Good day and thank you for standing by. Welcome to the Third Quarter 2021 Acadia Realty Trust Earnings Conference Call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question-and-answer session. Please be advised that today's conference may be recorded. I would now like to hand the conference over to Nicholas Tele, Analyst.

Good morning and thank you for joining us for the third quarter 2021 Acadia Realty Trust Earnings Conference Call. My name is Nicholas Tele and I'm an Analyst in our Asset Management Department. 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, October 27, 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 reconciliations of these non-GAAP financial measures with the most directly comparable GAAP financial measures. Once the call becomes open for questions, we ask that you limit your first round to two questions per caller to give everyone the opportunity to participate. You may ask further questions by 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, Nicholas. Great job. Welcome, everyone. As you can see from our earnings release, we had another solid quarter and notwithstanding some macro concerns around Delta and supply chain disruption, tenant leasing activity remains brisk and tenant performance remains strong in all components of our portfolio. Additionally, transactional activity continues to pick up. So, before I turn over the call to John and Amy to delve into the details of the progress that we made last quarter, I want to reflect on an interesting inflection point that we find ourselves. Because after a couple of years of meaningful headwinds for retail real estate. First, from the so-called retail apocalypse and then from the impact of COVID, we're now at a point where not only are we seeing solid leasing fundamentals that should provide strong internal growth for the next several years but the other drivers of our business, most notably our external growth engines, both from our on-balance sheet investing as well as through our fund platform are in a position to add important growth as well. In short, we have the potential to be hitting on all cylinders in a way that we have not seen in a very long time. So, let me walk through the key drivers of this trajectory. First, there's internal growth. NOI growth is poised to be well above trend for the next several years. Now granted, some of this growth is from the rebound from the short-term setbacks from COVID. But we positioned ourselves to not just recapture past income but then to grow nicely past that benchmark. This growth is going to come from a few key components. First, we anticipate taking our occupancy back to approximately 95% from the current level of approximately 90%. Now occupancy for us is a very rough and very imprecise proxy but, however you choose to measure it, the growth associated with the re-stabilization is going to be impactful and we're seeing this take hold. Year-to-date, we have signed over $11 million of leases and considering our initial pipeline with $6.5 million this is a pretty good start. And the growth is coming across the board but notably, it is showing up in our key streets that were boarded up and left for dead a year ago and now they're coming back. For example, we recently signed a lease with FILA sportswear for the corner of Prince and Broadway in SoHo and notwithstanding the dire predictions as to the future of SoHo. The economics of this lease provided a positive spread and was largely consistent with our pre-COVID expectations. Then the next driver of growth is coming from the contractual growth and lease roll in our portfolio. Now trees never grow to the sky and not all leases roll up but the green shoots that we are seeing in SoHo are beginning to take hold in other markets as well. We recently achieved positive lease spreads in Melrose Place in Los Angeles and in Armitage Avenue in Chicago, both at rents that were in excess of our pre-COVID expectations. And importantly, tenant sales, as John will highlight, are supporting this trend. Many retailers are already comping positive to pre-COVID sales in many of the corridors that we're active in. Now this fact is so different from what most of us expected during the early days of the pandemic. In fact, if COVID has commonly been viewed as an accelerant of trends, what it has really been for retail real estate is a cleansing and a validating mechanism. Cleansing in that the retailers who have made it through the storm seem to be in a much better position in terms of balance sheet strength and in terms of productivity and then validating in that the importance of the physical store has clearly been validated in the post pandemic omnichannel world that we are in. And this is true not only for the Targets and Walmarts of the world who validated the importance of the store in their omnichannel success. But it's also true for luxury and bridge apparel, where you are seeing tenants recognizing the power of their stores as critical in connecting directly with their customer, especially in the must-have streets where we own. And it's also true for the digitally native retailers, where our tenants like Warby Parker and Alberts are making it clear that the physical store is essential to their growth and essential to their profitability. And keep in mind, as recently as a year ago, many wondered whether these retailers would even want stores on these streets. And while everyone was wondering, the retailers doubled down. Then