Q4 2024 Acadia Realty Trust Earnings Call
Yeah.
Speaker Change: Thank you for standing by and welcome to Acadia Realty Trust fourth quarter 'twenty 'twenty four earnings conference call.
At this time all participants are in a listen only mode.
Speaker Change: After the speaker presentation, there will be a question and answer session.
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Speaker Change: I would now like to hand, the call over to Devin Russell manager accounts receivable lease lease administration. Please go ahead.
Devin Russell: Good morning, and thank you for joining us for the fourth quarter 2024 at Acadia Realty Trust Earnings Conference call. My name is Devin Russell.
Speaker Change: Administration Department.
Speaker Change: Before we begin please be aware that statements made during the call that are not historical maybe deemed forward looking statements within the meaning of the Securities and Exchange Act of 1934 and <unk>.
Speaker Change: Actual results may differ materially from those indicated.
Speaker Change: Such forward looking statements.
Speaker Change: So 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 February 12 2025.
Speaker Change: <unk> undertakes no duty to update them. During this call management may refer to certain non-GAAP financial measures, including funds from operations.
Speaker Change: Please be Acadia its 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.
Speaker Change: Everyone the opportunity to participate you may ask further questions.
Speaker Change: It's up into the queue and we will answer as time permits now it is my pleasure to turn the call over to Ken Bernstein, President and Chief Executive Officer, who will begin today's management remarks.
Thank you Devin great job welcome everyone.
Speaker Change: I'll give a few comments before handing the remarks over to a J and then since we have been highly active on the acquisition front.
We expect to continue to.
Speaker Change: To continue to do so I have asked our CIO Reggie Livingston to discuss our investment activity and then finally, John will tie it altogether in connection with our earnings guidance.
Speaker Change: Our balance sheet metrics and our outlook for the year and after that we're here to take questions.
Speaker Change: As you can see from our earnings release, we had a busy and productive quarter, both with respect to the performance of our existing portfolio as well as a ramp up of our investment activity in light of the progress we made throughout the year. We are setting up for a strong 2025 now we are.
Speaker Change: We're not ignoring the impact on valuations from a higher yielding bond market.
Speaker Change: Nor the increasing likelihood of a higher for longer interest rate and inflationary environment, but to the extent.
Speaker Change: Without these headwinds are due at least in part two.
To a stronger than forecasted economy.
Speaker Change: This growth sooner or later.
Speaker Change: Should result in stronger top line growth.
Speaker Change: Which then translates sooner or later into rental growth and our goal.
Speaker Change: It has been to make sure we own the kind of retail portfolio that is best positioned to capture this corresponding growth sooner rather than later.
Speaker Change: As we have seen over the last few years the street retail portion of our portfolio, which now represents the majority.
Speaker Change: Our core portfolio.
Speaker Change: Has proven to be the best segment to capture this growth.
Speaker Change: I'll, let a J discuss the specifics of our portfolio performance, but the bottom line is that we have delivered over 5% same store NOI growth for each of the last three years most significantly.
Speaker Change: Even by our street retail performance.
Speaker Change: And then looking forward. It's our view that this segment will continue to produce the highest net effective growth and the highest risk adjusted returns in the open air sector.
Speaker Change: The drivers of this outperformance come from a combination of factors that I'm happy to discuss in detail.
Speaker Change: But in short they include strong contractual growth lower Capex fair market value resets a shift in retailing away from wholesale into individual stores. The halo benefits from these stores in an Omnichannel World and then ultimately incur.
Speaker Change: Increasing retailer demand.
Speaker Change: Increasing retailer performance with limited supply.
Speaker Change: With these trends in mind, our focus has been.
Speaker Change: To position Acadia to be the dominant owner operator of street retail in the United States with both the appropriate scale.
Speaker Change: And appropriate concentration to enable us to continue to drive the growth we have delivered over the past few years well into the balance of the decade.
Speaker Change: For reasons that AJ and Richie will expand on the portfolio we have assembled.
Speaker Change: And we will continue to add to it.
Speaker Change: Is beginning to give us that scale and that concentration that will enable us.
Speaker Change: Both to enhance the performance of our existing assets as well as position us.
Speaker Change: The buyer of choice for continued strong external growth.
Speaker Change: You've seen us use this scale and synergies to drive outsized growth in existing markets, such as Armitage Avenue in Chicago and now with our most recent acquisitions. We are building similar powerful scale and concentrations in Georgetown in Washington D. C. Soho Williamsburg, and Bleecker Street in New York Henderson Avenue in the North.
Speaker Change: Henderson corridor in Dallas.
Speaker Change: Along with the benefits of scale, it's becoming clear that for all open air retail, but especially for street retail this.
Speaker Change: Continued retailer demand is not just a cyclical recovery there are longer term positive trends at play and we are capturing more than our fair share of these trends.
Speaker Change: Now that is not to say that retail is immune to gravity.
Speaker Change: There are certainly some segments of the consumer that are stretched thin.
Speaker Change: And we are seeing the reemergence of some retailer weakness in bankruptcies.
Speaker Change: For the most part this is concentrated with certain junior anchor retailers in the suburban shopping center portion of our portfolio, but even here.
Speaker Change: Tenant demand seems to exceed this new shadow supply and at least from our perspective, the tailwind still far exceed the headwinds.
Speaker Change: Then complementing our strong internal growth.
Speaker Change: Our acquisitions last year, both on balance sheet Street retail acquisitions as well as investments through our highly complementary investment management platform.
Speaker Change: Are playing an increasingly important role in our long term growth.
Speaker Change: Richie will discuss the details of our acquisition activity and John will discuss our successful match funding for this activity.
Speaker Change: But in short last year and to date we.
Speaker Change: We have complete over $600 million of acquisitions.
Speaker Change: With about half of our core portfolio, the other half being investments for our investment management platform.
Speaker Change: The investments for our core portfolio were all strategic additions of street retail in key must have markets.
Speaker Change: Where we are already active and where we can now add scale and further connect the dots in those corridors.
Speaker Change: We're focusing our street retail acquisition efforts on properties in key corridors that are accretive to earnings.
Speaker Change: Accretive to net asset value as well as acquisitions, where we can expand.
Speaker Change: And further fortify our long term internal growth trajectory.
