheet is well insulated from the turbulent interest rate and capital market environment.

That's irrespective ester based where base rates may go for the next several years, we anticipate nominal impact if any on our core earnings through 2026 due to financing cost.

Furthermore, our balance sheet goals are on track.

With the actions that we have set out to accomplish of moderately reducing our core leverage and getting metrics back to our target leverage levels well underway.

Our goal within the next six to nine months is to get our core debt to EBITDA in the mid to low sixes and then firmly into the fives within the next 18 months and just to level set the magnitude given our relatively small size coupled with the core EBIT growth in front of us.

AJ Levine: For instance, what we accomplished in New York City in the third quarter is a great example of what we're seeing across our high-growth streets. During the quarter, we signed three new leases in New York City, with two new leases signed in Soho, a cash spread of 45% and 95%. And we also signed a leasing Williamsburg in Brooklyn at a 55% spread. And our payback period for the capital that we had to put into those deals was about a year of rent on average.

The dollar amount of deleveraging that we need to achieve in order to hit our metrics is very manageable at about $100 million.

And as I shared earlier, we remain confident that we should be able to accomplish our balance sheet goals and earnings neutral manner.

So while we may remain cognizant of the macro uncertainties.

Our progress this quarter has strengthened our conviction on achieving our multi year internal NOI growth calls.

AJ Levine: So that's one of the benefits of street versus suburban leasing, those significantly shorter payback periods. Another benefit of street leasing is fair market value resets, which gives us another bite at the apple to mark to market rents. And over the past 12 months, we've benefited from five fair market value resets across our high-growth streets at approximately 25% mark to market. And that was done at no cost to Acadia, and the spreads alone equate to just under a penny of FFO. So for a company of our stock. Operating in a street and urban leasing environment with the growth that we are seeing today, we can meaningfully impact FFO with a relatively small number of lease transactions.

Along with the actions we are taking to ensure that this NOI growth will show up in our bottom line earnings.

And with that we will now open up the call for questions.

Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone.

<unk> reduced remove yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.

Okay.

Our first question comes from Floris Van <unk> with Compass point Your line is open.

Hey, good afternoon I.

Good morning, guys. Thank you for taking my question.

AJ Levine: And that leads me to another important point. My team is constantly looking for opportunities to mine the portfolio and proactively take back space when conditions are right. We are in a moment in time right now where an engaged hands-on team can make a material incremental impact by unlocking these spaces and bringing them to market. So this is not just about leasing up vacancy. For two of the leases we signed this past quarter, we proactively recaptured those spaces before the previous tenants leased expired.

Again, another quarter of solid NOI growth.

And it sounds like most of that NOI growth is going to should translate into earnings growth, which is going to set you apart from some of your peers over the next.

12 months I suspect.

Maybe touch upon.

Some of the the.

The balance sheet initiatives and and also.

You talk about some potential asset recycling on a on a neutral basis would you also be looking to potentially reduce exposure to a market like Chicago in that instance.

AJ Levine: And from constantly speaking with our retailers, we knew about several tenants that wanted those spaces at market rents, which were substantially higher than what we were getting at the time, approximately 45% and 55%. That's the double digit growth that Ken mentioned and that we're seeing across our streets. Again, this is all driven by sales that remain well above 2019 levels and the incredibly low supply we're seeing in our streets. In Soho for instance, most of the prime space has already been spoken for.

Alright so.

Let's do that actually in reverse order John let me.

Start off.

In terms of exposure.

Markets like Chicago would be logical for us on a disciplined basis Flores.

To reduce our exposure, we don't have anything against Chicago, and some of our markets Rush Walton Armitage Avenue as a J mentioned, our leasing very well, but we do need to recognize that in the public markets having.

AJ Levine: Melrose Place and Armanage Avenue are both a hundred percent occupied with a waiting list. And Grenage Avenue is not far behind. On M Street, for those smaller to medium-sized spaces, they are at a premium, leading to spill over onto Wisconsin Avenue where we also own as our specialty apparel and aspirational brands continue to push to secure market or secure space in the market. Again, that's driven by healthy competition where that's driven healthy competition for space both vacant and occupied and multiple offers for us to choose from.

Too much exposure to any one city and some of the headwinds that Chicago faces would make sense to reduce that so.

That would be a market that you should expect us on a disciplined basis at the at the right time to reduce our exposure.

As it relates to the balance sheet and other initiatives John why don't you cover those high floor. So I think as I mentioned in my remarks, I think it's our target is going to be it would be to do this in an earnings neutral fashion. So I think.

AJ Levine: And it's giving us meaningful pricing power and allowing us to hand curate our streets with tenants that will improve the overall market. That's where we really excel. So think Armanage Avenue is a perfect example of that. But to be clear, this is not unique to Soho and Williamsburg. This is not unique to Armanage. This is consistent with what we're seeing on most of our streets. Last quarter, the story was Melrose Place at 30 percent spreads. This quarter, the story is Soho.

Things such as like an Albertsons, where theres no EBITDA coming from that as we monetize that that will be used to delever as well as retain cash flow with the earnings growth in front of us that will be also another source to deleveraging amongst a couple of other things that we have been in the works that's getting us there.

And then if I can.

AJ Levine: Now shifting to our suburban centers. Our suburban portfolio continues to see quality top-line growth and stability. We're seeing a very healthy competition for our junior boxes. Although those deals do tend to come with more relative costs in a longer payback period.

Follow up on on San Francisco, maybe a little bit.

Obviously, you've got still got these two really.

Uh huh.

Neighborhood centers, if you will.

At.

AJ Levine: Some exciting news from the quarter. We delivered our House of Sport to Dick Sporting Goats down in Brandywine in Wilmington. They're expecting to open in late 2024. And that was one of our two former bedbeth and beyond boxes in our core portfolio.

One with a with the whole foods its still not.

Got it.

Its certificate of occupancy maybe if you can give an update on that and also maybe give an update on what's what the status is on the former bed Bath.

Space at 555 night.

AJ Levine: And finally, City Point and Downtown Brooklyn. The momentum that we continue to see in downtown Brooklyn is just incredible. Keep in mind, this is a market that's already added 27,000 new residential units, including 1200 directly above our project. NYU has a tech campus in downtown Brooklyn with 75 hundred students. It's home to the Barclays Center. It's home to Brooklyn Barrow Hall, the Metro Tech Center, with over 25,000 employees directly across from City Point.

Sure. So let me set the table in a J in terms of leasing progress leasing demand City center as we've talked about in the past.

Whole foods is working through their local approvals.

Thank fully with some of the changes.

That had been occurring we have seen an increase in community support for their opening and an increase in support with the city. So whole foods is pleased with how that is progressing and it remains on schedule.

