Ladies and gentlemen, thank you for standing by and welcome to the Q4 2020 Acadia Realty Trust Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alex Burger. Please go ahead.

Good afternoon and thank you for joining us for the fourth quarter 2020 Acadia Realty Trust earnings conference call. My name is Alex Burger, and I'm an Analyst in our Acquisitions Department and previously interned at Acadia in the summer of 2019. Before we begin, please be aware that statements made during the call that are not historical may be deemed forward-looking statements within the meaning of the Securities and Exchange Act of 1934 and actual results may differ materially from those indicated by such forward-looking statements due to a variety of risks and uncertainties including those disclosed in the company's most recent Form 10-K and other periodic filings with the SEC. Forward-looking statements speak only as of the date of this call, February 11, 2021, and the company undertakes no duty to update them. During this call, management will refer to certain non-GAAP financial measures including funds from operations and net operating income. Please see Acadia's earnings press release posted on its website for reconciliations of these non-GAAP financial measures with the most directly comparable GAAP financial measures. Now, it's my pleasure to turn the call over to Ken Bernstein, President and Chief Executive Officer who will begin today's management remarks.

Great. Thank you, Alex. Good job. Good afternoon everybody. Before we delve into the details of the last quarter, I'd like to spend a few minutes on some of the trends we saw last year and what we're seeing looking into 2021 and 2022. While we're still working through an ongoing health crisis and ensuing economic headwinds, there is clearly light at the end of the tunnel. Looking at our collection rate in the fourth quarter, our leasing activity, our discussions with our retailers, it's comforting to see both stability with respect to current operations, and then more importantly, very encouraging green shoots in terms of new leasing activity. In terms of existing retailer performance and our collections as John will discuss, collections throughout our portfolio have stabilized to above 90%. Initially this was driven by the more essential and suburban components of our portfolio, but more recently, the street retail component has begun to restabilize as well. And while the range of potential outcomes remains very wide and I suspect focus on monthly collections will continue for another few quarters, there are a few worthwhile trends that are beginning to emerge. One of the more notable trends we saw in the fourth quarter and accelerating to date is that tenants are looking past the pandemic and positioning themselves for the reopening of the economy in the second half of the year. Retailers are showing up and most recently not just in the suburban portion of our portfolio, but also in the street and urban components. And thankfully, we're seeing this in our current leasing activity. In terms of our current leasing pipeline, which we mentioned on the last call at being approximately $6 million, it has grown to over $8 million. This pipeline is relevant because it already represents a rebound of about half of the 10% short-term hit to our NOI that we estimated as a result of COVID. This pipeline has rebuilt faster than we had initially expected and has continued to improve over the past month. To date, we have executed $3 million of leases in this pipeline, we have at least another $3 million, and the balance is at the letter of intent stage. Leasing activity in our pipeline is now weighted fairly proportionate to our portfolio weighting meaning that while initially the activity was weighted to our suburban and necessity portion of our portfolio, looking forward in our pipeline our deal flow is now rebalancing and about 70% is in street and urban. Now given that the street portion of our portfolio represents about 40% of our core portfolio and is a key area of differentiation for us, I think it's worth spending a few minutes on the encouraging rebound we're seeing there. After a very scary and quiet couple of quarters, retailers are actively touring and going to lease in these markets. The early movers we saw for the street component were in the half of our street portfolio located in the less dense markets that were generally quicker to reopen for business, for example, in Greenwich and Westport, Connecticut. In the last few weeks, we have finalized leases in both of those markets. Rents there are approaching pre-COVID levels. But even more encouraging in terms of street retail trends is the recent activity in the more dense gateway markets. We are finalizing several leases in Manhattan, including in Soho, several leases in Chicago including in the Gold Coast. And here we're seeing a variety of retailers stepping up in these markets from luxury leaders to up-and-coming digitally native brands all preparing for a post-COVID economy and using these stores to further differentiate themselves in an omnichannel world as these retailers focus on the shifting channels of distribution. Our retailers are looking past the harsh short-term realities that we're facing this winter as well as the oversimplified longer-term narrative around retail real estate. And based on the number of retailers touring and many of them signing leases our retailers are making it clearer every day that the key markets in our portfolio will remain long-term must-have locations. Now starting rents compared to pre-COVID rates are going to vary space-by-space and street-by-street and they are certainly well off of their 2017 peaks, but we have built our portfolio to avoid some of these peaks and valleys. And these leases will be compelling, especially, if the long-term rents are consistent with our pre-COVID goals and so far they are. Our retailers are telling us that the ratio of rents to their anticipated sales performance looks compelling