Acadia Realty Trust Q2 FY2021 Earnings Call

Good day and thank you for standing by. Welcome to the Acadia Realty Trust Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the conference over to Theresa Wang. Thank you. Please go ahead.

Good morning and thank you for joining us for the second quarter 2021 Acadia Realty Trust earnings conference call. My name is Theresa Wang. I'm a summer intern in our finance department. Before we begin, please be aware that statements made during this 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 July 29, 2021 and the Company undertakes no duty to update them. During this call, management may refer to certain non-GAAP financial measures including funds from operations and net operating income. Please see Acadia's earnings press release posted on its website for reconciliation of these non-GAAP financial measures with the most direct comparable GAAP financial measures. Once the call becomes open for questions, we ask that you limit your first round to two questions per caller to give everyone opportunity to participate. You may ask further questions by reinserting yourself into the queue and we will answer as time permits. Now, it is my pleasure to turn the call over to Ken Bernstein, President and Chief Executive Officer, who will begin today's management remarks.

Thank you Theresa. Great job and thanks to all our summer interns for joining us this summer. Good morning, everyone. As you can see from this quarter's results, several of the trends that we have discussed on past calls are now showing up in our earnings performance. So today, I'll spend a few minutes discussing how these trends are positively impacting our business and then we'll delve into the details. First of all, retailer demand continues to accelerate and it continues to broaden. As we've noted on past calls, while leasing activity was initially weighted to the necessity and suburban portions of our portfolio, we're now seeing a meaningful pivot from lockdown-oriented necessities to more discretionary spending. We're also seeing retailers once again focusing on the key street locations in the major markets that we're active, and while we're seeing solid performance throughout our portfolio, one of the key differentiators of our company is our ownership of street retail in key gateway markets—a differentiator that certainly caused legitimate concern during COVID. Thankfully, the rebound here is both welcomed and worth discussing. So let me spend a few minutes on the street retail segment of our portfolio. As you know, roughly 40% of our Core Portfolio NOI consists of street retail and about half of that is in the highest density corridors of the major gateway markets. During the early days of COVID, this half of our street retail was hardest hit. Whether it was Soho in New York, the Gold Coast in Chicago, and Street in Georgetown, retailers were facing an existential crisis of unknown duration. And that's understandably, in the early days of the lockdown, it was the other half of our street retail in the lower density markets such as Greenwich Avenue in Connecticut, our Armitage Avenue in Chicago, as well as other necessity and suburban components of our portfolio that had the most retailer activity. And while this lower density component continues to perform well, we are seeing a shift in attention by our retailers that to the higher density corridors, and we're seeing this much sooner than we expected. In the luxury segment, for example, many retailers are not only staying in their flat locations but they are expanding their footprints especially in key must-have markets. This is evidenced by our second-quarter lease with wire sales at our Gold Coast location at Rush and Walton in Chicago, where they are expanding their existing store by over 50% and they entered into a new 10-year lease. Across the street from us, yours is expanding their space as well, providing further evidence of this sub-market's rebound from 12 months ago. And this is certainly not just a Gold Coast phenomenon. This trend is playing out in Soho as well as other key markets and it's not just luxury retailers. Bridge and aspirational retailers are also beginning to show up as well. For example, in Melrose Place in Los Angeles, after the end of the quarter, we extended a lease with one of our retailers there for another five years at a double-digit lease spread, showing the strength of this corridor and retailer confidence in Los Angeles. Now let me be clear, retailers are still being selective on which markets they are choosing to expand into, and it is still a tenants' market. But what recently felt like a decade's worth of vacancy is quickly being absorbed, and while retailers and landlords are climbing out of several years of headwinds—headwinds that predated COVID—their recovery is encouraging with vacancies being leased up and COVID discounts heavily structured leases quickly being replaced with real deals that are approaching or in some cases exceeding pre-COVID rents. Along with luxury retailers, we're seeing digitally native and other up-and-coming direct-to-consumer retailers stepping up. Retailers' influence seems to go far beyond their physical footprint. Only a few years ago, these retailers debated the need for physical stores. That debate is over. Whether it's Warby Parker or Allbirds, the best-in-class digital retailers are seeing the significant benefit of physical stores. For instance, on M. Street in Georgetown last quarter, we added digitally native retailer Everlane to our portfolio. This is encouraging because Georgetown is still in the early stages of reopening and the fact that tenants such as Albertsons, Ball