AJ Levine: And in response to this incredible growth and the accelerated maturation in the market, the curation at City Point remains very... Unique. Not only do we have anchor tenants like Target and Trader Joe's, but we also have an Alamo draft house that's one of the top theaters in the country in terms of volume per screen. We have a 60,000 square foot primark that opened last year and continues to drive tremendous traffic to the center.

For an approval process next year.

The leasing around that is relatively small shop space, but that will be a nice incremental boost as well.

555, 9%, a J I'll, let you give some color there but to remind everyone. We had an oversized bed bath and beyond.

AJ Levine: We're averaging over 600,000 visitors a month and traffic has increased 16% year-over-year. We're also home to the largest food hall in Brooklyn with 40 unique vendors that is exceeding its pre-pandemic sales volume on a personal basis and is now 95% least. Fogo de Chao, who we signed earlier in the year, is on schedule to open in December. So they're going to anchor the north side of our print street passage. Court 16 opened this past quarter.

That we recapture below market lease created some earnings noise. This year that I apologize about.

But we are going to split that into since it was two level space two junior anchors one on each level and then shop specs why don't you talk about that a little further Asia, yes, sure. So as Ken said five 5% nice it's a redevelopment as it always has been you know bed Bath was 75000 feet on two levels and the <unk>.

AJ Levine: That's 20,000 square feet of indoor tenants up on the fourth floor. And speaking of openings, the OnePlus Acre Park directly across from our Gold Street retail is on track to open in the first quarter of 2024. So that park will be downtown Brooklyn's backyard and really a connection point for everything that's happening in the neighborhood. And with the parks opening, we're finally able to activate some of our most valuable space on the street that we've been strategically holding back from the market.

<unk> has always been to split that up into three spaces. Two anchors Ken mentioned and then the small shop space, where you can really drive rents.

So even in the best of times I think it takes a while for that to come together, we are off to a great start at the center and that we leased.

The box on the second open air portion of the center to the container store.

AJ Levine: And perhaps the most exciting news for City Point this past quarter is that just last week we signed a new lease with Sephora to anchor our South Entrance. So they'll join the lineup that already includes Blue Lemon and McNally Jackson and Joy Bird. And that's an absolute game-changer for City Point and a major validation of our team's efforts. So now we have both entrances anchored with Fogo de Chao on the north end and Sephora and Primark on the south.

And we are getting good preliminary interest on filling portions of that bed Bath box.

Great.

Maybe if I can.

Yes, sorry, yes. Thank you.

Maybe last question.

On city point looks like it's going to be a massive driver that's not going to be captured in your same store pool.

Okay.

AJ Levine: And we can continue to curate and fill in the remaining spaces with young, relevant, exciting tenants. And we're doing this all while exceeding our budget both top line and on an effective basis and we remain on track to meet and exceed our projections.

What points.

What are the steps required for you too.

That would be part of your same store pool as it increased ownership is it more stabilization because I mean $7 million of ethanol pipeline at city point alone it sounds sounds pretty substantial.

AJ Levine: So stay tuned for more on City Point we should have more exciting news to announce soon. And hopefully that gives you a flavor of what we're seeing within our portfolio and on our streets.

Yes, so here's how we're thinking about it it's really consistent with the way we do our same store we will put so the key driver will be once that hit stabilization will be the year after stabilization to not create what I think would be an inappropriate same store growth in that situation. So I think that would be one is getting the asset to a level of.

John Demoulas: So with that, I will hand things over to John. Thanks, AJ, and good morning. We had another strong quarter. As AJ walked us through, the volume of deals and the rates we are achieving are continuing to exceed our expectations. And notwithstanding the rapid rise in interest rates, we have substantially mitigated our earnings exposure for the next several years through our use of interest rates swaps and managed debt majorities. And this gives us increased confidence to reaffirm our multi-year seams to NOI growth projections. And more importantly, that this top line growth will continue dropping to our bottom line earnings.

Stabilization and secondly, as you pointed out this is still residing within a fund and ultimate ownership is is still being played out. So I think there'll be a secondary factor, but I think it's really getting to the point of stabilization and really what we want to use our same store metric for us that's going to be a level of growth that's going to hit our bottom line and those are the two.

A assets that are going to drive that.

John Demoulas: Now it provides some further color on each of these and starting with our third quarter results. We reported FFO of 27 cents per share. It's worth reminding everyone that as we had anticipated embedded in our third quarter results is the NOI impact from the tenant roll over at North Michigan Avenue and bedbath and beyond that we have been discussing for the last several calls. And with this known roll over, our third quarter core NOI is at its trough, with meaningful growth in front of us as our signed but not yet open pipeline starts to kick in.

Thanks Scott.

One moment for our next question.

Our next question comes from Keybanc, Ken was trust your line is open.

Thank you Ron and good morning.

So the under 32 34 cents of a recurring quarterly.

Run rate how much of that 32.

<unk> transactional income or promote income.

John Demoulas: And in a few moments, I'm going to walk through a preliminary 2024 earnings bridge that highlights our current expectation of, once again, delivering strong, same-store NOI growth as well as year-over-year earnings growth in 2024, and beyond. In terms of our 2023 full-year earnings expectations for the third time this year, we have increased our FFO to $1.26 at the midpoint after adjusting for the five-cent gain that we discussed last quarter. Under the $1.26, this results in year-over-year earnings growth of about 6%.

Yes, so keep it up at all what I want to start with is preliminary.

So we're not giving full detailed guidance, but what I would say is you should expect to see stability from that portion of our business for the next couple of years. So if I again, not giving guidance I would say it would be a similar level to what we have this year.

Okay and going back to your comments about possibly monetizing some of your.

Non contributing assets.

How does that manifest itself ultimately and book values.

John Demoulas: Now moving to same-store NOI, driven by the profitable lease-up within our street portfolio, we reported same-store NOI growth of 5.8% for the quarter, which once again exceeded our internal model. And with growth of 5.9% for the nine months, we remain on track to come in at the upper end of our initial 5-6% full-year 2023 guidance. It's worth highlighting the correlation between our top-line growth, meaning same-store NOI, to our bottom-line earnings growth, both of which we anticipate being about 6% in 2023, and we expect that this trend should continue in 2024 and in the years following.

Reflective of what you think those might be worth or as we get closer to that time point could there be any kind of further impairment charges.

Yeah, So I would say that our book value should be the best best proxy of the accounting rules, what would drive us to impair otherwise so I would think book value would be inappropriate metric.

Okay. Thank you.

One moment for our next question.

Okay.

Our next question comes from Linda Tsai with Jefferies. Your line is open.

Hi.

Percentage of your eight three signed but not occupied our high valued street rents and how does that compare to <unk>.