from their perspective, which is also essential for this recovery. It's still early. But if these trends hold the street portion of our portfolio will be a key driver of our longer-term growth metrics. We recognize that a significant portion of our portfolio both urban and suburban is weighted with necessity and value-based tenants like Target and T.J. Maxx, but that provided us very important ballast to weather a truly 100-year storm. It is becoming clearer that the longer-term growth will come from our mission-critical locations for a few reasons. First of all, our re-leasing potential here is of uniquely high-quality locations and we are working off of decades-low occupancy levels. Second, the contractual rental growth rate in our street portfolio is 100 basis points to 200 basis points higher than in the other components of our portfolio. And finally, from an AFFO perspective, since the cost of re-tenanting in these higher-rent markets is substantially less as a percentage of rent, the net effective rent growth will be stronger than in the lower-rent portions of our portfolio. Now this is not ignoring some of the longer-term trends that are playing out in our industry — the accelerated move to digital commerce, the reality that the US is over-retailed in general and that some formats are facing functional obsolescence nor is it ignoring a workforce that's pondering where they might live and how they might work. These are real challenges, challenges that our industry is being forced to adapt to on an accelerated basis. But notwithstanding these challenges, we are seeing signs of recovery and our portfolio is well-positioned for this. And some of this rebound in hindsight will look obvious. For example, it's important to keep in mind that the consumer in general and especially that segment of the consumer that is shopping at the stores in our portfolio is climbing out of this recession in a much different spot than prior recessions. For that significant portion of the population that could not shift to remote work — that is living paycheck to paycheck or worse — the impact of this crisis is heart-wrenching. But that portion of the economy that has been able to shift to remote work, that has seen their house values and their stock portfolios rise, for those consumers their savings rate and disposable income is much stronger than when they were climbing out of the global financial crisis. To date, spending by this segment has been down, as the short-term trend has been on necessities, on essentials, almost irrespective of the financial condition of that specific consumer, not because of fear or belt-tightening by the affluent as much as just the realities of the lockdown. As we move past this lockdown, our retailers are expecting shifts in consumer spending as well. And our retailers are seeing not just short-term pent-up demand but longer-term trends and are planning accordingly. From a capital markets perspective, both the debt markets and the equity markets are slowly beginning to rebuild albeit selectively. The retail real estate industry is still working through the drama around the collection crisis of last spring. And while that is abating, the aftershocks are still with us and many of the traditional metrics that our industry has historically used to evaluate location quality have paused. Last spring for instance, property-level collection rates trumped credit quality and credit quality trumped location quality. Now during the darkest days of the crisis this might have made sense. But longer term, location quality tends to win out. And while this trend is beginning to resolve, it's going to take time. Additionally, many institutional investors are overweight retail due to their mall holdings. Even investors who are not overweight retail are looking for clarity — clarity as to what the cost to restabilize assets will be, clarity as to when and at what level rents and tenant performance will stabilize, and then finally what the longer-term growth rates will look like. Now I get that providing this clarity sounds like a tall order — it always does at this point in the cycle — and then the rebound happens usually faster than most of us predict. In terms of our investment activity, with our stock at a discount to NAV and our cost of capital being elevated, we don't anticipate acquisitions in our core in the short term. In fact, we'll be opportunistically monetizing assets as we recently did with a freestanding Home Depot in New Jersey, where the net lease retail market is still robust and properties are trading at peak pricing. But we are hopeful that as significant buying opportunities arise we'll be in a position to capitalize on them. Given that retail is in such disfavor and many folks who previously dabbled in it are gone, there will be less competition and our expertise will be in demand and it will be of value. And while we wait for the public markets to rebound, fortunately as Amy will discuss, we have our discretionary fund where we still have plenty of dry powder and deal flow is finally picking up after a quiet year. So to conclude, we are pleased to see tenants stepping up. And while it's hard to predict when the capital markets will also respond in kind, when they do a portfolio like ours dominated by unique must-have locations with stability and then strong prospects for growth will once again become compelling. And management teams like ours, with access to multiple types of capital and a proven track record of deploying it will be well positioned to execute on the opportunities in front of us. So with that, I'd like to thank our team for their hard work and their focus over the past year. I know that it felt at times that the earth stopped spinning around its axis. I assure you, it didn't. And your efforts and your commitment not only helped us get through this treacherous period and survive, but helped us plant the seeds going forward for our ability to thrive as well. And with that, I'll turn the call over to John.