along with our growth from lease-up, we will add additional internal growth from a series of redevelopments that are actionable and profitable. It's a bit early to update our progress on this front right now but we should have some worthwhile updates by our next quarterly call. Then complementing our internal growth are the multiple components of our external growth engine. Firstly, we are doing on-balance sheet investing to add to our existing core portfolio accretively. Deal flow during the pandemic was quiet as most owners hunkered down and most lenders were highly accommodative. Distressed opportunities were underwhelming in almost every segment of real estate other than stock prices. And frankly, we did not have a cost of capital that enabled us to be competitive but sellers are once again emerging. And as we look around, there are certainly fewer well capitalized and knowledgeable competitors for our areas of focus. And we're beginning to see a recovery in the debt and equity markets such that we should have a cost of capital to accretively acquire and it should be a good period to put dollars to work. Then along with on-balance sheet investing beginning to heat up, our fund platform is in a position to continue to add to our growth. We can add to our fund acquisitions, both similar to Fund V or similar to other successful value-add or opportunistic initiatives that we've done in the past. In terms of Fund V and as Amy will discuss, we are continuing to buy out-of-favor open air retail at substantial discounts to replacement cost with attractive mid-teens yields. These investments have proven stable through COVID and while I think we may have a couple more years of buying these yields at a discount, we're also seeing signs of cap rate compression. And if and when cap rates do compress we'll have well over $1 billion of retail in Fund V alone, clipping mid-teens yields, while we wait and keep in mind, buying out of favor existing cash flow is just one of the many ways we have created value in our fund platform over the years, whether it's buying retailers with significant embedded real estate value, such as our investment in Albertsons and the rest of our RCP activity or opportunistic acquisitions where we saw significant rent bumps and then monetized opportunistically as was the case in Lincoln Road and Miami or a variety of redevelopments and value-add projects where tenant demand warrants it. And thankfully, we're off to a good start this year with approximately $230 million of core and fund investment activity teed up so far and our pipeline continues to grow. Our team and our balance sheet are built to do multiples of this volume and we're starting to see the stars align. Finally, keep in mind, at our size, roughly every $100 million of new investments, whether core or fund, adds about 1% to our earnings. So to conclude, as we are climbing out of the horrors of the global pandemic and recognizing that the impact that was felt was especially hard on so many of our assets the rebound is becoming clearer every day. And it's also becoming clearer that our company, both in size and ability is well positioned for accelerated growth from this recovery. The combination of strong embedded internal growth and the ability to drive external growth, both on balance sheet and then through our funds, should enable us to maximize value in multiple different ways. With that, I'd like to thank the team for their hard work and achievements last quarter and I will turn the call over to John.

Thanks, Ken. I will start off with a discussion of our third quarter results, followed by an update on our continued progress on the $25 million of anticipated internal core NOI growth and then closing with our balance sheet. Starting with the quarter. Our third quarter earnings of $0.27 a share exceeded our expectations, landing us in the upper end of the $0.25 to $0.27 range that we had guided toward on our most recent call. And this was driven by rent commencement on new leases, continuous improvements in our cash collections, along with some accretion from the approximately $140 million of external investments that we completed during the quarter. In terms of near-term FFO expectations, we continue to anticipate $0.25 to $0.27 of quarterly FFO, excluding any potential Albertson sales for the next few quarters. In terms of Albertsons, as I shared on the prior call, although a sale of shares before the end of the year is possible, we continue to believe that it's prudent to assume that the realized gains start showing up in 2022. And as a reminder, keep in mind that these gains are simply timing. So whether it's next quarter or next year, using Albertson's most recent share price, a sale of our position would result in a gain in excess of $30 million or in excess of $0.30 a share of FFO. As outlined in our press release, we maintained our guidance at $1.05 to $1.14. However, I think it's worth drilling into the components. As it actually represents a beat in excess of 10% off of our initial midpoint. As you'll recall, within our initial range of $0.98 to $1.14, we had incorporated $0.05 to $0.13 of core and fund transactional activity which, as we highlighted, was primarily attributable to the sale of Albertson shares in 2021. So after adjusting for the $0.05 to $0.13 of transactional income, we had guided toward $0.93 to $1.01 for a midpoint of $0.97. And given our expectation of near-term FFO of $0.25 to $0.27, this