John Demoulas: Although a bit premature to release our 2024 guidance, I want to spend a few moments highlighting a few preliminary observations on our core portfolio, which comprise the vast majority of our NAV in earnings. First, we on track to deliver 5% plus, same-store NOI growth in 2024, and secondly, in addition to projected same-store growth, we are also on track to achieve total NOI growth in 2024, inclusive of our redevelopment projects. And this is even in factoring in the meeting for well-over that we have been discussing for several years on North Michigan Avenue in addition to the bankruptcy of Bed Bath and Beyond.

So Linda I think just given the leases that that AJ walked us through I would say disproportionately amount both in the compared to prior quarters as well as the $8 three I'd have to do the math, but am I had it in the 75% plus range I would I would estimate which is a higher higher percentage.

And then in terms of monetizing the lower growth assets next year, just wondering if those sales you expect them to be chunky in terms of first half versus second half.

John Demoulas: With that in mind, I'm now going to walk through the key drivers that bridge the 27 cents of FFO that we reported in this quarter to our projected 2024 quarterly run rate that we expect to land in the 30 to 34 cent range, which if you are so inclined to analyze a midpoint, mathematically gets you to $1.28 for the year. Now let me walk through the pieces. Starting with our first and most impactful driver, our core portfolio.

You'll stay tuned Linda I think we'll give more color on that but I think what I would I would say from a run rate.

And just picking the midpoint the 32 I think between those range of those three drivers is the way to <unk>.

The way to think about it.

Thanks, and just one last one for AJ AJ. Thank you've spoken in the past about the high demand of luxury retailers as they move outside of department stores to better control their brands.

John Demoulas: We anticipate that the growth in our core portfolio will add an incremental 1-3 cents to our quarterly run rate. With this growth being driven by the $8.3 million of ABR, or nearly $10 million of NOI, coming from our side, but not in an open pipeline, as adjusted for our current expectations of potential tenant rollover and reserves. With a potential upside in the 1-3 cent quarterly range, coming from our team continuing to beat our leasing goals.

Discussions with those retailers look like today as sales there are some reports that they're slowing down a bit.

Yes. So those discussions continue we continue to see those luxury brands and some of the aspirational brands pivot away from wholesale and department stores and really establish their own brick and mortar presence, where they can control the narrative, where they can interface with the customer.

Directly.

John Demoulas: Secondly, notwithstanding the significant rise in interest rates, we anticipate reducing our 2024 quarterly interest expense by about a penny or two, which we expect to achieve without earning solution, primarily through reducing leverage with retained cash flow, monetizing non and low EBITDA contributing assets along with other balance sheet initiatives. Third, through a combination of fully deploying fund five, the continued realization of fund profits and promotes, NOI growth at city point, along with GNA initiatives, we anticipate that this increases our quarterly run rate by another penny or two.

As I said.

Because of their performance over the last two years, frankly, and because they've acknowledged the critical nature of that physical store most of them continue to see past that short term choppiness, Linda and are still focusing on long term growth so no slowdown in that sense.

Thank you.

One moment for our next question.

Okay.

Our next question comes from Craig Mailman with Citi. Your line is open.

Hey, good morning.

Kevin maybe I wanted to go back to your earlier.

John Demoulas: Thus, when putting together these pieces, we are on track to achieve strong, year-over-year earnings growth in 2024, particularly after adjusting for the 8 cents of the non-cash game that we recognize in the second quarter, of 2023. And keep in mind, this run rate is before layering in any accretion from 2024 external growth assumptions.

Comment on where.

Kind of a mark to market is.

Some of your street assets, given the rising rates, particularly in New York and as we think about that versus you know where interest rates are going and what that could do.

Kind of stabilized cap rates here I am just kind of curious your thoughts as you kind of look at your blended implied cap rate here in the sevens.

John Demoulas: I also wanted to quickly share how we are thinking about the city point from a 2024 earnings perspective. AJ is already talked about all the exciting progress we have made over the past few months at the asset level, so I won't repeat any of those updates. As a reminder, last quarter, we estimated and are reaffirming net incremental earnings accretion of four to six cents. This accretion factors in both the additional and a eyebrow that we are projecting upon stabilization, along with the potential to further increase our ownership.

Half of your portfolio is the street.

Street assets.

Kind of.

How you connect the dots on that valuation versus what youre seeing from a mark to market and Capex perspective.

Other.

Portfolios in the market or kind of private market comps.

John Demoulas: And as we mentioned last call, if we were to increase our ownership in city point prior to stabilization, this would likely create short term earnings dilution. However, based on recent discussions with our partners, our expectation is that our ownership will remain unchanged, and thus we are projecting that our partners loans will remain outstanding throughout 2024. And should any of these assumptions change, we will certainly provide you with an update.

Yes, Ed.

There are certainly as you just pointed out.

Host factors to try to digest at this moment in time.

Let me do my best first of all the growth which was what.

Was discussing in that piece of it.

In a period, where interest rates are high where the market is confused where macro events seem to.

John Demoulas: Now transitioning to core leasing and occupancy. As AJ mentioned, we signed several new leases in New York City during the quarter at average spreads exceeding 50%. And these leases represented over $4 million in annual base rents at our share. Just to put this in context, a 50% spread on these handful leases created incremental and unbudgeted and a wide of about $1.5 million, resulting in over 1% annual FFO growth as compared to our prior in place rents.

Take control versus micro events might grow. It is it is hard to say here what is the value of an asset that's growing at 5% a year.

Versus assets that might be more stable growing at one or two.

And I think there is a confusion right now so I'm not going to tell you well. This is the cap rate you should ascribe to that but over any extended period of time. If you see more growth. We all know that the markets will reward that second point Capex, we've been talking about this for a while and.

John Demoulas: Now moving to occupancy. During the quarter, we increased our core leased occupancy to 95.3% at September 30th, resulting in a 20% sequential increase in our signed but not did open pipeline to $8.3 million of ABR at our share or about 6% of our in place ABR. And in terms of timing, we anticipate that approximately 15% of the $8.3 million will commence during the fourth quarter of this year with an expectation of about 50% commencing in the first half of 2024 as the remaining 35% in the second half.

John Demoulas: And as a reminder, this $8.3 million relates solely to our core operating portfolio, meaning it excludes any sign but not yet open leases from core assets that are in redevelopment, or those residing on our fund business, including city point, which if we were to include our share of these leases, it would nearly double our pipeline with an additional $7 million of ABR of executed leases that have not yet commenced or over $15 million at our share when aggregated with the $8.3 million.

There is a meaningful distinction or at least there was a meaningful distinction between the capex expenditure.

Relative to rent in our suburban portfolio versus in our streets.

As a ratio of rent higher rep to capex, it's much healthier in the streets that used to be the case now thats. The case times, two or three because not only have capex has gone up due to inflation, but the interest cost to carry that capex has.

Gone up as well and thus that distinction is also one that we are as an industry. The only beginning to digest third and final point.

Your guesstimate of what inflation looks like over the next 510 years is as good as mine probably better.