Speaker Change: As we stated in the past we are committed to match funding our acquisitions on a disciplined basis last year, we not only fully funded our core investments, but also funded our anticipated redevelopment activity.
Speaker Change: While leaving a decent amount of dry powder for our current pipeline.
Speaker Change: Then complementing our on balance sheet investments, we're continuing to see opportunities to grow our investment management platform.
Speaker Change: Where we are leveraging our institutional capital relationships for opportunistic investments best suited for this buy fix sell model.
Roger will walk through the positive earnings impact of our external growth activity, but as we have said in the past for a company of our size doesn't take much volume to move the needle.
Speaker Change: So in summary.
Speaker Change: As we think about 2025 and beyond we remain very bullish in our ability to continue to add value by driving internal growth by maintaining a strong and flexible balance sheet and by adding additional growth through strategic new investments with that I'll. Thank the team for their.
Asia: Hard work last quarter and last year and their success and now I'll turn the call over to Asia.
Speaker Change: Great. Thank you Ken good morning, everyone.
Speaker Change: So first I want to echo Ken by congratulating the team for another strong quarter of leasing signing another $3 million of ABR and capping off a record year, where we signed over 50, new leases totaling over 13, and a half million dollars of annual rent or the equivalent of nearly 10% of our total ABR.
Speaker Change: Overall spreads for the year totaled approximately 35% with our high growth streets, leading the charge.
Speaker Change: We successfully executed our strategy of adding and extending category, leading tenants like mango Swarovski Brandy Melville Tesla Lulu Lemon and J crew and we continued to strategically replace under market and underperforming tenants to accelerate rent growth improved merchandising and credit and <unk>.
Speaker Change: US better navigate any future volatility.
Speaker Change: The majority of our growth will come from our streets, but we're also seeing solid demand and stability from our suburban portfolio, but for now let's dive into some of the reasons why our streets continued to outperform and drive the lion's share of our growth.
Speaker Change: Now it certainly helps that despite some of the choppiness that we're seeing from some of our suburban tenants our high growth streets continue to outperform the overall market for example in.
Speaker Change: In Soho or dance contemporary tenants reported year over year sales growth in excess of 15% and we saw consistent double digit sales growth on M Street Williamsburg, Madison Avenue Armitage Avenue in the gold coast of Chicago.
Speaker Change: Those are just a few examples but overall, we continue to see strong retail fundamentals and our tenants show no signs of slowing down.
Speaker Change: So what's driving this growth and performance well first and foremost our luxury advanced contemporary and higher priced specialty shopper continues to overwhelmingly prefer open air and direct to consumer experiences.
Speaker Change: As a result, our tenants are pivoting away from wholesale department stores and toward our high growth high traffic streets.
Speaker Change: When you look at the brands that we've added on our streets like Zimmerman Stout Allo yoga vre and madewell, you'll find retailers, who recognize the clear benefits of direct to consumer or DTC, where they can best control customer interaction brand messaging pricing and co tenancy.
Speaker Change: It's also clear that the Halo effect is a very real force for growth.
Speaker Change: Halo effect essentially means that while the store remains the most profitable channel for our retailers four wall profitability and store level sales are only part of the equation.
Speaker Change: We know from our retailers that opening expanding and renovating stores has a meaningful and quantifiable impact on overall brand performance.
Speaker Change: Hello effect from the physical store will positively impact customer acquisition E Commerce, and wholesale performance and when you layer in the Halo effect with our healthy rent to sales ratios, which are still below historic norms.
Speaker Change: We're seeing tenants that can pay higher rents and better insulate themselves from the roller coasters of previous cycles.
Speaker Change: The next driving factor is our ability to use our scale and geographic reach to drive rents and improve the merchandising on our streets.
Speaker Change: Ken mentioned the success, we had on Armitage Avenue, and our ability to use our scale as a well capitalized institutional owner to control the curation of the street by hand, selecting tenants like Jenni Kayne rails Levine and walkie Parker, we've created the best ecosystem to drive traffic and promote <unk>.
Speaker Change: Sales growth and as a result, our tenants on the street.
Speaker Change: Sorry, our rates on the street have increased by 50% over the last 12 months.
Speaker Change: That doesn't happen without some degree of scale and as new brands emerge and others fall behind we can use F&B resets to prune the portfolio and continue to push rents even higher.
Speaker Change: And now that we're the largest owner on M Street, we can apply the same strategy.
Speaker Change: <unk> and pivot away from underperforming tenants.
Speaker Change: Use our experience and relationships to dictate duration and lean into record sales performance to drive rents on the street.
Speaker Change: Occupancy cost for apparel tenants on M Street are hovering, just north of 12% and with sales growth well outpacing inflation and of course the benefits of Halo. There is significant room for an experienced owner with meaningful scale to capture outsized rent growth.
Speaker Change: Now with 20 storefronts in Soho, including nine within our greet Street collection and 15 storefronts in Williamsburg, we are on our way to becoming the largest institutional owner in those high demand markets as well not to mention our significant scale in markets like the gold coast of Chicago Melrose place in Los Angeles Bleecker Street.
Speaker Change: In Manhattan, and Knox Henderson down in Dallas with such a diverse portfolio of high demand streets, we can use our scale and depth of our relationships to cross pollinate, our streets with the most relevant and highest performing tenants.
Speaker Change: So again with all of this means from a leasing perspective is that we are busier than ever and our tenants remained active and focused on long term growth.
Speaker Change: Even in some of our slower to recover markets like Michigan Avenue the <unk>.
Speaker Change: <unk> that were planted 12 to 18 months ago are starting to bear fruit.
Speaker Change: Foot traffic has returned along with some exciting and dynamic tenants.
Speaker Change: We captured our share by signing Allo yoga and mango, but we're also excited to welcome tenants like Auryxia and uniqlo to some of our neighboring assets.
Speaker Change: And at City Center in San Francisco as we outlined in our release, we are thrilled to announce that we have successfully signed a new lease with a very large international grocer to replace whole foods.
Speaker Change: From an economic perspective, the re tenant thing not only replaces the rents from whole foods, but just as important this incredibly vibrant tenant will undoubtedly kickstart the revival of Citycenter and is a great sign that the retail recovery in San Francisco is underway.