Thanks, Ken and good afternoon, everyone. I will start off by providing an update on our cash collections along with our fourth quarter results, followed by a discussion of our 2021 guidance, and then closing with our balance sheet. Now starting with collections. In hindsight, the initial and immediate impact of the pandemic was staggering with our April 2020 results barely achieving a 50% collection rate. But over the course of the year, we quickly saw improvement, not only with the collections of current rent, but also in past due amounts. In fact, as we look back over the course of the pandemic, we actually ended up collecting over 86% of our billings during the three quarters in 2020 and over 90% when we look at the third and fourth quarter alone. And as we outlined in our release, we are now consistently collecting in excess of 90% of our rents. And as we experienced throughout the pandemic, our collection percentages remain consistent throughout our street, urban and suburban locations, given the relatively comparable credit that exists across our portfolio. As I discussed last quarter, our balance sheet continues to reflect our collection efforts. Not only did we see our net tenant receivables decline from the prior quarter, in fact they're actually even lower than they were as compared to the fourth quarter of 2019. In terms of tenant deferral agreements, we have approximately $3 million on our books at December 31. And as our approach was to largely focus our deferral efforts on credit tenants, we remain on track for full repayment in 2021. Moving on to quarterly earnings. Our FFO as adjusted, for special items, was $0.24 a share for the fourth quarter. We anticipate that our quarterly FFO prior to any transactional items should remain around the current level for the next few quarters, give or take a few pennies in either direction as we navigate through the pandemic. As we highlighted in our release, we have provided our 2021 guidance with a range of $0.98 to $1.14 of FFO before special items. Now, we continue to expect ongoing variability in our results for at least the first half of 2021. We've not attempted to predict the impact of this within our guidance. But as we've done throughout the pandemic, we will continue to point out any significant items in our quarterly results and we'll update our expectations accordingly. Additionally, although we didn't include any specific NOI assumptions, I want to provide a bit more color as to how we're thinking about it. Consistent with what we experienced the past couple of quarters, we expect that our quarterly pro rata core and fund NOI should trend in the low to mid-$30 million range for at least the first half of 2021. And this is based on our assumption of maintaining a 90% collection rate, along with no meaningful tenant expirations or no leases coming online. In terms of overall occupancy, as we've said in the past, given the wide range of rents that exist within our portfolio, the percentage change in and of itself is generally not particularly well correlated to the NOI impact. Our expectation is that our physical occupancy percentage drops a bit further in Q1 and Q2, primarily due to natural lease expirations within our suburban portfolio, before it begins climbing in the second half of the year. It's worth highlighting that our current spread between physical and leased occupancy is in excess of 1%. And given the velocity with which our leasing team is building the pipeline and executing leases, we anticipate this spread, particularly in our street and urban locations, to continue to expand throughout the year. Now as we move into the latter half of 2021, we anticipate that our quarterly NOI run rate will increase by approximately $1 million to $3 million. And this is coming from a combination of reduced credit losses, along with the additional NOI from the leasing efforts beginning to come online. Now in terms of rent commencement on those new leases: of the $8 million pipeline that Ken mentioned, approximately 40% or $3 million involves executed leases, and we expect about $800,000 of that will show up in the second half of 2021 and the remaining portion coming online at various points throughout 2022. And as I will touch on shortly, we are becoming cautiously optimistic that this will be the start of what we believe is a meaningful multi-year NOI growth trajectory. In terms of other assumptions within our fund and transactional side of our business I want to point out a few things. Consistent with our past practice we will continue to exclude any changes in value from our unsold Albertsons shares. Rather we will only include the realized gains as the shares are sold. And as I mentioned on prior calls we expect that the remaining Albertsons shares should be sold over the course of the next 18 to 24 months. As a reminder we own on a pro rata basis approximately one million shares which are subject to certain lockup arrangements. Based upon the current share price this equates to approximately $16 million of gains as the shares are sold. Additionally we have guided towards $2 million to $5 million of a temporary reduction in fund fees. This is primarily a result of the pandemic-driven timing delays in our acquisition and leasing activities and we anticipate these fees should revert back to more normalized levels in 2022. I also want to point out and Amy will discuss further we have approximately 40% remaining in Fund V to deploy. And if we invest that consistent with the Fund V returns to date this provides us with an additional $0.05 to $0.06 of incremental FFO on an annual basis. Now in terms of the multiyear core NOI growth trajectory, not only does our base case model have us returning to pre-COVID levels by late 2022 to early 2023, we are also starting to see the building blocks forming to grow above and beyond that. And we are becoming increasingly optimistic that this shows up within the next few years. The key drivers of that return to pre-COVID core NOI and the ongoing growth beyond that are expected to come from two primary sources. First, a reduction in credit losses and we estimate that should result in roughly $7 million of annual NOI. We continue to estimate that about half of our nonpaying tenants get to the other side of the pandemic and revert back to contractual rents. In terms of timing as I mentioned in my guidance we expect to see some improvement beginning in the second half of 2021 with stabilization at some point in 2022. Secondly, lease-up and more specifically lease-up in our street and urban portfolio. Our overall core occupancy is at a decade-low occupancy of 90% with the street and urban portion at 87% in some of our best locations available. In terms of timing of lease-up as Ken mentioned our team has made strong progress in the past several months with building out an $8 million pipeline the majority of which is coming from street and urban locations. And for those spaces that have not yet made it into our pipeline, while it's premature to pencil in precise rent commencement dates we are optimistic that a good chunk of the space is leased over the next 12 to 18 months based upon the leasing discussions we're having and the increased momentum that we see building in the marketplace. So we certainly have a lot of hard work in front of us. We are encouraged with the leasing activity we have seen and continue to see and the opportunities it presents for meaningful and profitable multiyear NOI growth. Now moving on to the balance sheet. I want to highlight just a few items along with an update on our dividend. We continue to maintain ample liquidity between our cash on hand and available liquidity under our various facilities with no material near-term core capital needs. And at a 90% cash collection rate coupled with a breakeven below 50% we are continuing to retain cash flow. In terms of the dividend as we highlighted in our release we expect to initially reinstate our dividend at $0.15 a share. Our initial payout was conservatively determined based upon what we currently expect will be the minimum payout required to maintain rate compliance. And at this level we should be able to generate meaningful amounts of liquidity and to set ourselves up for strong dividend growth over the next several years as we execute on the lease-up opportunities within our portfolio. In summary while we are still in the midst of the pandemic we are starting to see the green shoots. And while our earnings will continue to feel the impact of the pandemic for the next couple of quarters we are starting 2021 with increased optimism and a positive outlook as we look forward. I will now turn the call over to Amy to discuss our fund business.