John Demoulas: Lastly, I want to touch on a few items on our balance sheet. With nearly $900 million of interest rate hedges coupled with minimal upcoming core maturities, our balance sheet is well insulated from the turbulent interest rate and capital market environment. That's irrespective as to where base rates may go for the next several years, we anticipate nominal impact if any on our core earnings through 2026 due to financing costs. Furthermore, our balance sheet goals are on track.

We're going to operate under the assumption that it's going to be more important going forward.

To capture NOI growth.

Sooner rather than later and the distinction I make between our suburban centers in our street retail and AJ certainly touched on this as well.

In the streets, we have higher contractual growth I think that's going to become more important.

John Demoulas: With the actions that we have set out to accomplish of moderately reducing our core leverage and getting metrics back to our target levels well underway. Our goal within the next six to nine months is to get our core debt to EBITDA in the mid to low sixes and then firmly into the fives within the next 18 months, and just to level set the magnitude given our relatively small size coupled with the core even the growth in front of us the dollar amount of deleverging that we need to achieve in order to hit our metrics is very manageable at about a hundred million dollars. And as I shared earlier, we remain confident that we should be able to accomplish our balance sheet goals in an earnings neutral manner.

In the streets, we have fair market value resets I think that's going to become more important.

And in the streets, we have less capex. So that's a long winded way of saying, who the heck knows where values are the markets are certainly debating it.

But we think that.

Over the next year or two the market will settle down.

And they will recognize the importance of growth.

And less Capex, especially.

If we go through an era of higher growth, which should be good for our reps good for our tenants.

John Demoulas: So while we remain cognizant of the macro uncertainties, our progress this quarter has strengthened our conviction on achieving our multi-year internal NLI growth goals. Along with the actions we are taking to ensure that this NLI growth will show up in our bottom line earnings.

And we should be able to deliver on that piece for that segment of our portfolio.

It's a long winded way Craig of trying to touch on all those pieces in a very confusing time period.

Unknown Attendee: And with that, we will now open up the call for questions. Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1-1 on your telephone. If your question has been answered or you wish to move yourself from the queue, please press star 1-1 again.

I very much appreciate the thoughts I guess.

This leads to the question because you guys were able to pick off some street assets coming on what's the answer Chris noted right, but maybe even in distress with some of the mark to market pricing on a going it may not look as good as people think but.

Unknown Attendee: We'll pause for a moment while we compile our Q&A roster.

I guess, how do you guys.

Floris Dijkum: Our first question comes from Flores Van Dish. Come with Compass Point. Your line is open. Hey, good afternoon. Good. I guess still morning, guys. Thank you for taking my question. So again, another quarter of solid NLI growth. And it sounds like most of that NLI growth is going to translate into earnings growth, which is going to sit you apart from some of your peers over the next 12 months, I suspect. Maybe put you upon some of the balance sheet initiatives.

Prepare the street or potentially.

Communicate that from a long term kind of growth either earnings or any of the accretion if maybe youre using some proceeds from potentially some higher cap rate asset sales just to.

Kind of circle in the square.

The long term.

Beauty versus maybe even short term dilution and kind of how do you rank.

The importance of that.

In your decision making.

Yes, So let me be clear I don't want to spook anyone to think that what I'm about to say in any way means brace yourself for short term dilution because I think we can avoid that.

But when rents are moving.

Floris Dijkum: And also you talk about some potential asset recycling on a neutral basis. Would you also be looking to potentially reduce exposure to a market like Chicago in that instance? All right. So let's do that actually in reverse order, John. Let me start off in terms of exposure. Market like Chicago would be logical for us on a disciplined basis, Flores, to reduce our exposure. We don't have anything against Chicago and some of our markets, Rush Walton, Armageddon, and you, as AJ mentioned, are leasing very well.

As quickly as we've seen in some of these carter's.

Especially at a time, where.

Institutional capital seems to be ignoring that.

The opportunity just think about the 45% spread we saw over 24 months on Prince and Broadway the opportunity to acquire assets.

At 2021 reps when AJ has conviction about what he can deliver for 2020 for rents.

Does that arbitrage is pretty compelling, especially given.

That as opposed to.

A decade ago, there's just less competition there.

Floris Dijkum: But we do need to recognize that in the public markets having too much exposure to any one city and some of the headwinds that Chicago faces would make sense to reduce that. So that would be a market that you should expect us on a disciplined basis at the right time to reduce our exposure. As it relates to the balance sheet and other initiatives, John, why don't you cover those? Yeah, I promise.

And considering again, our expertise or access to a variety of capital sources I am hopeful.

That this quiet period in terms of acquisitions.

And and that we can find value add opportunities, where we can turn that tenancy around but again to be clear. We are not viewing this as the right time to add dilutive transactions and we would look forward to that accretion.

Floris Dijkum: I think as I mentioned in my remarks, our target is going to be to do this in an earnings digital fashion. So think of things such as like in Albertsons, where there's no EBITDA coming from that, as we monetize that, that will be used to deliver as well as retain cash loan with the earnings growth in front of us. That will be also another source to the leverage along with a couple other things that we have in the works that's getting us there.

Even if we have to wait 24 36 months too.

Go from 2021 leases to 2024.

And then just one last one as we look in 'twenty four 'twenty five.

How many fair market value adjustment opportunities that you have.

Floris Dijkum: And then if I can have a follow up on San Francisco maybe a little bit, obviously you've still got these two really, you know, at Neighborhood Centers, if you will, at one with the whole foods that still not got its certificate of occupancy, maybe if you can give an update on that and also maybe give an update on what the status is on the former bedbath space at 5-5-5-9. Sure, so let me set the table in the A.J, in terms of leasing progress, leasing demand, city center as we talked about in the past, whole foods is working through, their local approvals, thankfully with some of the changes that have been occurring, we have seen an increase in community support for their opening and an increase in support with the city.

John.

Yes, so Craig I would say the vast vast majority of our streets have that have that provision. So I think we do have.

Several of those coming up.

So I think that that's that's that's an opportunity for those.

But.

I would say over the next couple of years constantly having having role and we're going to see that see that opportunity in a J sort of mentioned.

We're working through some of that as we speak so stay tuned let me point out, but I don't want to continue this conversation too much just so everyone understands how fair market value resets.

Resets work.

The tenant has the option to renew at the greater of a contractual bump.

Which looks like most of our standard leases the greater of that and fair market value. So.

So the good news is it's not as though this appraises rents downward. However, we werent talking about fair market value resets for 2017 until 2022 for all of the obvious reasons is that tenants werent exercising we were using.

Floris Dijkum: So whole foods is pleased with how that is progressing and it remains on schedule for an approval process next year. The leasing around that is relatively small shop space, but that will be a nice incremental boost as well. 5-5-5-9-8. I'll let you give some color there, but to remind everyone we had an oversized bedbath and beyond that we recaptured the low market lease, created some earnings noise this year that I apologize about, but we are going to split that into since it was two level space, two junior anchors, one on each level, and then shop space.