Mason, and my family's favorite Levain Bakery are arriving on M. Street. All of this is further evidence of the support for this corridor. And it's not just retailers hoping to capture a future rebound; tenant sales performance is already confirming the recovery. For several retailers in our portfolio or in our corridors, they are beginning to post sales performance that is already comping positive to pre-COVID sales. This is before the return of international tourism and before a full reopening. Even in markets that have been slow to reopen, such as San Francisco, despite all the headlines, we're beginning to see positive activity. As these key streets continue to activate, we are entering what is setting up to be a nice multi-year rebound. Not only are rents significantly below prior peaks, but it appears clear now that retailers are committed to connecting directly with our customers both digitally and also through these important stores. So whether it's LVMH or Warby Parker, we are seeing the increased recognition of the importance of these locations in an omnichannel world. As John will discuss, even before taking into account anticipated additional market rent growth, we should be able to drive above-trend NOI growth at higher levels for the next several years. For instance, in Soho, notwithstanding the huge gut punch over the past 18 months, we forecast our Soho portfolio NOI to nearly double over the next few years. And then, assuming that this rebound continues, the growth could be even better in the street retail component of our portfolio, where we have more opportunities to mark to market our leases than in our suburban portion of our portfolio since fair market value resets are much more common in our street portfolio than in our suburban. From a capital markets and investment perspective, while there has been less actionable distress than one might have thought in the early days of the crisis, the interesting and actionable deal flow is increasing. In terms of our Fund V investing as Amy will discuss, we are seeing a nice increase in acquisition opportunities, and this is due to the fact that in the private markets, retail real estate still remains somewhat out of favor. Now, we expect that this will shift over time given that in the debt markets borrowing costs and debt proceeds have returned to pre-COVID rates and levels, and in the public markets we have seen significant compression and implied cap rates over the past year. But for a variety of reasons, it may take some time for the private markets to catch up and in the interim, we will continue to deploy capital opportunistically. With respect to Fund V, we're continuing to selectively buy out-of-favor properties with unleveraged yields of about 8%, and then lever them two to one with borrowing costs well below 4% and clip a mid-teens current cash flow. That does not ignore the fact that the United States is over-retail. To achieve real net effective rental growth is going to take hard work. It's going to take some work. But these acquisitions don't require significant growth; they just require stability. If we see cap rate compression commensurate with the public markets—which certainly seems likely over the next couple of years—the opportunity that asymmetrical upside feels pretty compelling. With respect to our Core Portfolio investments, our acquisition pipeline is also heating up. As you know, our focus here has been to selectively acquire assets in the highest barrier-to-entry markets where we can achieve superior long-term growth. Obviously, COVID and related issues were a real gut punch for many of the markets we're active in. But thankfully, we are seeing encouraging signs of a long-lasting rebound driven by three important factors. First, rents in many key streets that we're active in are at a cyclical low point. Second, many of the tenants we do business with have now successfully navigated the so-called retail apocalypse and are in a much stronger position to succeed in an omnichannel world. And third and finally, the consumer is in very healthy shape and returning to discretionary spending. Given the amount of disruption we have seen in the major markets, it's understandable that deal flow initially slowed, but sellers are beginning to return. And given the roller coaster ride they went through, we are seeing sellers being realistic on rental growth and other assumptions. While it is still a bit early, based on the improving deal flow we are currently involved with, and what we are seeing in the pipeline, we expect to be able to acquire best-in-class retail properties in the key high barrier-to-entry corridors where retailers are going to continue to cluster. While in the second quarter, we began to put some dollars to work accretively, we are confident that as meaningful buying opportunities arise, we will be in a position to capitalize. While our strong embedded internal growth certainly means we can afford to be disciplined and can afford to be patient, our relatively small size means that every $100 million of acquisitions is about 1% to our earnings base. To conclude, we are pleased to see our quarterly results reflect the rebound in leasing and operating trends. It is also encouraging to see retailers stepping up again for the unique must-have locations that dominate our portfolio. Most importantly, it is exciting to think about the potential opportunities in front of us, especially for management teams like ours with access to multiple types of capital and a proven track record of deploying it. So with that, I'd like to thank our team for their hard work and success last quarter and I will turn the call over to John.