gets us in the $1.06, $1.08 in range for 2021 and that's without any Albertson shares which is more than 10% above the midpoint of our initial range as well as 5% to 7% above the high-end of our range. And as I had updated on our progress throughout the year, this beat was largely driven by approved fundamentals within our core business around lease-up and credit improvements and not onetime accounting adjustments related to reserves taken in prior periods. In terms of cash collections, we received over 97% of our core billings during the quarter. And as a reminder, each 1% increase in collections equates to increased earnings of approximately $500,000 per quarter or $2 million, representing over $0.02 of FFO when annualized. While we are virtually back to pre-pandemic collection rates, the remaining portion of our uncollected billings is largely coming from the small population of quick service restaurants in our portfolio. I now want to spend a moment on what we are seeing on our tenant sales productivity. Given the high-quality inventory we have available to lease, we are closely watching the sales productivity of our new tenants, particularly those recently leased street locations as this educates us not only on the level of future tenant demand but more importantly, the potential upside to drive rents beyond the $25 million of core internal NOI growth that we are anticipating. Both we and our tenants are incredibly pleased with their performance to date. In fact, Art Street tenants are seeing sales well in excess of their internal projections. For example, some of our recent openings in Chicago and New York Metro are already seeing early results trending in the $2,000 a foot range. And keeping in mind, this is even before the return of international tourism, back to office and the lingering pandemic concerns. Now moving on to our same-store NOI. Same-store NOI also came in above our expectations at approximately 7% and this was driven by improving occupancy and a continued reduction in our credit reserves. It's also worth highlighting that the 7% is a pretty clean number. As we had highlighted in our release, the vast majority of prior period adjustments that were recognized this quarter arose from a property that was not included in our same-store pool. And as Ken mentioned, we are seeing actionable rental rates returning and in some instances, actually exceeding pre-COVID rents across our market. In fact, this was evident in our leasing spreads this quarter as we saw a cash increase of approximately 11%, along with a GAAP increase of 19%. And this was driven by our street leasing during the quarter, including a cash spread in excess of 20% on one of our key street locations on Melrose Place in Los Angeles. It's worth highlighting that this rent substantially exceeded our initial underwriting for this space which, as a reminder, we closed on our acquisition of Melrose Place just before the onset of COVID in the fourth quarter of 2019. Additionally, as Ken mentioned, we are seeing similar trends on Armitage Avenue in Chicago, with recent trends in excess of 30% which is also well above our initial underwriting. Now it's also worth mentioning the structural differences between our street and suburban leases and why the point in time lease spreads that are disclosed in our quarterly results are often not really comparable when evaluating deal profitability or more importantly, future growth expectations, given that we tend to reset our street leases to market every five years or so as compared to 10 to 15 years or often much longer on a suburban lease. Coupled with the fact that street rents contractually increase 3% annually as compared to 1% of suburban lease. And just to illustrate the difference, if we were to assume that a street lease grows contractually 3% a year and achieves a fairly modest 5% spread every five years. In order for our 10-year suburban lease that has grown at 1% to achieve an identical CAGR, it would need to achieve a spread of approximately 25%. I now want to provide an update on the internal core NOI growth that we see playing out over the next few years. And as a reminder, we anticipate growth of $25 million by year-end 2024, resulting in over $150 million of core NOI. And as it relates to the short term, we remain on track if not ahead of our previously announced expectation of achieving our pre-COVID NOI by late 2022 or early 2023. As a reminder, the three key drivers of our approximately $25 million or 20% increase in our core NOI off of our 2020 NOI include: first, net absorption which is the profitable lease-up of our core portfolio and is offset by anticipated tenant expirations over this period. And we are anticipating that this generates us $10 million to $15 million of incremental NOI, representing $0.11 to $0.16 of FFO. Second piece is further stabilization of our credit reserves, contributing $5 million to $6 million of incremental NOI or $0.05 to $0.06 of FFO; and lastly, contractual rental growth of $8 million to $10 million. In terms of the most impactful are the $10 million to $15 million of net absorption, I want to provide some insights on how we see it playing out over the next few years. Given the significant volume and profitability of the new leases signed to date and using our anticipated rent commencement dates on these executed leases, this should largely replace the NOI of the previously discussed tenant expirations at 565 Broadway in SoHo and 555 