Speaker Change: So I've been sworn to secrecy, but next quarter I'll be able to provide more clarity in the meantime, we are confident that we can move forward without any change to our previously stated projections.
Speaker Change: Now turning to the suburbs, where the majority of our suburban assets reside in our investment management platform for those assets, we continue to see strong demand and stability and our team has done a great job driving that business as well.
Speaker Change: Last year, we added several category, leading anchors and junior anchors to the portfolio, including LD supermarkets boot barn golf Galaxy hobby lobby skechers and five below and in October we welcomed our first Dick's house of sport to our Brandywine Town Center down in Wilmington, Delaware.
Speaker Change: Since the house of sport was announced we've seen a noticeable lift in leasing volume and rents and Thats helped us lease an additional 80000 square feet at that center.
So wrapping things up we remain as encouraged as ever by the growth and the activity. We continue to see on our streets and we see no signs of a slowdown on the horizon.
Reggie Livingston: And with that I will pass things off to Reggie.
Reggie Livingston: Thanks, a J.
Reggie Livingston: Good morning, everyone I'm excited to share specifics around our 2024 and year to date acquisition activity and provide insight into how we're positioning the company for continued growth across our platforms in the second half of the year. We have one of the busiest periods on record with more than $600 million of transactions split evenly between our core.
Reggie Livingston: In investment management businesses more importantly, the story behind that headline number is even more compelling. The bottomline is we hit on all cylinders by adding assets to our core portfolio that delivered accretion at or one penny per 200 million target with an attractive going in and GAAP yield in the mid sixes and.
Reggie Livingston: <unk> five year CAGR in excess of 7% that will drive our cash yield into the <unk> as well we added assets that upgraded the quality of our portfolio through transaction is accretive to NAV and.
Reggie Livingston: And we added assets that increased our concentration in key supply constrained markets that are must have locations for our retailers. So let's take a closer look at some of those transactions and the Georgetown market. We acquired an additional 48% interest in a portfolio of 18 properties. This increased our ownership stake in that portfolio to six.
Reggie Livingston: 68% with a key local partner he spent inc. Only the balance we now own a majority position in a significant portion of all of the prime store fronts in Georgetown.
Reggie Livingston: With this additional investment we are certainly the undisputed landlord of choice in the top street retail market in D C and where do you see in general may still be in the early stages of recovery.
Reggie Livingston: Street tenant sales are in excess of prior peak with room to run on rent growth and just like those investments in Georgetown activity in Soho was purposeful strategic.
We purchased more than $120 million of assets with half coming from off market transactions. This included 92 to 94 Green Street on the best block in Soho, a high profile corner property or 106 Spring Street and another exciting asset at 73 Rooster.
Reggie Livingston: That's a cool popular tenants like <unk> and continue our effort to connect the dots driving curation and rents in the Submarket and as Jay said these deals bring our total holdings in the Submarket to 'twenty storefront, making us one of the largest institutional landlords and Soho. However, it's important to note this steel rep.
Reggie Livingston: Presents less than 10% of the total prime storefronts into market. So this should allow for future acquisition activity that will drive our growth there in.
Reggie Livingston: And while Soho and growth in Soho is certainly a priority don't forget our previously announced deal on Bleecker Street in the West village yet. Another example of how we know how to identify submarkets with rent growth characteristics, where we can scale. These bleecker assets have strong going in yields with positive mark to market opportunities.
Reggie Livingston: As it continues to be a coveted landing spot for many of our younger advanced contemporary brands.
Reggie Livingston: Heading across the bridge the Williamsburg market in Brooklyn has been one of the more active than desired retail markets over the last few years as you all know.
Reggie Livingston: Complementing our existing holdings on Bedford Avenue, we added new assets, along North sixth Street, where we invested more than $50 million.
Reggie Livingston: These deals contain a mix of below market leases credit tenants leasable vacancy and even a small parcel where we intend to build an additional storefront.
Reggie Livingston: It represents an optimal mix of yield and growth that frankly exemplifies our focus on well rounded portfolio construction.
Reggie Livingston: And while we're excited about our balance sheet transactions, we're equally enthusiastic about the execution within our investment management platform.
Reggie Livingston: In addition to our previously announced transaction with J P. Morgan we executed two additional joint ventures in the fourth quarter first we formed a joint venture with TPG real estate to acquire the Linq promenade in Las Vegas for $275 million.
Reggie Livingston: This 180000 square foot open air destination offers retail dining and entertainment options, along with accretive re leasing potential and ancillary revenue opportunities and while the deal is compelling in and of itself. It's also further evidence that we are well capitalized have experienced operator that has a desire.
Reggie Livingston: We'll partner for leading institutional investors and.
Reggie Livingston: And second with respect to the previously announced power center purchase of the walk at high words, we entered into a joint venture with Cohen <unk> steers, another leading institutional investor this value add opportunity where allow for repositioning to better tenancy in Tampa, Florida, one of the fastest growing sunbelt markets in the country.
Reggie Livingston: So to summarize 2024 and year to date has been a period of strategic growth and disciplined execution.
Reggie Livingston: For our core platform, our acquisitions reinforce our commitment to targeting high quality assets with strong long term growth potential.
Reggie Livingston: And for the investment management business, we found interesting value add opportunities that not only leverage our talent, but also a strong institutional capital relationships on a personal note. It's been the most exciting external growth environment in my 13 years with the company and looking ahead, our pipeline reflects continued momentum.
Reggie Livingston: However, as with last year, we will remain disciplined and add assets. There are compelling and continue to drive our long term growth I want to thank the team for their hard work and dedication to our peer leading external growth execution last year.
Reggie Livingston: You for your time today, and with that I'll turn it over to John.
John: Thanks, Randy and good morning before.
John: Before diving in I wanted to spend a moment highlighting our team's accomplishments over the past year and how those efforts are driving our results of 2025 and beyond.
John: First driven by the strength of our street retail portfolio, our same store NOI grew by five 7% for both the quarter and the full year.
Speaker Change: And we see these trends continuing with 5% to 6% same store growth projected in 2025 and in the years following particularly when factoring in the seven plus percent of NOI growth that <unk> highlighted from the $300 million.
John: Of New Street retail additions that we completed this past quarter.