That opportunity to cleanse the streets like M Street in Georgetown, but now we are at that period, where tenants are exercising those options and the good news is in conversations with our retailers.

Their sales are strong enough that they're more than happy.

To exercise those options and continuing to see their business growth.

Let's move onto the next question.

One moment.

Yes.

Okay.

Okay.

Our next question comes from Todd Thomas with Keybanc capital markets. Your line is open.

Floris Dijkum: So why don't you talk about that a little further, A.J.? Yeah, sure. So as Ken said, 5-5-5-9, it's a redevelopment. It always has been. Bedbath was in 75,000 feet on two levels, and the plan has always been to split that up into three spaces, right? Two anchors Ken mentioned and then the small shop space where you can really drive rents. So, you know, even in the best of times, I think it takes a while for that to come together.

Hi, Thanks.

Good morning.

Hey, John I appreciate the detail around 2024.

No question, though as we as we think about that 30 to 34.

The quarterly run rate that you mentioned the cadence of that throughout the year relative to the 27%. This quarter should should we expect the early part of the year to be below that 30 to 34 range and then the latter part of 'twenty for at or above the higher end of the range is more SNL ranked commences.

Floris Dijkum: We are off to a great start at the center in that we leased, you know, the box on the second open air portion of the center to the container store, and we are getting good preliminary interest on filling, you know, portions of that bedbath box. Great. Yeah, sorry. Yeah, thank you. Maybe last question. Thoughts on a city point looks like it's going to be a massive driver that's not going to be captured in your same store pool.

Or are your comments meant to suggest that.

You should be in that range throughout the entire year.

Yeah, So Todd I guess, a couple of thoughts one I'll start with we are not formally given guidance that we are certainly not formally given quarterly guidance.

Floris Dijkum: At what point, what are the steps required for you to have that be part of your same store pool? Is it increased ownership? Is it more stabilization? Because I mean, 7 million of SNL pipeline at city point alone sounds pretty substantial. Yeah, so here's how we're thinking about it. It's really consistent with the way we do our same store. We will put, so the key drive will be once that hits stabilization, it'll be the year after stabilization to not create what I think would be an inappropriate same store growth in that situation.

But what I would what I would say and I think right now all else being equal to $1 28 for the year is the one that measuring a bunch of different variables. We think we land at an and I would say that it is probably a fair assumption as the signed but not opened pool does not all start on January one and they are core is the biggest driver there will.

B growth throughout the year on those leases that are already already executed, but I think again without wanting to formally do it I think picking the midpoint for an annualized number is as good of an estimate as we have right now.

Okay and then.

I'm not sure if I missed this in those comments as well, but so the <unk> implied guidance for this year, it's about two.

Floris Dijkum: So I think that would be one is getting the asset to a level of stabilization, and secondly, as you pointed out, this is still residing within a fund and ultimate ownership is, is.., is still being played out. So I think that would be a secondary factor, but I think it's really getting to the point of stabilization. And really what we want to use our same storm metric for is that's going to be a level of growth.

2009, I believe at the midpoint are there additional ACI stock sales embedded in the revised guidance for <unk> and then can you just.

Clarify your comments around the net promote income.

In 2020 for weather.

At 1% to <unk>.

Floris Dijkum: That's going to hit our bottom line. And those are the types of assets that are going to drive that. Thank you. So on the 30 to 34 cents of a recurring quarterly FFR run rate, how much of that 32 cents is transactional income or promote income? Yeah, so keeping what I will just start with is preliminary. So we're not giving full detailed guidance, but what I would say is you should expect to see stability from that portion of our business for the next couple of years.

Is what youre anticipating each quarter or if that's incremental to what you achieved in 2004.

Yes, so I'll start with that one first the 1% to <unk> is incremental off the after after 27.

And again I would just look to 30.

$30 million range from our fund business, Todd and we think that that stays stable with its combination of fees promotes et cetera.

We think that that remains that remains very very stable in terms of promote again, that's tied to a number of factors, including our taxable income, but we will be within our initial guidance range that we put out for promote at the beginning of the year.

Okay, Alright thats helpful. Thank you.

Floris Dijkum: So if I again, not giving guidance, I would say it would be a similar level to what we have this year. Okay. And going back to your comments about possibly monetizing some of your non contributing assets. You know, how does that manifest itself ultimately and are the book values reflective of what you think those assets might be worth or as we get closer to that time point, could there be further impairment charges?

One of them before the next question.

Okay.

Our next question comes from Jeffrey Spector with Bofa Securities. Your line is open.

Hi, good morning, this might be too again on for Jeff.

And just within the expectation for at least five 5% same store NOI growth in 'twenty four should we assume a consistent level of contractual rent.

Floris Dijkum: Yeah, so I would say that our book value should be the best best proxy as accounting rules would would drive us to a pair otherwise. So I would think book value would be an appropriate metric. Okay, thank you. One moment for next question.

3% on free at.

Possibly lower on suburban and if you can't be exact number maybe if you could just speak.

Speak to expectations around.

How that should change based on the demand environment.

Herman.

Yeah, So Lucy I would say that they're the assumption in the 3% on the street is absolutely still still the norm. We do have some leases that <unk> was able to get 4%, but I think it's fair to.

Linda Tsai: Our next question comes from Linda side, which I freezer line is open. Hi, what percentage of your 8.3 sign but not occupied are high value street rents, and how does that compare to two cues, SNO? Yeah, so Linda, I think just given the the leases that that AJ walked us through, I would say disproportionately amount both in the compared to prior quarters as well as the 8.3.

Use the 3% in suburban the typical is 10% every five years, so it averages to slightly below below the 2% range, but I would.

I would say that our contractual growth as is consistent we've done in the past.

Okay, great. Thanks, and I just wanted to go back to Ken.

Linda Tsai: I'd have to do the bath, but in my head, it's in a 75% plus range. I would I would estimate which is a higher higher percentage.

Beginning comment around Capex and leasing cost.

And keeping that under control.

For you now.

Linda Tsai: And then in terms of monetizing the lower growth assets next year, just wondering if those sales, you expect them to be chunky in terms of first half versus second half? You'll stay tuned, Linda. I think we'll get more, more color on that, but I think what I would, I would say from a run rate. Just picking the midpoint, the 32 cents, I think between those range of those three drivers is the way to, to way to think about it.

Maintaining net effective rent growth.

Just wondering if you could expand on that further and maybe give us a better idea.

What the associated costs are for the $8 million in ADR from now.

Linda Tsai: Thanks.

And give us maybe a better idea.

A real time update.

<unk> had those costs.

Should be recognized.

<unk> come online.