Thanks, John. While I usually discuss all our funds on these calls, today I will focus my remarks primarily on Fund V which is our current fund vehicle for new investments. When we launched this fund in 2016, we were already facing disruption in the retailing industry and knew we were late cycle. In response we chose to focus this fund on selectively acquiring out-of-favor suburban shopping centers where most of our return comes from existing cash flow. Our thesis was buy at an 8% cap rate, leverage at two-thirds — in our case at a sub-4% interest rate — and then clip a mid-teens coupon. We did not anticipate any material growth in NOI, nor was it required to make an attractive return at an 8% going-in yield. This thesis proved to be prudent. While the events of the past year were certainly unexpected, consistent with our original expectations for our Fund V portfolio, the properties have largely been performing consistent with plan. For example, last year at the property level, we achieved roughly a 14% leverage yield on invested equity including deferred rents. Looking ahead, we expect 2021 and 2022 to achieve similar mid-teens returns reflecting continued growth in NOI, but also continued investment of equity as we complete various leasing activities. Second, collections have rebounded since April and May and are now roughly at or above the 90% level. Third, our team has built a strong leasing pipeline, which has enabled us to maintain our NOI. Post-COVID outbreak our Fund V leasing pipeline has 32 leases aggregating annual base rent or ABR of $5.1 million of which 20 leases and approximately $2.6 million of ABR have already been executed. These metrics provide further evidence of our acquisition selectivity and our overall careful approach to capital allocation. I'd also like to share a couple of examples at the property level. First, since recapturing a 95,000 square foot Kmart at Frederick County Square in Maryland last February, we have successfully pre-leased 83% of that box to Lidl, Ollie's Bargain Outlet and Harbor Freight Tools together with our partners at DLC Management. We are also negotiating a lease for the remaining 17,000 square feet. The blended rent for the four new leases is more than five times Kmart's rent. Next consistent with our core portfolio, we monetized two parcels at Family Center at Riverdale in Utah. The parcels located at the back of the shopping center generated $10 million of gross sale proceeds. Given the strength of the net lease market, we were able to achieve roughly a 200 basis point spread between the allocated cap rate in our underwriting and our actual exit cap rates. This translates into about $2.5 million to $3 million of profit on these two sales alone. Looking ahead to new transactional activity, we have approximately $200 million of discretionary equity available to invest which gives us approximately $600 million of buying power on a leveraged basis. We are still seeing opportunities consistent with Fund V's existing high-yield strategy and hope to close several more of these types of deals this year. The good news is we're seeing an increasing appetite among our vendors to finance these types of properties. On the other end of the risk spectrum, we are also focused on the acquisition of more deeply distressed and opportunistic investments ranging from buying distressed debt to restructurings to heavier-lifting value-add projects — all areas where we have successfully invested in the past. These opportunities have been, for a variety of reasons, slower to emerge, but they are clearly coming. Most importantly, we'll make sure that we are being rewarded appropriately for the risks we're taking. Given the success of Fund V and the longstanding support of our investors, we remain confident that we'll have the time we need to put the balance of the fund to work. At the same time, we continue to proactively mine our existing fund portfolio for disposition opportunities be it smaller transactions less reliant on debt or traditional shopping centers with a larger share of essential retailers. Finally, on the debt front during and subsequent to quarter end, we successfully extended approximately $150 million of loans across our funds platform at a weighted average duration of 17 months. In conclusion our fund platform remains well positioned with a successful capital allocation strategy and ample dry powder to continue to execute on it. Now, we will open the call to your questions.