John: And this growth is driving our bottom line earnings with year over year <unk> growth of 5% in 2024, and the expectation of five 5% growth in 2025 and keep in mind. The five 5% of anticipated growth in 2025 is before factoring in any further external acquisitions.
John: Secondly, we accomplished our balance sheet goals and put ourselves in a position to successfully execute on our external growth strategy. During the year, we raised approximately $740 million of common equity and completed over $1 billion of secured and unsecured debt transactions.
John: And not only do we accomplish this without diluting our earnings we accretively invested over $600 million of gross asset value between our core and investment management businesses.
John: Along with leaving ourselves with a few hundred million dollars of dry powder to fuel further external growth.
John: And while a lot of activity to takeaways clear as a capital market's windows open up and the bid ask spread on new investments narrowed we hit it hard and our team will continue to make hay. So long as the Sun is shining as these windows don't last forever.
John: And while the volume of volume of activities at our team accomplished in the last six months or so would be impressive for virtually any of our REIT peers.
John: At our relative size the impact on our business was transformational.
John: And I'll, let me fill in a few details starting with our fourth quarter results.
John: Our fourth quarter earnings came in at 32 cents, a share representing year over year growth of approximately 15% over the 28 that we reported in the prior year comparable quarter.
John: Our quarterly results were slightly impacted by the timing of our equity raise and the closing of the acquisitions in our pipeline, but as we got our deals across the finish line in January our 2025 earnings goals are on track. Additionally, we achieved five 7% same store NOI growth for the quarter and this was driven by growth in excess of 12% from our street re.
John: <unk> portfolio.
John: And the growth we're seeing from our street portfolio is being driven by a powerful combination of the 3% contractual growth that's built into our street leases occupancy gains and increasingly more impactful the mark to market spreads, we're achieving on new leases.
John: And I wanted to spend a moment to elaborate on the impact of occupancy gains and the mark to market spreads that occurred during the fourth quarter.
John: Starting with occupancy in our core physical occupancies sequentially sequentially increased by 140 basis points.
John: And this was driven by approximately $5 million of ABR at our share coming online during the quarter.
John: In addition to simply adding new occupancy within that $5 million was $1 $5 million of mark to market spreads from new leases that commenced during the quarter and just to clarify the $1 $5 million is included within the $5 million of commencing ABR and it represents the cash spreads we're achieving on these new leases as compared to the prior lease.
John: And just for context that our relative size $1 5 million of Mark to market equates to over <unk> of incremental <unk> and about 125 basis points of same store NOI growth with about 90% of this coming from our street portfolio.
John: And as we think about further occupancy gains I wanted to provide a quick update on our signed not yet open pipeline, which was $7 7 million at December 31.
John: This represents over 5% of our core ABR and a spread of 270 basis points between our leased and physical occupancy.
John: Additionally, we sequentially increased our leased occupancy by an additional 110 basis points to 95, 8%, which was driven by $3 million of new core leases that were signed during the quarter.
John: But as we've said before and it's worth repeating all occupancy percentages are not created equal.
John: Meanwhile, our overall occupancy is 95, 8%.
John: Our higher dollar Street and urban portfolio is around 90% leased meaning we still have a lot of room to run and as a reminder, the $7 $7 million of signed not yet open is that our pro rata share and represents core same store only meaning it excludes any leases signed in our core redevelopment pipeline and our <unk>.
John: <unk> management platform, including city point, which if included would nearly double our reported signed not open pipeline.
John: Additionally, the $7 $7 million represents incremental ABR as it excludes any leases that we have executed on space that is currently occupied from.
John: From a timing perspective.
John: We anticipate that all of the $7 $7 million will commence at some point in 2025 and.
John: And when factoring in estimated timing.
John: It's projected to contribute incremental ABR of about $4 million in 2025 with about 75% of roughly $3 million of the $4 million projected to show up in the second half of the year. Thus the full impact of the $7 $7 million, meaning the incremental $3 7 million will show up in 2020.
John: So not taking a step back because I realized that I had just thrown out a bunch of numbers. So let me spend just a minute to pull together the pieces.
John: Which is code for those modeling, it's time to pull out your pencils.
John: Starting with the net positives and to recap what I just walked through we are anticipating an incremental $9 million of ABR comprised of the full year impact from the $5 billion of rent that commenced during the fourth quarter plus the $4 million from our signed not yet open pipeline.
John: Offsetting this incremental $9 million in 2025 is about $4 million of ABR from our primary strategy that we discussed on our last call.
John: As a reminder, our private strategy refers to the active asset management of our portfolio, primarily within our key streets to pry loose below market leases from underperforming tenants and re lease them at current market rents.
John: And we've already replaced this $4 million with $6 5 million of new deals, resulting in a net gain of about $2 5 million or nearly <unk> of incremental <unk>.
John: So while the downtime in 2025 is a short term offset in our 2025 NOI as we turned the spaces.
John: It sets us up for outsized growth in 2026 and beyond as we bring these new tenants online.
John: Now moving onto our 2025 earnings guidance as outlined in our release, we have initiated 2025 guidance of $1 35 at the midpoint rejected representing projected growth of approximately five 5% over 2024.
John: A few observations on our initial guidance and I'll start with the spoiler alert, which given our past practice really shouldnt be too much of a spoiler you should not expect that when we announce our earnings in a few weeks that we beat our first quarter earnings, but where is the potential for upside to our annual guidance first and let's start with credit and leasing in terms of.
Credit, we've assumed about 125 basis points of bad debt in our guidance.
John: And this feels pretty conservative as it's more than what we have needed over the past few years, particularly when considering that our single container store lease was assumed without modification and we have limited exposure to the other announced bankruptcies.
John: But as we always do we believe it makes sense to build a bit more reserves into our initial guidance and as it relates to leasing our team has already signed all the deals are necessary to achieve our 2025 results.
John: Which means that given the nature of our street retail assets, it's actually not unrealistic to assume that we have the opportunity to sign a new lease and start collecting rent during the year and just to illustrate this point.
John: During this work in this past fourth quarter, and the Gulf coast, or Chicago, or new tenant Brandy Melville tortoise space at the end of September they signed the lease a few weeks later open the store and began paying rent in mid November.
John: To elaborate on the impact the single space was less than 6000 square feet of GLA or about one basis point of occupancy, but contributed over a half a penny of annual <unk>.