Thanks, Ken, and good morning everyone. I'll start off with a discussion of our second quarter results followed by an update on our Core NOI growth expectations and then closing with our balance sheet. Starting with the quarter, FFO came in above our expectations at $0.30 a share, and this was driven by a combination of two items. First, rent commencement on new street leases, including in Chicago with Veronica Beard on Rush and Walton along with J. Crew and Lincoln Park and in New York City with Watches of Switzerland and Soho. Consistent with what we observed last quarter, we are continuing to see leases commence earlier than we initially anticipated as retailers expedite their store openings in an effort to capture the extraordinary consumer demand. Secondly, we are continuing to see significant improvements in our credit reserves. This quarter’s improvements were driven by increased cash collections. We collected 96% of our pre-COVID rents during the second quarter and saw continued consistency within our street, urban, and suburban portfolios. At our 96% cash collection rate, our quarterly reserve should trend in the $2 million range or $0.02 or $0.03 a share. Additionally, during the second quarter, we recognized a one-time benefit of approximately $0.02 from cash collections on past due rents. The majority of this benefit came from our German theatre tenants that represent approximately 4% of our core ABR. Given the continued growth and conversion of our pipeline into executed leases along with a significantly improved outlook on our operations, we have once again raised our full-year FFO guidance with an updated expectation of $5 to $14, representing a 7% increase at the low end of our original guidance. In terms of our FFO outlook for the second half of the year, we anticipate that our quarterly FFO should trend in the 25% to 27%. This is before any possible benefits from cash basis tenants or the sale of Albertsons shares. As it relates to Albertsons specifically, we have revised our 2021 guidance to reflect an updated range of zero to $7 million or $0.00 to $0.08 a share for potential share sales. As a reminder, irrespective of when the shares are actually sold, given that our cost basis in our Albertsons stock is zero, it's simply a question of when, not if, that this upside shows up in our earnings. Using today's share price, we have over $20 million of profit representing excess of $0.20 a share of FFO. In terms of timing, while a share sale is still possible this year, that decision with our partners is based upon a variety of factors. For purposes of modeling 2021 earnings, it may be prudent to push any realized gains into next year. Not only are we incredibly pleased with the performance of our portfolio this quarter, but we are also increasingly optimistic about the much more impactful Core NOI growth that we believe is still in front of us. This growth is being driven by the recovery in our street and urban portfolio, and if our business continues to perform in line with our expectations, this should provide us with meaningful multi-year internal growth, which has us growing our Core NOI between 5% to 10% annually through 2024 with an expectation of more than $25 million of incremental NOI over 2020 that we believe gets us to $150 million in 2024. While it's premature to provide multi-year FFO guidance at this point, given the leasing progress we have made to date and the acceleration of recovery within our portfolio, we are anticipating meaningful FFO growth in 2022 and we are well-positioned for strong FFO growth for the next several years. This is even before we layer in the impact of any accretive redevelopments, external growth, or the profitable transactions that we anticipate should continue to rise from our Fund business. The three key drivers of this growth include first, profitable lease-up of our Core Portfolio; second, further stabilization of our credit reserves; and lastly, contractual rent growth. Now, I will provide a bit more granularity on each of these pieces. First, on the lease-up, as outlined in our release, we have approximately $14 million of pro rata ABR in our core pipeline with more than half or approximately $7.5 million already executed. To further highlight the recovery we see playing out within our street and urban markets, 60% of our executed leases have come from our street and urban portfolio with New York City alone representing nearly 40% of our current pipeline. In terms of the pipeline itself, you may recall when we initially started discussing it in the second half of last year, it stood at $6 million. With the $7.5 million of leases we have signed to date, not only have we signed 125% of our original pipeline, but we have also more than doubled it in a short period of time. This is providing us with increased confidence on both our ability to successfully execute profitable deals and, equally important, the strong and increasing demand for our prime street and urban locations. These executed leases are starting to meaningfully show up in our metrics. The spread between our physical and leased occupancy grew over 100 basis points during the quarter to 260 basis points, with our New York metro portfolio leading the way with a pro-rata physical to lease spread of approximately 700 basis points at June 30. The $14 million pipeline represents our pro rata share of ABR and is comprised of over 400,000 square feet of space, with approximately 70% of the $14 million being incremental to our 2020 NOI. In terms of the timing as to when we expect that our pipeline will impact earnings, we anticipate that about $2 million will show up in 2021, as compared to our initial expectation of $800,000, with an incremental $6 to $8 million in 2022 and the balance coming in during 2023. The second driver of our NOI growth involves our expectation of ongoing stabilization of our credit reserves. As I mentioned earlier, at a 96% cash collection rate, this translates into quarterly reserves in the $2 million range or $8 million when annualized equating to $0.09 of FFO. We anticipate that of the $8 million in annualized reserves, approximately 75% or $6 million when annualized will ultimately revert back to full rents, with the remaining 25% or $2 million annualized ultimately not making it to the other side, providing our leasing team with the opportunity to profitably retenant the space within what we are currently experiencing as a very robust leasing environment. The last piece of our growth comes from contractual rent growth, which is driven by the higher contractual rent steps built into our street leases. This blends to about 2% a year across our portfolio and contributes approximately $3 million of incremental annual NOI. As a reminder, given the impact of straight-lining rents, contractual growth does not increase our FFO, but nonetheless, is an important driver of our NOI and ultimately NAV growth. As an update on near-term expirations, consistent with the tenant rollover assumptions we provided on our last call, our NOI forecast continues to assume we get back approximately $9 million of ABR at various points over the next 18 months from our remaining 2021 and 2022 lease expirations. This $9 million includes approximately $4 million of ABR expiring within the next six months from two tenants located in some of our best locations and we have meaningful traction to profitably retenant these locations, with a portion of the space already reflected in our pipeline. Moving onto our balance sheet, during the second quarter, we successfully closed on a $700 million unsecured credit facility with an accordion feature enabling us to upsize it to $900 million. This new facility significantly increased our liquidity, along with extending our maturities for five additional years and we saw incredible support on this deal. The transaction was oversubscribed with all of our existing banks remaining in the facility and we successfully added four additional banks. The successful execution of this transaction gives us further confidence in our ability to pursue and execute external investment opportunities. Additionally, through improved operations and deleveraging, we have also brought our core debt-to-EBITDA down to the mid-sixes and are on track to get into the fives in 2022 as we begin to see meaningful NOI growth show up in our results. Lastly, as outlined in our release, we raised approximately $46 million through our ATM at an average issuance price of $20.37 and we were able to accretively redeploy these proceeds to the funding of investments and repayment of debt. In summary, we had a strong quarter, we came in ahead of our expectations and we continue to feel optimistic as we look forward over the next several years. And with the additional liquidity that we generated this past quarter, we are well positioned to pursue an aggressive external growth strategy. I will now turn the call over to Amy to discuss our finances.