Thank you. Our first question comes from Todd Thomas with KeyBanc Capital Markets. You may proceed with your question.

Hi. Thanks, good afternoon. First, just a couple of questions on guidance. John, the $0.24 in the quarter or $0.96 annualized — that's a clean number without Albertsons. It sounds like that's the right level to think about for the next few quarters, which is above the low end of the comparable 2021 range after stripping out what's embedded in the guidance for Albertsons. What's assumed in the guidance range that would get you down to sort of the low end of the range?

Yes. Todd, what I would say is that — and if you look at the press release, we had an observation there on the credit losses. So I would really say when we look at our quarterly run rate, look at the third and fourth quarter combined to come up with between — I think we're at $0.20 which was too low in Q3 and $0.24 this period. So I think that's probably — just I would look at that second half as really being indicative of what the first half of next year should be. So like I said, give or take a few pennies is really what we're talking about particularly with the cash basis of accounting creating noise simply based upon when that portion of our tenants pay us.

Okay. And then you talked last quarter about getting back to sort of a recurring AFFO level of $1 per share in the near term. Can you just help reconcile the 2021 FFO guidance, which on a recurring basis again after stripping out Albertsons is in the sort of $0.93 to $1.01 range with that recurring AFFO target? And what's the timeline in your view to get back to $1 per share of recurring AFFO on a quarterly run rate?

Yes. So Todd what I would say is that I think we're there in the fourth quarter and this is just a seasonal piece of our business that our fourth quarter tends to trend higher on CapEx spend. So when I look out over the course of next year, I still think we're in that on average $0.25 range particularly with the growth we have in the back end. So I don't think we're far off of that and I would not use the CapEx spend, which is really the driver of where we were a few cents short in AFFO this quarter as being a run rate.

Okay. And then just last question for Amy or maybe Ken. In terms of Fund V, you talked about some of the activity that's picking up. It sounds like there's a broad set of opportunities across the capital stack and across the board that you're seeing. Can you sort of characterize the opportunity that you're seeing for Fund V in terms of the timeline and what you think you might end up sort of — maybe you could kind of bookend the value of investments that you're targeting here over the next couple of quarters in 2021? And how much risk or heavy lifting are you willing to undertake just given what seems like a lot of opportunities that are starting to surface?