John: And the second opportunity for upside to our guidance as external growth or $1 35, a projected <unk> does not include any accretion from external growth.
John: So while I share tenant wrenches enthusiasm about putting more accretive capital to work in the near term.
John: Our 2025 of our earnings guidance Hasnt factored any of the same and as outlined in our release, we have $275 million of forward equity proceeds on call to fund it.
John: And a final point on guidance I want to spend a moment on the <unk> of City Center in San Francisco, San Francisco that a J discussed and we outlined in our release.
John: While we are limited in what we can share at this point, we want to reiterate that the economics from this new lease <unk>.
John: Coupled with our reimbursement for whole foods for rent recoveries. There is no material impact to our short or long term earnings.
John: And while we shouldn't get too far ahead of ourselves and our team believes that we have a good shot at beating our goals given the retailer interest that we anticipate that our New addition will bring to the center, but stay tuned for more information in the coming weeks and just as a reminder, citycenter is included in our core redevelopment pipeline, which means that neither of these.
John: <unk> are included in the $7 $7 million a sign that you are open pipeline.
John: And the payments received from whole foods will not be included in our 2025 same store results.
John: Thus as we start 2025 with our embedded internal growth along with the dry powder. We have on the call. We remain very well positioned to beat our expectations for the coming year ended the year following.
John: And before opening up to questions just a quick balance sheet update.
John: During 2024 in a non dilutive basis, we completed about $2 billion of debt and equity transactions, resulting in a reduction of our debt to JV to under 30%.
John: And brought our debt to EBITDA ratio down a full turn to five five times, which includes our pro rata share of the nonrecourse debt from our investment management business, which means that if we were to look with that we'd be in the mid fours. If we were to look solely at our core debt to EBITDA metric.
And while today's hotter than expected CPI report puts pressure on interest rates. We wanted to remind everyone that we have no meaningful core maturities until 2028, along with our balance sheet that is fully had for the fully hedged for the next several years, which means that our internal growth will drop to our bottom line.
John: And with that I will now turn the call over to the operator for questions.
John: Okay.
John: Thank you as a reminder to ask a question you will need to press star one on your telephone.
John: Yourself from the queue you May press Star one again.
John: We ask that you please limit yourself to one question and one follow up to allow everyone the opportunity to participate.
John: Please standby, while we compile the Q&A roster.
John: Our first question comes from the line of Linda Tsai of Jefferies. Your question. Please Linda thank.
Speaker Change: Thank you how.
Speaker Change: How do you think about the concept of scale and your street portfolio.
Speaker Change: You build it and how do you know when youre achieving are there certain metrics or indicators.
Speaker Change: Yes.
Speaker Change: Let me add a little color to it because I'm the one who brought it up and then maybe you could add some numbers in context.
Speaker Change: Scale works, when we own the right assets in the right corridors, so first and foremost.
Speaker Change: If you own just a generic portfolio of stuff I am not sure scale does that much benefit.
Speaker Change: Where we own in these key corridors, we are seeing our ability to both drive rents, but also better cure rate that or defend the corridors to be the case second point I'd make is the acquisitions, we have made and will continue to make.
Speaker Change: Have to stand on their own individual acquisition has to be accretive has to check all of the boxes irrespective of the long term scale a J why don't you add some thoughts to.
Speaker Change: How youre thinking about it sure in terms of quantifying it.
Speaker Change: And of course, it's going to depend on the market right markets of course, where there's significant barriers, but generally I would contribute about 10%.
Speaker Change: Terms of the upside in terms of rent growth. When you have significant scale. We obviously saw what happened there Armitage Avenue, where we well exceeded that 10%, but really from my perspective, it's important to note that this isn't about convincing tenants to overpay right. This is about duration, it's about improving co tenancy promoting overall.
Speaker Change: <unk> sales growth promoting increased traffic and rent is really just a byproduct of all of that so combination of scale experience access to capital access to data that all plays into the equation.
Speaker Change: Thanks, and then in terms of acquisition volume in 2025, what is the percentage split of core and investment management and how are you thinking about the opportunity set.
Rich: Rich do you want to stick your neck out on that sure. So hi, Linda So I would say big picture from a core standpoint, we think as long as the Sun is shining and the stars are aligned there is no reason, we can't duplicate what we did last year. This year from an asset from an investment management platform standpoint by definition, it's more.
Rich: Opportunistic and so it's hard to give guidance around that because we only do the deals that makes sense that we can find that can deliver outsized return so a little more difficult to predict on that end of the spectrum.
Rich: Thank you.
Rich: Yeah.
Rich: Thank you.
Rich: Our next question.
Speaker Change: Comes from the line of Floris van <unk> of Compass.
Rich: Point your line is open the floors.
Speaker Change: Hey, Thanks, good morning, guys.
Rich: Morning.
Rich: Good morning.
Rich: Question.
Rich: I'm intrigued by your.
Rich: Low occupancy on your street and urban portfolio of 96.
Rich: And maybe if you can talk a little bit it seems like average rents of 81 bucks or something like that presumably market rents are higher.
Rich: What's the impact of every 1% increase in your in your occupancy and Whats Your peak street and urban occupancy than in the previous cycles.
Rich: John you want to cover that Hey, good morning, Florida, So starting with the last question peak occupancy is and I think it was in the 97% range and we put out the guidance that we can look out several several years 30 to 40 million out.
Rich: Of an internal growth, we were not getting to that peak occupancy level, but that's where we did get to where we are peaking in that guide at the call at $94 95 per cent and I know everyone. Hates this answer that it actually really really depends on on wet lease what street we.
Rich: Signed whether it's multiple level single level space. So of course, I would love to tell you just slapped $500 a foot for every.
Rich: The square foot release, but it's got a matter space by space building building by building, but what I would say is that we are generating we look at this quarter, we delivered 12%.
Rich: <unk> growth, we see till we get to that 95%. We think we're going to be in that 10 plus percent or that 10% range why do we say for the next couple of years, while we get that occupancy back up and running which I think we said in the past. This is we think within the next 18 months or so we we get there. So it's not I'm not giving you the math to get there.
Rich: But.
Rich: We could spend the time to walk through what markets and where we see rents, but it's well I'd love to give you a blanket rent per foot.