Thanks, John. Today, I'd like to provide a brief update on each of our four active funds, beginning with Fund V. First, we are pleased to report that fund deal flow is kicking in with our fully discretionary capital finally getting the credit it deserves. We currently have approximately $170 million of Fund V acquisitions under contract or under agreements in principle. This includes the $100 million we previously reported as of the first quarter. Consistent with Fund V existing investments, this committed pipeline is comprised of higher-yielding suburban shopping centers. For stable properties, pricing remains at approximately an 8% unleveraged yield. In fact, private cap rates for these types of suburban shopping centers have remained at this level since at least 2016 when we began leaning into the strategy with Fund IV. At this going-in cap rate, we have been able to maintain an approximate 400 basis point spread to our borrowing costs, enabling us to equip a mid-teens leveraged yield on our invested equity. More recently, we are also seeing new acquisition opportunities with some immediate value added releasing, which plays to our strengths as retail operators. At the beginning of the year, we had allocated 60% of Fund V's $520 million of capital commitments. Including our committed acquisition pipeline, we are now approximately 75% allocated, and we have until August of 2022 to fully deploy the rest of our dry powder. Due to our selectivity at acquisition, our existing Fund V assets have navigated the pandemic well with a collections rate that is now in the mid-90s, consistent with our Core Portfolio. Notably, throughout the pandemic, this carefully selected portfolio has delivered consistent mid-teens leveraged returns. Over the life of our investments, we expect to generate most of our return from operating cash flow. That said, there is a tangible opportunity for outsized performance due to cap rate compression. After all, real estate borrowing costs have returned to their pre-pandemic levels and public market cap rates for retail real estate have also compressed while private market cap rates remain the same. As a result, we believe that signals are pointing to reversion to the mean in the private markets over the next few years. Every 50 basis points of cap rate compression would add 250 to 300 basis points to our projected IRRs. Given the amount of capital on the sidelines and recovering retail fundamentals, this is also a good time to opportunistically harvest properties. One area of focus is our grocery-anchored properties, which have gotten a pandemic boost and remain in favor in the capital markets. To that end, during the second quarter, we completed the sale of four grocery-anchored properties all located in the State of Maine. These were part of Fund IV in Northeast grocery portfolio. At one property, we had recently completed the installation of a new junior anchor and at two others, the supermarket anchors had recently exercised their next five-year options providing enhanced cash flow stability and finance ability for the next buyer and better exit pricing for us. Finally, turning to Fund II and City Point, we continue to see positive momentum at this iconic property with shopper traffic and tenant sales both continuing to increase. Recall that City Point is located at the epicenter of a development boom in Downtown Brooklyn, which has resulted in the completion of nearly 16,000 new residential units since 2004, and another 13,000 units either under construction or in the development pipeline. Among New York City neighborhoods, Downtown Brooklyn now ranks 13th for median home price, up nearly 80% year-over-year to $1.4 million. This should all order to the benefit of our mixed-use project. On the City Point leasing front, we've seen strong interest in the former Century 21 space from both traditional retail users and commercial tenants. There is also strong interest in the concourse level which is anchored by our decal market hall. We're pleased to announce that we recently executed a lease with Sphere physical therapy for a 2000 square foot space fronting Gold Street and the New York City development of a new one-acre park. With all these positive indicators, this is the perfect time for us to go to market to refinance this project over the next 12 months. In conclusion, our fund platform remains well-positioned with a successful capital allocation strategy and a portfolio of existing investments that continue to march toward stabilization. Now we will open the call to your questions.