So — and Amy, I'll take a first stab at. If anything you want to add by all means. We have deals under letter of intent that look, feel and cash flow very similar to our previous Fund V deals. And I think given the uncertainties in the marketplace there's just nothing wrong with continuing to add assets where we get the majority of our return out of current cash flow. There's enough uncertainty in the world that you should expect — if I were to guess and this is just a guess — that probably half of the remaining Fund V looks a lot like the prior. Then for the other half of that, we're willing to — and you've seen us in the past — undertake very heavy-lifting opportunities. We just have to make sure that our stakeholders are rewarded for the risks we're taking. And that requires two things: one, we need to see improvements in tenant demand and we're beginning to see that so that's encouraging. And two, we need sellers to be realistic about the time, cost, effort and what returns we deserve and that's taken a little longer because I have a feeling on the heavy-lifting pieces much of this deal flow is going to come not from the junior equity, but from the lenders or mezzanine holders who are going to ultimately control that capital stack. Because for good reasons, the Fed has urged banks to be very accommodative because things froze for a while that's been taking a bit longer. But we are now starting to see things become actionable. We're seeing the selling stakeholders be rational about what their expectations are. And so if we can get better rewarded for buying vacancy and doing heavy lift than existing cash flow we'll do that; and if we can't we'll just continue to do those type of Fund V deals and the market's going to be there for those as well, because there's enough institutions — primarily private — who are in need of liquidity either reducing their holdings in retail or otherwise. We're in the perfect spot to take advantage of this.

Okay. All right. Thank you.

Sure.

Thank you. Our next question comes from Linda Tsai with Jefferies. You may proceed with your question.

Hi. Can you talk about some of the tenants signing leases in your street retail portfolio? Anything interesting to highlight here? Are the tenants new to your portfolio or existing?

It's a combination. But Linda, the important thing is they're showing up. There were moments in the summer where we wondered if tenants would go away forever and the answer is clearly they're not. At the luxury level, there are a host of encouraging signs that the luxury segment is not going to wait for international tourism to come back in order for them to open stores where they can differentiate themselves from their peers, control their format and get in front of domestic customers as well. So the luxury piece is encouraging and you're seeing signs of it in Soho and elsewhere in the country and we expect to get our fair share of that. Then the digitally native brands, who over the summer we were wondering who would make it through — those retailers who started off with a strong online presence used that presence during the lockdown to get them through this. But what they're seeing is that stores are still a critical way for them to drive both top line and especially bottom line. If you think about our assets on Armitage Avenue with tenants ranging from Allbirds to Warby Parker, we're continuing to work with a variety of those types of tenants throughout our portfolio and I'd expect to see them continue. And then in between are just the brands that have weathered this storm and rethought how they are going to connect with their customer. They're recognizing that the days of pushing a whole bunch of product through department stores are changing, that the days of being able to just sell the same stuff in the same way are ending. They want to use these unique stores as a way to connect with their customers as well. All of that is adding up to tenants showing up, looking to cluster with each other in specific select areas. Let me be clear: I don't think this means that retailer demand in terms of the amount of square footage is going to expand over the next several years — I don't. The United States is over-retailed. But in these select corridors, retailers are seeing that they can show up and you should expect to see that. Then on top of that, expect to see service retailers show up after a period of nothing, but essentials and other uses that are complementary to everything that we think about when we look forward to getting back out there.

Thanks for that. And then understanding that sales are still recovering for a number of nonessential retailers looking out a year from now, do you think occupancy cost ratios change meaningfully from pre-COVID?

Yes. And this will be critical and this is something we all are going to have to keep our eyes on, because simply listening to retailers saying that they can afford to open that space can lead to some errors. We saw rents for instance on certain streets increase 10%, 20% plus a year for several years and we really need to monitor where rent-to-sales are. Based on the rents that we see tenants executing, based on the sales history pre-COVID as well as what we might anticipate as things open up, the rent-to-sales ratios look very healthy. Retailers are acknowledging it. They also acknowledge that there is for many of them a so-called halo effect, where they're not just going to have strong sales on a four-wall basis but benefits to their online initiatives as well. To be crystal clear, it is going to be a retailer's market for a period of time. With that, rent-to-sales ratios are likely to be lower — meaning rather than paying 15%, 17% or 20% they're going to be at the lower end of that. Everything we see about how our portfolio stacks up, we can afford to do those deals, we're going to, and I think there will be some really good growth on the other side of that.

Thanks a lot.

Thank you. Our next question comes from Katy McConnell with Citi. You may proceed with your question.

Okay, great. Thanks. So fourth-quarter occupancy fallout was a little bit lighter than we had expected. So I'm curious to hear your thoughts around the magnitude of potential fallout in first quarter. And whether you view that as more delayed after the holidays? Or does it just feel lighter overall now that more recent deals have been renegotiated?