Rich: Really can't do it it would mislead you.
Speaker Change: Sure Fair enough, let me let me ask you a follow up question you've got the.
Speaker Change: Obviously, you've got the ATM in place a $275 million of additional investments.
Speaker Change: As youre thinking about where to deploy that capital.
Speaker Change: Would you Ah.
Speaker Change: Obviously, you've been focused so far on.
Speaker Change: Your core markets of Soho Williamsburg and <unk>.
Speaker Change: <unk> Street, where do you see the greatest opportunities.
Speaker Change: And would you consider I mean wouldn't it be a <unk>.
Speaker Change: Contrarian bet.
Speaker Change: Maybe put some money into San Francisco, which seems completely out of favor or are the returns simply not.
Speaker Change: Attractive enough at this point, maybe you can talk a little bit about the various markets and the attraction that you see and the opportunities you see.
Speaker Change: Sure.
Speaker Change: Let me.
Speaker Change: And then add in certainly as to where you see.
Speaker Change: Additional current focus on our pipeline and otherwise.
Speaker Change: First of all <unk>, the good news and one of the reasons that we have our dual platform as it expands our aperture, meaning if we see early stage recovery highly opportunistic situations that may not work for our core additions will team up with the right.
Speaker Change: <unk> partners for our investment management platform and yes, there are markets that.
Speaker Change: As recently as a year or two ago people said, we're uninvested bulk and I suspect they are quickly becoming investor books, but most importantly of how we think about which markets we want to add to our portfolio. It's first and foremost a conversation with our retailers where do they want it.
Speaker Change: D a.
Speaker Change: Then it's an analysis of where do we see supply constraints, because we need to buy into car doors and if you think about what we have recently added whether it's in Williamsburg, Brooklyn on North six are on Henderson Avenue in Dallas, There is supply constraints because its a fine.
Speaker Change: Right amount of square footage, it's very difficult to expand on it. So once we find markets that retailers are excited about.
Speaker Change: And that had adequate barriers to entry and supply constraints, that's where we'll execute if it's early stage of recovery.
Speaker Change: And priced accordingly, it might end up.
Speaker Change: More opportunistic and we have done those have been contrarian and if it's something where we can build scale, where we are the buyer of choice.
Speaker Change: And then expect to see is to add.
Speaker Change: In Soho.
Speaker Change: On Henderson in Melrose place or anywhere else rich what else what are we working on right now and how does that fit yes, I would tell you that fits perfectly I mean, the new assets have to the new markets have to fit those characteristics, but I would just note that when we talk about the 20 store fronts are so we own in Soho that as our Fracs.
Speaker Change: <unk>.
Speaker Change: Prime Soho market, so even if we didnt pick a bunch of new markets. There is substantial growth in the market that we that we are already building scale, where we can connect the dots more and I think a lot of what we're seeing too is when we build that scale. We are the landlord of choice, where the buyer of choice. So one of the benefits of that.
Speaker Change: At scale as we're getting those calls where underwriting faster because we have the tendency to rent information and et cetera. So I think even in the markets, where we've done a lot. There's a lot more to do and we can continue to build in those markets.
Speaker Change: Thanks, guys.
Speaker Change: Sure.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: It comes from the line of Andrew Real Bank of America. Please go ahead Andrew.
Andrew: Good morning, Thanks for taking my questions your.
Speaker Change: Your guidance range is somewhat wide and of course, not contemplating any external so could you just discuss in some more detail. The other swing factors that are going to drive 2025 to the top or bottom of that range. I mean, John I know you mentioned credit, but just curious what other factors are at play here.
Speaker Change: Yes, and no and Andrew we do lay out detailed by detailed line item by line item. So we have you could see where the where the where the variability is right. So I think within core NOI.
Speaker Change: We have a pretty pretty narrow range given that we've locked in the leasing to date, but as I mentioned, we have upside to two that are above and beyond that.
Speaker Change: You will see and we do have variability in what in our in our promote so I think there. It's one between our various funds and things that readiness team are looking to tumor.
Speaker Change: To monetize where we're getting close on we could we could see thats, where it whats driving because thats, probably one of the wider wider ranges around the around the promote so.
Speaker Change: I think we are going through there.
Speaker Change: As you can see the individual line items, but we feel pretty good and again our guide.
Speaker Change: Only less than 24 hours, all don't want to talk.
Speaker Change: Talk it up just yet, but we feel pretty good that between the external growth and what we're hearing from our tenants and the strength of our teams leasing that.
Speaker Change: We're feeling pretty bullish about this this year.
Andrew: Let me just add a little more color Andrew.
Andrew: At the highest end of our guidance range that could certainly include some external growth.
Speaker Change: Wherever it shows up to the extent that we're getting to the eye and John I'm sure, we'll be happy to take it.
Speaker Change: Okay, Thanks, and just as a follow up on the on the external side Theres been some talk lately, just about broader buyer pools and increasing competition for certain retail assets, but just curious if you could talk about how competition for street retail M&A is evolving.
Speaker Change: Yeah. So there has been.
Speaker Change: Increased competition for all open air retail as institutions have woken up recently, realizing that they are under allocated to a very strong asset class meeting open air retail.
Rich: Rich I'll, let you give some of the specifics of the different components, but for street retail while it is getting arguably less attention and is less crowded than some of the others. There are some very smart capable institutional buyers that are playing into that area.
Rich: It's a net positive to us for a bunch of reasons one of them is it is causing more sellers to show up.
Rich: And then we're getting more than our fair share of that increased volume bridge I don't know what you want to add about relative cap rates as well as how we're getting our deals done yeah, well I'd say, one additional thing with the sellers that are coming to the market all of a sudden yes, there are more buyers, but theyre more sellers too. So obviously, we're sitting on their property, saying, Oh, maybe I don't want to.
Rich: Semi retail right now they are coming to the market. So yes, there is more competition, but what I like about this environment, particularly for US is when you have that additional competition sellers are focused more on reputation relationships and speed and we are built for those things and that's how we've been able to get our fair share.
Rich: Sure of though.
Rich: Deal. So we welcome to increased competition, because we think we operate and execute well and that in that environment.
Rich: Thank you.
Rich: Thank you our next question.
Speaker Change: It comes from the line of Craig Mailman of Citi. Please go ahead Greg.