Linda Tsai: And just one last one for AJ. AJ, I think you've spoken in the past about the high demand of luxury retailers as they move outside of department stores to better control their brands. What do discussions with those retailers look like today as, you know, sales, there's some reports that they're slowing down a bit? Yeah, so those discussions continue. We continue to see, you know, those luxury brands and some of the aspirational brands pivot away from wholesale and department stores and really, you know, establish their own brick and mortar presence where they can control the narrative, where they can interface with the customer directly.

Yeah. So why don't I'll take the piece of it then I'll have Ken talk to the trends <unk>. So I'd say again, given the good chunk of that $8 $3 million signed not open is from the street and as Jay mentioned, our payback is a year or less that's probably the way.

Linda Tsai: You know, as I said, because of their performance over the last two years, frankly, and because, you know, they've acknowledged the critical nature of that physical store, you know, most have then continued to see past that short-term choppiness, Linda, and are still focusing on long-term growth. So no slowdown in that sense.

Unknown Attendee: Thank you.

Unknown Attendee: One moment for our next question.

To think about that in terms of I think your question was when do we recognize those we will pay them once certain cost different periods of time, but generally win.

The tenant when they take take occupancy is when whether it's leasing commissions.

We will pay those and then some of the upfront whether theres any build out costs and we do we pay those in advance of them, but I would say for the most part the good portion of those of that $8 three street.

And we the upfront costs are less than a year round. So that's the way you can you can do the math.

Suburbia AJ do you want talk to that in terms of the cost youre seeing on suburban its going to depend on whether it's in line space versus anchor, but just wanted to give a quick update on the trends on on the cost that youre seeing on the suburban side, yes, I mean, the costs to put in a junior box has been elevated.

Craig Mailman: Our next question comes from Craig Mailman. What city your line is open? Thank you, Morgan.

Really for the last 24 months.

I think I'd say, a typical junior box at this point is costing anywhere between 65% and $80 a foot to put in and depending on where the rent is that can be five to six years of payback.

Craig Mailman: Karen, maybe I want to go back to your earlier comment on where kind of the mark to mark it is on some of your street assets given their rise and rise, particularly in New York. And as we think about that versus, you know, where interest rates are going and what that could do, to kind of stabilize cap rate here. I'm just kind of curious your thoughts as you kind of look at your blended, you know, apply cap rate here in the sevens and, you know, half your portfolio is the street street assets.

So it certainly is very.

Very pronounced sort of a shorter payback periods that we're seeing.

On the streets, just given where the rents are.

Let me end with some.

Positive news in terms of all of this we are beginning to see some disinflation in terms of the actual cost to put in tenants in suburbia.

Craig Mailman: Kind of how you connected dots on that valuation versus what you're seeing from a mark to marketing and cap X in its perspective, you know, versus, you know, other portfolios in the market or or kind of private market comps. Yeah, and there are certainly as you just pointed out a host of factors to try to digest at this moment in time, let me do my best. First of all, the growth, which was what I was discussing and that piece of it, in a period where interest rates are high, where the market is confused, where macro events seem to take control versus micro events like growth, it is hard to say here, what is the value of an asset that's growing at 5% a year versus assets that might be more stable growing at one or two?

And while the cost to finance those build outs has gone up with interest rates. When you look at the value per square foot the price per foot or replacement cost.

Our retailers are recognizing staying or opening in these locations is critically important so we're able to drive rents and I think that the suburban component while expensive, we will still be a profitable part of our business.

Great. Thank you.

One moment for our next question.

Our next question comes from Paulina Rojas Schmidt with Green Street. Your line is open.

Good morning.

My apologies, if I missed it but from a.

Big picture.

When we're thinking about next.

Next year.

And.

Craig Mailman: And I think there is that confusion right now. So I'm not going to tell you, well, this is the cap rate you should have described to that. But over any extended period of time, if you see more growth, we all know that the markets will reward that.

What's your base case scenario.

I'd like to have a very big Detroit, because some of your peers have been.

And.

Sharing the day, you are thinking about approaching it.

Ken Burns: Second point, cap X. We've been talking about this for a while and there is a meaningful distinction or at least there was a meaningful distinction between the cap X expenditure relative to rent in our suburban portfolio versus in our streets. It's as a ratio of rent, higher rent, to cap X, it's much healthier in the streets. That used to be the case. Now that's the case times two or three because not only have cap X gone up due to inflation, but the interest cost to carry that cap X has gone up as well. And thus, that distinction is also one that we are as an industry only beginning to digest.

Rich year from failure.

And I'm wondering given the scenario with certainty.

We're facing as you think that's reasonable.

Okay.

I'm following your question on the credit side or the retaining whether they on renewals.

Yeah.

The mix I would say so it could be and non renewing or any type of thought back in.

So.

Yes, so I think that was within my one to three for our core.

We have we have the luxury given our size that we could go space by space and a J and I talked we sitting right next to each other and we have a form of point of view as to which whether tenant is going to that's going to stick around so we have that luxury giving our portfolio and being able to go space by space and he is talking to all of our tenants along with his team every day so.

We have that in what I would say is.

Ken Burns: Third and final William. Your guesstimate of what inflation looks like over the next 5-10 years is as good as mine, probably better. We're going to operate under the assumption that it's going to be more important going forward. To capture NOI growth sooner rather than later, and the distinction I make between our suburban centers and our street retail and HA certainly touched on this as well. In the streets we have higher contractual growth.

We have not seen any.

Meaningful change of tenants that are maybe potentially not going to stay and if anything I would say, it's more biased towards tenants wanting to stay in their space. If I had to look at that in terms of on the credit side.

Another thing I watch very closely is on reserves do we see slowdown in payments do we see.

The leasing or or at least admin teams getting questions or calls around wanting to work through payment plans, we have not seen that tick up.

Not to say, it's not coming.

Ken Burns: I think that's going to become more important. In the streets we have fair market value reset. I think that's going to become more important. And in the streets we have less catbacks. So that's a long-winded way of saying who the heck knows where values are. The markets are certainly debating it. But we think that over the next year or two, the markets will settle down and they will recognize the importance of growth and less catbacks, especially if we go through an era of higher growth, which should be good for our rents, good for our tenants, and we should be able to deliver on that piece for that segment of our portfolio. So that's a long-winded way, Craig, of trying to touch on all those pieces in a very confusing time period. I very much appreciate the thoughts.

We're not oblivious to what's happening, but we have not yet.

They pick up as some of the capital markets would suggest we potentially shut up but we have not seen that so.

Our reserves are appropriate in that 30% to 30 for that number and we're conservative in those but have not seen a fall off and let me add a little color above and beyond our portfolio.

Given the rise in interest rates.

The likelihood is that tenant retention and our tenant failure rate could be is likely to come from tenants balance sheet as.

As opposed to their business and since we see tenants business models, meaning their sales more often than we get to examine especially the private companies their balance sheet that is something we will watch if I were to guess where this stress could occur it would be for our local retailers.