Ken, I'll just start with the numbers and then you can maybe backfill into some of the other pieces. But Katy, what I would say is that, in terms of what I mentioned on my call, we have a handful of suburban natural expirations coming up in the first quarter and in the second quarter. So, I think the expectation is on a percentage basis it will drop. But you need to keep in mind we have very different rents so the percentage itself is somewhat — you need to look at it in context. But in terms of actual physical declines, I'll go back to the 10% that are not paying us: I think half of those ultimately go away. Whether that goes away in first quarter, second quarter or into 2022, we'll see where that shakes out. So I don't really have a precise view other than that. From an NOI perspective, it's not showing up because we're reserving it. So that's really the unknown, Katy, when that goes through. But I think what I know and what I expect is — like I said — a handful of suburban movements.

Okay. And then within the $8 million leasing pipeline, understanding that all deals are going to be a little bit different, can you provide a wide range or some context around what you're expecting for leasing spreads on the deals that you have already executed?

John, why don't you take that?

Yes. So I think it's going to vary. And Katy, what I will tell you is that on our street, a lot of times these don't show up in the spreads for a host of reasons, whether we cut up the space or otherwise. So what I would do is as we get these executed, we will provide color as to what the profitability was before and afterwards as well as the cost to get us there to the extent they are not showing up in spreads. But I would say that they're pretty consistent with what we've seen in the past. There's not anything unusual — they're pretty solid — but I'll provide color on them as they show up in our results.

Okay. That will be great. Thanks.

Thank you. Our next question comes from Craig Schmidt with Bank of America. You may proceed with your question.

Great, thank you, good afternoon. I was just wondering in terms of the street and urban retailers that are now starting to investigate, did you see a noticeable change once the vaccines were announced? Or has it been more recently? And the ones that are now looking around, when might those new leases hit your P&L?

So Craig, I think it was a combination of events. Certainly, the encouraging news around the vaccines was a first step in getting retailers to say, okay, we can now start thinking about 2021 and 2022 and what the world might look like. But I would tell you that we also saw a change in tenor with the retailers in terms of how they're thinking about executing through their various channels, with much more of a focus on getting back to office and doing more with less, picking their stores carefully and thinking about where they want to be. October/November felt good, but December/January felt significantly better in terms of retailers recognizing they're going to get through this and get to the other side. The opportunities in terms of spaces available in cities are unprecedented. If they wait much longer they'll miss out on some of those opportunities; by moving now there are a variety of choices and you're starting to see them show up.

And how long would it — I mean, the people who are just looking now when would you think it might add those rents at the P&L?

No Craig. So I think particularly the pipeline of the $3 million that are executed — a relatively small portion shows up this year and call that whatever I said in my script was about $800,000. That's going to be this year — the balance of that's going to start showing up in 2022. And I think the good thing with street is that there's not a lot that goes into these spaces. So the time from execution to opening is much shorter than a suburban property that could take 18 months to build out and split. So it could happen quickly and we're starting to see increased conversations. So I think on the street that could ramp up very, very quickly. But this year I'm guiding about $800,000 of that $3 million we've signed to show up.

Great. And then just real quick for Amy. I believe Fund V has till August 2021 to be invested. Do you — given the more robust pipeline, do you think you can accomplish that? Or might that date get extended?

Craig, that's what I said in my remarks earlier: these are longstanding relationships we've had with our limited partners in the fund. So whether it's done over the next several months or if there's time beyond that, we're confident that we'll have the time we need to make sure that we put the balance to work.

Great. Thank you.

Thank you. Our next question comes from Michael Mueller with JPMorgan. You may proceed with your question.

Yes, hi, this is Hung on for Mike. I guess, it looks like you put a few other tenants on a cash basis this quarter. How should we think about that? Is that kind of just a year-end cleanup? Are all the nonpaying tenants on a cash basis now, or can we expect more in the coming quarters?

Hi, Hung. I assume you're referring to just from the straight-line where we did the straight-line write-off the incremental — is that where the question is coming from? So I think it's just incremental cleanup at this point.

Got it. And would you know what cash collections were for these tenants on a cash basis in both the fourth quarter and in January?

Off the top of my head I would not. I think it's one where I keep going back to the 10% that aren't paying us. Certainly it's that bucket that those are on a cash basis. I would estimate we're probably another 5% to 10% above that that are paying us. I don't really have the exact percentage handy as to what percentage of those are actually paying us.

Yes. No worries. Thank you.

Thank you. Our next question comes from Paulina Rojas-Schmidt with Green Street. You may proceed with your question.

Can you hear me?

Yes.