Your first question comes from Todd Thomas with KeyBanc Capital Markets.

Hi. Thanks. Good morning. John, Ken, you both provided a lot of detail around NOI growth in the portfolio over the next few years. I'm just curious within the $150 million of NOI that you're talking about achieving by 2024. I think Ken, I heard you say Soho street retail NOI may double in the next few years. Is that right? Is that specifically the Soho collection of assets that you own or did you mean the New York street and urban retail portfolio overall?

That's Soho, Todd, Soho alone. Yes, and I was picking that as an example because Soho certainly was hit hard during the pandemic, and depending on what assets you owned, what basis were the rents for, the outcome certainly for many people felt uncertain. As we're looking at this, we're seeing a very nice rebound.

Okay. And then the comments about potential above-average NOI growth over the next couple of years. With that NOI growth, it sounds pretty clear that the street and urban retail will lead the way, just given the leasing pipeline in your commentary there. But can you just touch on the suburban retail portfolio and your thoughts around growth in that segment of the Core Portfolio?

Sure. Let me touch on both. The roller coaster ride that street assets went through from 2010 to 2015, rents grew between 10% and 20% a year. We commented that street trees don't grow to the sky, and sure enough, 2016-2017, you saw corrections downwards. Pre-COVID, many of these streets were facing significant headwinds, vacancies, and rents were down. COVID was another body punch, and now retailers are able to climb out at very low rental bases compared to certainly the 2015 peaks. When we talk about our confidence in growth, it's because one, they're starting at a low rental basis; two, there is strong pent-up demand. In an omnichannel world, those kinds of locations can be really powerful for retailers. That's why we see above-average growth there. In the suburban side, there is a lot of positive momentum as well. However, we do need to recognize that unlike what I described for street retail, rents were slow to grow in 2010, 2011, 2012. As the economy was expanding, rents in our suburban portfolio, especially our satellites, grew between 2015 to 2019-2020 period. So we're starting off of a higher base. But the consumers are coming back, there are shifts to the suburbs, and we're certainly seeing a nice lift there. We remain hopeful that side of our portfolio can do well. However, again, different starting points and different sets of expectations for the next few years. We hope that everything does well, but we do remain very bullish on this rebound we're seeing in the streets.

Is now a good time to explore recycling capital and sort of selling or calling the suburban retail portfolio at all?

We're getting there. As I pointed out and Amy pointed out, there is still a disconnect between the public and private markets for a variety of reasons that I can get into later. I would not call it a seller's market, maybe in some select areas. Secondly, notwithstanding my enthusiasm for our street retail portfolio and its recovery, let's also realize we're still climbing out of a global pandemic that hit us hard. Thank goodness for the diversification we had within our core competencies of long-term stable leases with strong suburban assets. We are certainly considering everything, Todd, but I don't think you should expect a huge calling until the private markets catch up with the public, which will happen but it may take a year or two.