Who.

Scott.

A lot of help during COVID-19. So we did not see the failure rate than the local segment, especially in our suburban portfolio adjacent to supermarket anchors etcetera, those rents have grown nicely and so that's a segment we'll watch so far as John said, we haven't seen any slowdown, but common sense tells.

Ken Burns: And I guess this leads to the question, because you guys were able to pick off some street assets coming on with the antichrist, noted, but maybe even in distress with some of the market pricing on a going in may not look as good as people would think. But I guess how do you guys prepare the street or potentially communicate that from a long-term growth either earnings or NAV accretion if maybe you're using some proceeds from potentially some higher capital asset sales just to kind of circle the square on the long-term attributes versus maybe the short-term delusion and kind of how do you kind of view the importance of that in your decision making.

That they may be more interest rate sensitive in terms of their business. So that's something we'll watch.

And then in general as John said it feels like next year may be more boring than volatile on that side, but we'll see.

Okay.

Thank you and then the second question regarding <unk>.

New opening.

Yes.

Are you seeing trends from a category perspective.

So you say why do you take that in terms of what trends are we seeing in terms of new tenants and where demand is coming from.

Ken Burns: Yeah, so let me be clear. I don't want to spook anyone to think that what I'm about to say in any way means brace yourself for short-term delusion because I think we can avoid that. But when rents are moving as quickly as we've seen in some of these corridors, especially at a time where institutional capital seems to be ignoring that. The opportunity, just think about the 45% spread we saw over 24 months on Prince and Broadway, the opportunity to acquire assets at 2021 rents when H.A, has conviction about what he can deliver for 2024 rents, that arbitrage is pretty compelling, especially given that as opposed to a decade ago, there's just less competition there, and considering, again, our expertise are access to a variety of capital sources.

Yes look.

Obviously, the earlier days of Covid. The recovery was first led by the essential retailers, but then quickly behind that we saw this huge influx of luxury into most of our.

High growth markets.

And then of course, the aspirational and what we call our bench contemporary brand sort of clustering around them and I think for most of our high growth streets. That's what we continue to see we're seeing continue entry of luxury tenants, we're continuing to see continuation of the clustering of.

Those tenants that want to be near luxury.

On the.

Suburban side.

A lot of the new store openings with the growth that we're seeing is being led by our discounters right. So T. J F is the wrong burlington's of the world.

They have been leading the way in terms of net new store growth as well as of course, the dollar stores and those.

It was sort of high volume openers.

Ken Burns: I am hopeful that this quiet period in terms of acquisitions ends and that we can find value add opportunities where we can turn that tendency around, but again to be clear, we are not viewing this as the right time to add diluted transactions and we would look forward to that accretion even if we have to wait 24, 36 months to go from 2000 and 21 leases to 2024.

And let me just remind everyone, especially generalist who haven't thought about this some of the trends some of the reason youre seeing this pent up demand.

A few years ago there was this notion.

That online sales were going to be the best channel for growth and now we understand in an omnichannel world the stores that are most profitable.

Still seeing that pivot whether it's luxury.

Whether it's a.

Advanced contemporary and whether its discount.

And then secondly, you are seeing retailers.

John Demoulas: One last one, as we looked in 24 and maybe 25, how many fair market value adjustment opportunities that I have? John? Craig, I would say the vast, vast majority of our streets have that provision, so I think we do have several of those coming up. So I think that's an opportunity for those. But I would say over the next couple of years, constantly having role and we are going to see that opportunity and AJ sort of mentioned, we are working through some of that as we speak, so stay tuned.

Recognizing that now is still a good time to sign leases, even with all of this uncertainty. So it wouldn't surprise me that we will continue to see an economic slowdown economic uncertainty consumer spending will be choppy. Some tenant results will be choppy and I still think you'll see good leasing results.

Okay.

Thank you.

Sure.

I'm not showing any further questions at this time I'd like to turn the call back to Ken for any closing remarks.

Great. Thank you all for your time, we look forward to speaking with you next quarter happy Halloween.

John Demoulas: Let me point out, but I don't want to continue this conversation too much, just so everyone understands how fair market value resets work. The tenant has the option to new at the greater of a contractual bump, which looks like most of our standard leases, the greater of that and fair market value. So the good news is it's not as though this appraises rent downward. However, we weren't talking about fair market value resets from 2017 till 2022 for all of the obvious reasons is that tenants weren't exercising.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Okay.

Okay.

Oh no.

Thank you. Thank you.

Okay.

[music].

Okay.

Good.

Okay.

[music].

Yes.

John Demoulas: We were using that opportunity to cleanse streets like M Street in Georgetown. But now we are at that period where tenants are exercising those options and the good news is in conversations with our retailers. Their sales are strong enough that they're more than happy to exercise those options and continuing to see their business growth.

Unknown Attendee: So let's move on to the next question. One moment.

Todd Thompson: Our next question comes from Todd Thompson, the key bank capital markets, your line is open. Hi, thanks. Good morning. Hey, John, I appreciate the detail around 2024.

John Demoulas: You know, question though, as we think about that 30 to 34 cents, the quarterly run rate that you mentioned and the cadence of that throughout the year relative to 27 cents is quarter should we expect the early part of the year to be below that 30 to 34 cent range and then the latter part of 24 at or above the higher end of the range is more. Or are your comments meant to suggest that you think you should be in that range throughout the entire year?

John Demoulas: Yeah, so Todd, I guess a couple of thoughts. One, I'll start with, you know, we are not formally giving guidance, so we're certainly not formally giving quarterly guidance. But, you know, what I would say, and I think right now, all else being equal, the dollar 28 for the year, is the one that, you know, measuring a bunch of different variables, we think we land at it. And I would say that it is probably a fair assumption, as the sign, but not open pool, does not all start on January 1st, and the, our core is the biggest driver.

John Demoulas: There will be growth throughout the year on those leases that are already executed. But I think, again, without wanting to formally do it, I think picking the midpoint for an annualized number is good of an estimate as we have right now.

John Demoulas: Okay, and then, you know, I'm not sure if I miss this in those comments as well, but so the 4Q implied guidance for this year, it's about 29 cents, I believe, at the midpoint. Are there additional ACI stock sales embedded in the revised guidance for 4Q? And then, can you just, you know, clarify your comments around then that promote income in 2024, whether, you know, that one to two cents is what you're anticipating each quarter, or if that's incremental to what you achieved in 24?

John Demoulas: Yeah, so I'll start with that one first. The one to two cents is incremental off the, off the 27. And again, I would just look to, you know, when they $30 million range from our fund business, Todd, and we think that that stays stable, whether it's combination fees, promotes, etc. We think that remains, that remains very, very stable. In terms of promote, again, that's tied to, you know, including taxable income, but we will be within our initial guidance range that we put out for promote at the beginning of the year.