Speaker Change: Greg Your line is open please make sure. Your line is immediate speaker phone lift your handset.
Speaker Change: We'll go to the next question.
Speaker Change: Our next question comes from the line of Michael Mueller of Jefferies. Your question. Please Michael.
Speaker Change:
Speaker Change: Is my line open.
Speaker Change: Yesterday and Mike Okay.
Speaker Change: Okay. Thank jpmorgan apologies got it got it got it okay.
Speaker Change: I guess.
Speaker Change: We're seeing.
Speaker Change: It looks like the guidance there is a footnote talking about the city point loan.
Speaker Change: The assumption is it stays outstanding all year I guess as you sit here today, what's the likelihood of that happening.
Speaker Change: Because I think it can be payback in June right.
Mike: Yes, so Mike.
It could be it could be paid back, but I think that conversations with partners performance of the asset and really just the value.
Mike: The loan in their equity we have every indication to believe that theyre getting.
Mike: Maybe to stay on it but as we said in the past that the conversion.
Mike: Net once upon stabilization will be more accretive for us if they do decide to convert but that's.
Mike: That's just our base case assumption, we put in there.
Speaker Change: Got it and then maybe one other one on the street physical occupancy 84, 7% at year end, what does guidance assume that that ramps up to by year end 25 on a physical basis.
Speaker Change: Yeah sort of physical we should be probably I would say, we're going to be in the in the nineties, Mike because I think if we look at our S. N L. A good chunk of our signed not yet opened is again coming from our street. So I think we'll be in close to 2% to 90, okay. Okay. Thank you.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: Our next question.
Speaker Change: From Craig Mailman of Citi. Please go ahead Craig.
Craig Mailman: Hey, guys, sorry about that.
Speaker Change: This year you can see.
Speaker Change: Hear me, Okay now right yes.
Speaker Change: I'm glad to have you back.
Speaker Change: Perfect.
Speaker Change: I was I was just going to.
Speaker Change: Follow up on the acquisitions I know it seems like purposefully you guys arent talking about the potential pipeline here of.
Speaker Change: <unk> you are underwriting, but you already have.
Speaker Change: <unk> 300 billion of forward teed up so I'm just kind of curious.
Speaker Change: Yes.
Speaker Change: Maybe if you could give some sense of what the magnitude you are looking at how quickly you think you could deploy that capital.
Speaker Change: That would be helpful.
Speaker Change: Sure. Let me start and then you can add any color and specifics.
Speaker Change: One of the sillier things that I have found over the years and periodically.
Speaker Change: We do it anyway is providing forward looking pipeline because as you can imagine sellers are more than capable of reading these transcripts as well and one of the dumbest things we could do before we had completed our due diligence before we are certain we are going to close is indicate.
Speaker Change: To sellers that we're talking about deals with about them that are going to get done.
Speaker Change: I've seen others of our peers do it and pay the price when the deals don't check out.
Speaker Change: That being said.
Reggie Livingston: Reggie touched on and why don't you get more into it on the core specifically rats.
Reggie Livingston: Is the market feeling and how is the pricing for street retail relative to let's say supermarket anchored Street I'll go backwards. So street retail one of the things that we've seen when we've kind of check street retail versus grocery is the street retail used to trade inside of grocery 150.
Reggie Livingston: Bps or so inside of grocery dependant on the timeframe that you are looking at and Thats, obviously because of the growth profile and the growth differences between street and supermarket, where we really like about street in this moment in time and then when you take Prime Street and Prime grocery call southeast Prime grocery the cap rates are very near to each other steel.
Reggie Livingston: Even though we have a double sometimes triple our value proposition from a from a CAGR standpoint, so from a relative we love from all of open Air We really love the opportunity and the pricing and the basis that we're finding in street retail, namely the combination of basis.
Reggie Livingston: And growth and as far as the pipeline, we feel really good I can expect more of the same all of these markets, where we are becoming the landlord that people are calling the buyer that people are calling it.
Reggie Livingston: It allows us to be selective as well so we try to have a lot more than we ended up.
Craig Mailman: Closing on because we always want to make sure. It checks the boxes, we're not going to just do volume for volume sake or scale for scale sake. It has to check the boxes and we will we will find our fair share, but what they do so Craig as you pointed out we have the capital on call.
Seeing the deal flow stay tuned.
Ken Bernstein: I appreciate the redirect there Ken.
Speaker Change: Yes, I guess my follow up if you look at where the midpoint of your guidance is on an <unk> yield of around five eight based on todays pricing could you guys talk about where maybe your debt cost would be today and the.
Ken Bernstein: The prospect of continuing to use.
Ken Bernstein: Neither forward spot to fund.
Ken Bernstein: Given what seems to be kind of cheaper equity at this point versus debt.
Ken Bernstein: Okay, one other one.
Craig Mailman: So to answer your question on where that is and I have not looked where the 10 years since we've been on on the call, but Craig I think we'd probably be in the 6% pretty close to the 6% range.
Craig Mailman: Where where we think we can get get 10 year money, but youre question on equity what I would say about this and this goes.
Craig Mailman: It goes back to how we think about capital allocation that that at our core portfolio is growing 5% right now I think for a deal that <unk> brings to us if we're going to use our equity for it that's got to grow at least if not better better than that for us to raise our equity. So that's how we think about it that yes, the initial going in yields might be.
Craig Mailman: Get us some day, one accretion, but creates long term dilution. So that's really how we think about allocating capital putting new buy new assets as we have the growth we don't have to buy it and when we say disciplined.
Craig Mailman: Well, we're going to expand our equity base its going to be with those assets that exceed the growth that we already have.
Craig Mailman: Yes.
Speaker Change: As Rajeev mentioned just to emphasize our going in GAAP yield was well in excess of it was in the mid sixes. Our CAGR was in the sevens for the deals that we closed last year.
Speaker Change: <unk> growth was in the seventh so checks that box and then the cash yield gets into the sevens as well, which does confirms the IRR and other things.
Speaker Change: Thanks for patching and great. Thanks.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Keybanc Kim.
Speaker Change: Louis.
Speaker Change: Your line. Thank you for your line is open.
Speaker Change: Thank you sorry, if I missed this but could you talk about the going in yields for your acquisitions of <unk> and what those might stabilize to in the next couple of years.