Your next question is from Floris van Dijkum with Compass Point.

Thanks guys for taking my question. There's a lot to chew over, a lot of good news here, certainly if I read the tone. But John, you talked about $150 million of NOI in a couple of years' time. Yet you gave a range of same-store NOI growth of 5% to 10%. If I do the math, I can get to north of $170 million of NOI. Are you leaving some room for exceeding, I guess your headline numbers? What is driving the confidence behind that? Is it just the tenant demand that you're seeing?

Yes, of course. I think if you go back, right. I think before the pandemic hit us, we were on track to do this and that was through a combination of the factors we look at today. We went into the pandemic with leasing momentum. We had strong contractual growth. What gives us the confidence is the leasing pipeline that we have. If we look at how that's accelerated from a $6 million pipeline six months ago to $8 to $10, now to $14, we're seeing demand that is at levels we saw before the pandemic. That’s what's really giving us the confidence that retailers are starting to show up in our markets.

Let me add one more point because John is spot on in terms of retailer demand. What caught me off guard and I think caught a lot of us off guard was the specific retailers, especially luxury ones in Soho and other markets that got hit hard, are already comping positive to pre-COVID sales before the international tourism that we have always credited those retailers for achieving those sales happens. There are a bunch of reasons—pent-up demand, a healthy consumer, and a variety of other factors. But if it's not just tenants calling us saying, 'Hey, we want space,' it's tenants showing us their sales performance. It is certainly counterintuitive to what you would have expected climbing out of a global pandemic and a painful recession.

Just to make sure the market understands. So your guidance assumes again that includes $4 million of rent leaving your portfolio and presumably not getting released right away, but maybe getting sold sometime next year. Is that correct?

Yes, that's correct.

Maybe one other question in terms of New York, what are your opinions on the demand for the market? You guys were very smart in picking out Soho, which is more domestically focused and not as dependent on tourism, etc. How does your view in markets in New York? How have they changed or evolved as obviously tourism has been decimated? Times Square has been on its heels. Are you starting to look at that market and potentially see more attractive opportunities relative to maybe 12 months or 24 months ago?

The short answer is, we're looking at multiple different markets depending on the price point. We do think there is a chance that the return to work component of Midtown Manhattan will either take a long time to come back or will change. We have very little exposure to that specifically—which means whether you come to the office four days a week or five days a week or it starts at Labor Day or Thanksgiving is really not going to impact where we're focused right now. It could impact other markets. We need to be open-minded to those changes, and I probably would be less enthusiastic about buying into retailers dependent on how many days a week you come into the office, but that was always the case. We've said for years, not all foot traffic is created equal, and we need to be very careful about trying to capture a sale from someone rushing from Grand Central Station to their office.

Thank you.

Your next question comes from Linda Tsai with Jefferies.

Yes, hi. In terms of the increased $2 million pipeline just from June, what percentage of that is from street and urban versus suburban?

Fairly consistent, Linda, so I'd say it's probably following the 60-40 split. We are still seeing incredibly strong demand and activity in the street urban space consistent with the overall.

Then, John, regarding your comments on improved liquidity from both debt and equity in pursuing a more aggressive external growth strategy, how quickly would you expect to deploy this capital? If contractual rent increases add 2% of growth in $3 million of NOI, what does the external growth look like in comparison?

We can hit the external growth, but of the $46 million we raised of that ATM, we were able to redeploy that acutely this quarter into a structured finance investment that was incredibly profitable. Through deleveraging and a couple of the investments we made, we were able to deploy a relatively modest amount accretively. So I think between the expansion line and the flexibility we have on that, we have a lot of firepower to put to work.

So John is right. We have strong embedded internal growth, so we don’t have to rush to create external growth just for the sake of it. But sellers are coming back to the table. Everyone hid in their bunkers for a while, and now they're saying owning retail requires a level of expertise. Perhaps now is a good time because we have a decent sense of where rents are, where value and borrowing costs are, and sellers are starting to show up. It takes not just us having the capital but it requires realistic sellers. Initially, we thought that would be the debt holders, but we didn’t see the debt crisis real distress selling we thought we would see, but we are now seeing lenders and people in the capital stack come to the table.