Okay. Sorry for that. So my question is about tenant reopenings. About 10% of your tenants in your portfolio haven't reopened yet, while it appears this number is much lower — closer to 3% — for other strip center peers. Can you help me understand the reason behind this gap? Is it that you have a lower exposure to essential tenants? Is it more your geographic distribution of assets? Any color would be appreciated.

John, you want to — well you know what, it is first and foremost geographic. Because our properties are dominated in the major urban markets and they experienced a more significant shutdown, more of those tenants were slower to reopen. In New York City restaurants, for instance — not a significant portion of what we own, but many were forced to shut down or go remote only. The glass half empty side is yes, more of our stores are currently closed than in some other parts of the country. The glass half full side is they are getting ready to reopen. Those that can't make it to the other side, as John mentioned, we're fully reserved for and I think that's to be expected. But those that have yet to reopen and do intend to get to the other side, I think that will be a quick bounce back for us.

Yes, I think that's right. It's really just the geography and getting to the point where there's enough density in those areas to make it profitable for the store to open. So no, I don't have much to add to Ken's point.

And then the second question: do you have any sense of how much market rents in New York, let's say Soho, changed in 2020 for your type of street retail assets?

Too hard to tell, but here's part of the problem. When people held their asking rents at prior peaks — and keep in mind rents peaked in 2016 and 2017 and we were very cautious about that when rents were climbing to those levels — if a landlord is quoting off of those rents the lease that they would execute in 2020 would be substantially lower, because rents had already fallen. Realistic landlords who had been transacting throughout 2019 and 2020, there I don't think there will be as big a distinction. But it's so hard to gauge and each store is different. What I will tell you is that 2020 rents are going to continue to be transitional to the extent that the tenants get open. 2021 is the same. But as we think about 2022 and 2023 our retailers are showing a fairly bullish attitude and are willing to see pretty significant rental growth whether it be contractual or fair market value resets. So short-term, expect a lot of turbulence and headlines across the board, but longer-term, I think you're going to see some very nice momentum.

Thank you.

Thank you. Our next question comes from Ki Bin Kim with Truist. You may proceed with your question.

Thanks, and good afternoon everyone. So it was good to hear you guys talking about the green shoots in street and urban retail leasing. But I'm curious what the retailers are looking for to turn that positive attitude into much more signings and for it to be more on a solid footing.

Yes. Let's be clear, this winter is going to stick because of everything in the headlines plus cold weather. Some of this is going to be simply the seasons changing. With that, retailers are starting to look forward because it takes a month if not longer to gear up for a strong reopening. Watch luxury and I think you'll see pretty consistently the luxury retailers picking their spots and one of the spots happens to be Soho. I think that will bode well for our portfolio and for Soho and specific other pockets elsewhere in our portfolio. Then watch where the up-and-coming retailers are clustering as well. Over the next few quarters you'll start seeing a rational migration to a few key areas where they can do strong top-line growth and strong bottom-line, where they can present their brand in a differentiated way, because channels are shifting. Some brands may say they can do all of their sales online and achieve their needs — and for those select few, great — but that's going to be the exception to the rule. Most recognize stores are critical. It's a matter of where. Our focus in our portfolio is to make sure we have those must-have locations.

Okay. And are the deals in the pipeline including different lease structures than before, like optionality or different durations?

Here's the evolution. Out of the global financial crisis, retailers were cutting tough, long-dated deals. Initially over the first half of this crisis, retailers stepping up were generally stepping up with shorter-term leases and saying 'we'll figure out 2023 or 2024 when we get there.' That was a theme that worked for both landlord and tenant. I still say that's more the theme we're seeing than very long-dated leases. But now we are seeing, especially some luxury retailers, say 'No, we know we want to be here for a long period of time.' You've even seen on Madison Avenue in the last few months two different retailers announcing that they're buying their locations — talk about long-term commitments. As retailers begin to make longer-term commitments, there's a give and take of what rental growth would look like. I am encouraged by retailers' willingness to see their rents grow back to pre-COVID levels and beyond as they are interested in committing longer term. So short-term, mainly retailers are saying 'How do I get open? How do we figure out the next couple of years?' and then we'll have some form of reset. But you'll start seeing longer-dated leases and we are starting to sign some of them as well.

Thanks for that. That makes sense.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Ken Bernstein for any further remarks.

Thanks everybody. Probably a few more months before we get together in person, but I cannot wait to see you all in person. Until then, stay safe. And we'll talk soon.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.