Unknown Attendee: Okay, all right, that's helpful. Thank you.

Unknown Attendee: One more for our next question.

Libby Dwaykin: Our next question comes from Jeff Respector with B of A Securities. Your line is open. Hi, good morning.

Libby Dwaykin: This is Libby Dwaykin on for Jeff. It's just within the expectation for at least five percent same-store NOI growth in 24, should we assume a consistent level of contractual rent sum of, you know, 3 percent on three possibly lower on suburban? And if you can't speak to, you know, exact numbers, maybe if you could just speak to expectations around how that should change based on the demand environment? Yeah, so Lizzy, I would say that the assumption that 3 percent on the street is absolutely still.

Libby Dwaykin: Still the norm, we do have some leases that A2 is able to get 4 percent, but I think it's fair to use the 3 percent in suburban. The typical is 10 percent every five years, so it averages just slightly below the 2 percent range, but I would, you know, I would say that our contractual growth is consistent with that in the past.

John Demoulas: Okay, great, thanks. And I just wanted to go back to Ken's beginning comment around catbacks and leasing costs and keeping that under control for, you know, maintaining net effective rent growth. Just wondering if you could expand on that further and maybe give us a better idea of what the associated costs are for the 8 million in ABR from Snow and give us maybe a better idea of a real time update on how those costs should be recognized when the rent comes online, too.

John Demoulas: Yeah, so why don't I'll take the piece of it and I'll have Ken talk to the trends. Lizzy, so I'd say, again, given the good chunk of that $8.3 million sign that open is from the street and as AJ mentioned, our payback is a year or less. That's probably the way to think about that in terms of, I think your question was when do we recognize those? We will pay them once, you know, certain costs different periods of time, but generally when around the tenant, when they take occupancy is when, whether it's a lease in commissions, we'll pay those and then some of the upfront whether there's any buildout costs that we do, we pay those in advance of them, but I would say for the most part, the good portion of those of that $8.3 is street and we, the upfront cost are less than a year around, so that's the way you could do the math.

John Demoulas: And on suburbia, AJ, do you want to talk to that in terms of the cost you're seeing on, on suburbia, it's good to depend on whether it's in line space versus, anchor, but just want to give a quick update on the trends on the cost that you're seeing on the suburbia. Yeah, so the costs to put in a junior box have been elevated, you know, really for the last 24 months, so I'd say a typical junior box at this point is costing anywhere between $65 and $80 a foot to put in, and depending on where the rent is, that can be five to six years of payback. So it's certainly is, you know, very pronounced sort of the shorter payback periods that we're seeing on the streets just given where the rents are.

Ken Burns: Let me end with some positive news in terms of all this. We are beginning to see some disinflation in terms of the actual costs to put in tenants in suburbia. And while the cost to finance those buildouts has gone up with interest rates, when you look at the value per square foot, the price per foot or replacement cost, our retailers are recognizing staying or opening in these locations is critically important. So we're able to drive rents and I think that the suburban component while expensive will still be a profitable part of our business.

Unknown Attendee: Great. Thank you.

Paulina Rojas: One moment for our next question. Next question comes from Paulina Rohashman with green street. Your light is open.

Paulina Rojas: Good morning. My apology if I missed it, but from a big picture perspective, when we were thinking about tenants failure next year. What's your basic scenario? I want to have a very big picture idea because all your peers have been sharing that they are thinking about approaching it as an average year from a tenant failure perspective. And I wonder if given this scenario uncertainty that we were facing, is it think that reasonable or not?

Paulina Rojas: Paulina, is there a question on the credit side or the retaining, whether they underdolls? The mix, I would say, so it could be non-general or any type of thought that. So. So I think that was, you know, within my one to three cents for our core, you know, we have the luxury given our size and we could go space by space and AJ and I talk. We sit right next to each other and we have a former point of view as to which, you know, whether tenants going to stick around.

Paulina Rojas: So we have that luxury given our portfolio and being able to go space by space and he's talking to all of our tenants along with his team every day. So we have that and what I would say is we have not seen any meaningful change of tenants that are maybe potentially not going to stay. If anything, I would say it's more biased towards tenants wanting to stay in their space if I had to look at that in terms of on the credit side, another thing I watch very closely is on reserves.

Paulina Rojas: Do we see slow down payments? Do we see the leasing or lease admin teams getting questions or calls around wanting to work through payment plans? We have not seen that tick up. Not to say it's not coming because we're not not oblivious to what's happening, but we have not yet seen a pickup as, you know, some of the capital markets, which suggests we potentially showed up, but we have not not seen that.

Paulina Rojas: So, you know, our reserves are appropriate in that 30s, a 34 set number and we're conservative in those, but have not seen the following. And let me add a little color above and beyond our portfolio, given the rise and interest rates, the likelihood is that tenant retention and or tenant failure rate could be as likely to come from tenants balance sheet as opposed to their business. And since we see tenants business models, meaning their sales, more often than we get to examine, especially the private companies, their balance sheets, that is something we will watch.

Paulina Rojas: If I were to get where this stress could occur, it would be for our local retailers who got a lot of help during COVID. So, we did not see the failure rate then. The local segment, especially in our suburban portfolio adjacent to supermarket anchors, et cetera, those rents have grown nicely. So, that's a segment we'll watch so far as John said. We haven't seen any slow now, but common sense tells us that they may be more interest rate sensitive in terms of their business, so that's something we'll watch. And then in general, as John said, it feels like next year, maybe more boring than volatile on that side, but we'll see.

John Demoulas: Thank you.

AJ Levine: And then the second question regarding new opening in the portfolio, are you seeing a trend from a category perspective? So, Jay, why do you take that in terms of what trends are we seeing in terms of new tenants or where demand is coming from? Yeah, look, obviously, the earlier days of COVID, the recovery was first led by the essential retailers, but then quickly behind that, we saw this huge influx of luxury into most of our high growth markets.

AJ Levine: And then, of course, the aspirational and what we call our bench contemporary ran sort of clustering around them. And I think for most of our high growth, in the streets. That's what we continue to see. We're seeing, you know, continue entry of luxury tenants, we're continuing to see continuation of the clustering of those tenants that want to be near luxury. On the suburban side, you know, a lot of the new store openings of the growth that we're seeing is being led by our discounters, right?

AJ Levine: So the TJS is the rolling things of the world. You know, they have been leading the way in terms of, you know, net new store growth as well as of course the dollar. The dollar stores and, you know, those sort of high-volume openers. And let me just remind everyone, especially the generalists who haven't thought about this. Some of the trends, some of the reason you're seeing this pent up demand. A few years ago, there was this notion that online sales were going to be the best channel for growth. And now we understand in an army channel world the source of their most profitable. You're still seeing that pivot.

Ken Burns: Whether it's luxury,[inaudible]