Are there any other street or urban markets that the pandemic has uncovered that make sense for your portfolio?

You will not hear me say them right now, but the pandemic did cause a reshuffling of the deck. My interest is derivative of where our retailers say, 'We could plant a flag there. We can do business there. We can see long-term growth.' Those markets, if we can get in at the right price, we will listen very carefully to what our retailers are doing. It can't just be because retailers are interested; it has to be that they can do the sales. Even if it's strong for a retailer, we need to see that there are adequate barriers to entry such that we as a landlord have pricing power. Our team is doing a great job focusing on a variety of markets, and it may be that it looks more like the existing great markets, subtract one or two and add two or three, then it is a wholesale reshuffling of where retailers, shoppers, and thus, we, landlords want to be. So stay tuned on that.

Thank you.

Your next question comes from Katy McConnell with Citi.

Given all the progress you've made in street retail leasing this quarter, can you talk about how the structure of leases has evolved in terms of the flexibility you're offering tenants initially, and has the negotiating power shifted back to you? Are you able to push initial rents more aggressively from here?

This is important, Katy. First of all, I would tell you we are managing through with our leasing team a big case of whiplash. Not that many months or quarters ago, we were trying to hold retailers' hands to ensure they could get through. Leases were very structured, emphasizing percentage rent and uncertainty. We were very flexible and cooperative in the short term and found our tenants more focused on the short run. We were not signing long-term ten-year leases with contractual growth. Fast forward to today, we are seeing real leases less dependent on irrelevant percentage rents. While it is still very much a tenants' market, even in the best markets, the ones we’re most excited about, there will be headlines of vacancy. But we need to see the right tenants coming back in, need to see the right tenants expanding. Many will see a lot of vacancy; thus, releases in some cases below pre-COVID and in others above. Real tenants, real balance sheets, and all of that feels good. Now, add to that what we see as real market rent growth opportunities as well as contractual growth feels pretty good. It feels a lot better than what we talked about two or three quarters ago.

That's helpful, thanks. With the additional fund acquisitions added to the pipeline this quarter, what should we expect about the timing of getting those over the finish line by the end of this year?

If our team can get those over the finish line, we will see some issues taking longer for deal-specific reasons. But all these deals are teeing up nicely. If we clip mid-teens returns and if we shot through the COVID crisis without impact to those returns, it feels like a good business to both get these deals closed before year-end. There should be a bunch behind that.

Thanks, John. You guys provided pretty good commentary on the ABR in the pipeline for your core business. How about for unconsolidated joint ventures?

In terms of acquisition pipeline and ABR, we are seeing consistent activity on both fronts, both in suburban and street retail. These are small portfolios, so I would just expect overall them to be consistent with the quarter.

Okay, and you mentioned some positive activity for City Point. Are we close to maybe putting a timeline on what we can expect in terms of occupancy for that asset?

Yes, certainly the pandemic just caused a little bit of lag to our initial stabilization, but we're seeing a lot of positive momentum. Alamo has reopened, a top-performing movie theater. We recently executed a lease with Sphere Physical Therapy for a 2000 square foot space fronting Gold Street and the New York City development of a new one-acre park. With all these positive indicators, this is the perfect time for us to look at refinancing this project over the next 12 months.

If I were to guess, I would say 24 months. Some of that is just how long it takes to get certain leases signed, and the park that is getting built across the street that our Gold Street portion faces will happen over the next 12 to 24 months. The leasing ability for our street-level Gold Street is going to be that much stronger once that park is opened. I would not encourage our leasing team to rush on every deal. It will take 24 months, and I think we will be rewarded for our patience.

Okay, and just last question for me. How are your retailers thinking about COVID and the Delta variant and the impact it might have on their willingness to sign deals or if it causes a delay? Just high-level thoughts there.

We need to be aware that there is a lagging timeline between issues like this and retailers' responses. So far, we have not seen any slowdown, any concerns specifically around Delta. Retailers who are thinking one, three, five, ten years down the line have the confidence that we will get through this, even if it's a short-term bump.

Okay, thank you, guys.

Sure.

And there are no further questions at this time. I will turn the call back over to management for closing remarks.

Great. Thank you everybody for joining us, and enjoy the rest of your summer. We look forward to seeing you in person again soon.

Thank you everybody for joining us, and enjoy the rest of your summer. We look forward to seeing you in person again soon.