Speaker Change: Brad why don't you take a crack and their focus on our GAAP yields six and a half mid sixes gap youre going in that we will stabilize in the sevens from a cash yield standpoint.
Speaker Change: Okay.
Speaker Change: 7%.
Speaker Change: At KBR.
Speaker Change: Okay, and I know, it's early into the Trump administration, but.
Speaker Change: If we play out what those might do and shrink the size of the government and I realize the spending isn't isolated to the fee.
Speaker Change: Just any kind of larger thoughts on what potential impact you might see if indeed, the government has started to shrink a little bit more.
Speaker Change: And I assume you mean in relation to our M Street assets.
Speaker Change: Yes.
Speaker Change: Yes, so what.
Speaker Change: What has been fascinating to observe is the rebound.
Speaker Change: In M Street over the last couple of years and AJ you may want to add a little color to this keeping in mind and I don't want to pretend to over think does versus but keeping in mind that was during a period of time with downtown D. C was really suffering because.
So many of the federal workers, where remote often outside of the area.
Speaker Change: So.
Speaker Change: Not clear to me.
Speaker Change: <unk>.
Speaker Change: Any of those shifts will impact the shoppers who are a wider variety of ranging from students to tourists.
Speaker Change: And if you've been reading, while there might be some headwinds associated with that.
Speaker Change: Georgetown from a residential perspective is on fire and all of those folks bidding up those homes are coming to M Street to shop. So a J I don't know in terms of tenant performance or any tenant feedback you've gotten around that yeah look I think generally speaking whenever theres a changeover to administration there is a little bit of a dip on M Street, usually earlier.
Speaker Change: And the year tenants don't seem overly concerned we speak about this often and I think it's important to stress that our <unk>.
Speaker Change: Customer base is much more than just government workers. The university itself is a huge component of our shopper.
Speaker Change: Tenants don't seem overly concerned at this point.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you once again to ask a question. Please press star one one on your telephone again Thats star one to ask a question.
Speaker Change: Our next question comes from the line of Todd Thomas of Keybanc Capital markets. Your line is open Todd.
Todd Thomas: Yes, hi, thanks.
Todd Thomas: The first question I just wanted to follow up in.
Speaker Change: And maybe Ken or AG, just given your comments around street retail pricing.
Speaker Change: You mentioned, the math $200 million of core investments equates to about a penny per share of <unk> is that math today any different.
Speaker Change: As the spread improved a little bit just given both the improvement in your cost of capital and the asset pricing that youre discussing.
Speaker Change: Let me.
Rich I'll touch that first.
Speaker Change: Todd.
Todd Thomas: The thing that we have to remember on this side of our business is deals price on.
Todd Thomas: One months to as much as six month basis.
So pricing changes that we feel on our screens hourly don't necessarily translate through one direction or another so what we've seen over the last several months as a move up in the 10 year Treasury.
Todd Thomas: A fair amount of buyer interest, but my guess is that.
Speaker Change: We're going to see some interesting buying opportunities as a result of some of this volatility and then rich talk about the.
Earnings accretion, but I would say, it's holding up just fine when your teams looking at the deals to buy yes, it's holding up just fine and I'll tell you. It's one of the metrics of MTV and <unk> accretion that we talked about literally all the time and so when we construct our portfolio. Some may be behind some may be ahead, but what you will see.
Speaker Change: Just like we did last year is we feel very confident we can construct a portfolio that exceeds our targets.
Speaker Change: Okay, and then in Georgetown is there any line of sight towards 100% ownership of that portfolio.
Speaker Change: Layout.
Speaker Change: That's not our focus right now our local partners.
Speaker Change: Have been great frankly, when we owned only 20% we had a seat on the bus now we're driving the bus.
Speaker Change: That they are net additive to what we're doing.
Speaker Change: But AJ touched on some of the scale benefit and we will seize upon does irrespective of we own 70% of our 100%.
Speaker Change: So.
Speaker Change: It's all good on that front.
Speaker Change: Okay, and then if I could just ask one more real quick on rent growth.
Speaker Change: And the mark to market opportunities within the portfolio I think there was a lot of talk around the strength of your tenants.
Speaker Change: Double digit retail sales a J you mentioned the occupancy cost ratio of around 12% and Georgetown.
Speaker Change: Where do you think that should be.
Georgetown and how would you frame that up today, maybe across the street and urban portfolio, a little bit more broadly is there any way to quantify what that looks like.
The street and urban portfolio or within other key markets.
Speaker Change: Yes look I think I'm comfortable where it's at today, just being north of 12% on.
Speaker Change: M Street, but I think it still has a lot of room to run before it becomes an affordable we're well below.
Speaker Change: Where we were at the prior cycle.
Speaker Change: And just given where rent growth has been well outpacing inflation.
Speaker Change: Not necessarily concerned about that.
Speaker Change: Halo effect et cetera, I mean occupancy costs can get well into the upper teens before we really have to start paying that much attention.
Speaker Change: And just add to that different segments of retailers can pay different percentages the off price retailers in the suburbs are single digit rent to sale ratio restaurants, dark choking once they get to 10%.
Speaker Change: And so <unk> really referring to our advanced contemporary.
Speaker Change: Retailers and the point that we made about curation is as important.
Speaker Change: As growing the rent to sales ratio, which is if we get the right tenants in their sales grow and so we may never get past, 12%. It may stay at 12%, but if sales are growing at 15% year over year, we are going to capture more than our fair share of rental growth and that's how it's been playing out over the last.
Speaker Change: Couple of years.
Speaker Change: Okay, what was the prior peak or the peak in the prior cycle that you saw in Georgetown.
Speaker Change: In terms of rent to sales in the 20% <unk> yet in the private sector. They were getting up into the twice right different world now Omnichannel World.
Speaker Change: The tenants are very happy and let's let's focus on making sure their topline and Bottomline grow and then the rest of this should fall into place, but we're in a very healthy position it feels much different and nothing like prior peak.
Speaker Change: Alright, thank you.
Speaker Change: Good talking to you.
Speaker Change: Thank you I would now like to turn the conference back to Ken Bernstein for closing remarks, Sir.
Speaker Change: Thank you all for joining US we look forward to speaking with you next quarter.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Yeah.
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