nine Street in San Francisco for the first half of 2022. As previously discussed, the impact of these two expirations which occurs in October 2021 for 555 nine and January 22 for 565 Broadway is approximately $4 million or roughly $4.6 million of annual NOI when factoring in recoveries. As Ken discussed, we have already profitably leased 565 Broadway several months in advance of the current lease expiration, thus significantly minimizing any downtime with an anticipated rent commencement date in the second half of '22. So when coupled with the remaining portion of our $16 million lease pipeline coming online, this sets us up for solid NOI growth in the $2 million to $3 million range in the second half of 2022, with the balance of that remaining growth coming from positive absorption split fairly evenly between '23 and '24 as the balance of our pipeline kicks in. The second driver of our NOI growth expects our ongoing stabilization of credit reserves. At a 97% cash collection rate, we are continuing to incur charges in the $1.5 to $2 million range or $6 million to $8 million when annualized. Assuming the continued momentum of reopening and retailer strength, we are optimistic that the majority of this should largely return in the second half of '22. And the last piece comes from internal growth of contractual rental increases. We are continuing to see the 3% contractual growth in our street leases. So when blended across our suburban and urban assets, this averages to about 2% a year, contributing approximately $3 million of incremental annual NOI. So given the significant progress our team has made this year and accelerated recovery within our portfolio, we are anticipating meaningful NOI and FFO growth for the next several years and that's before we layer in the impact of any accretive redevelopments, external growth or the profitable transactions that we anticipate will continue to occur within our fund business. Now moving on to our balance sheet. We have not issued any equity since our most recent call. As Ken mentioned, given our size, each $100 million of investments, whether it be core fund, should result in FFO accretion of approximately 1% and our balance sheet is well positioned to capture this accretion with ample liquidity available in our corporate facilities, along with the cost of capital that we believe enables us to accretively transact on a growing external investment pipeline. So in summary, we had another strong quarter as the recovery continues to play out across our portfolio and we are feeling increasingly optimistic on our internal growth outlook as we look forward the next several years. I will now turn the call over to Amy to discuss our fund business.

Thanks, John. Today, I'd like to provide a brief update on our fund platform, beginning with Fund V. First, we are pleased to report that fund deal flow is kicking in. During the third quarter and as detailed in our press release, we completed $96 million of new acquisitions comprised of two East Coast suburban shopping centers. Like the balance of our Fund V portfolio, these two properties were acquired at a substantial discount to replacement cost. Including land, our blended cost basis for these two centers is approximately $130 per square foot. In comparison, the cost to construct a new suburban shopping center is approximately $200 to $250 per square foot and that's excluding land cost. Additionally, both properties rank number one in their respective markets based on foot traffic, consistent with our best game in town acquisition strategy. The resiliency of Fund IV stems from our needle in a haystack approach to acquiring these types of centers. Due to our selectivity at acquisition, we've seen a Fund V collections rate that is now in the high 90s, consistent with our core portfolio and a stable mid-teens leverage return which we're able to achieve given our use of two-thirds leverage in our fund platform. Even during the pandemic, our cash-on-cash yields only dipped to approximately 13%. Looking ahead, we expect to be back to 15% relatively quickly. Similarly, on an unlevered basis, our 8% yield dipped to approximately 7% during the pandemic and is now on a projected path back to 8%. Over the life of our investment, we expect to generate most of our return from operating cash flow. That said, as previously discussed, there is a very tangible opportunity for outsized performance due to cap rate compression and thus property appreciation. Here are a couple of indicators we're watching. First, real estate borrowing costs have returned to their pre-pandemic levels in the mid-3% range. Additionally, public market cap rates for the shopping center REITs are approaching a decade low level. While private market cap rates for the type of product we're targeting have remained flat at approximately 7.5%. In fact, transactional cap rates in the private market are at a historically widespread to underlying borrowing costs. As a result, we believe that signals are pointing to a reversion to the mean in the private markets over the next few years and when that happens, we will have aggregated a $1 billion portfolio, where every 50 basis points of cap rate compression would add 250 basis points to 300 basis points to our projected IRRs, increasing overall fund profitability and in turn, our GP incentive compensation. In the meantime, we are continuing to clip attractive returns and selectively adding to this portfolio. To date, we've allocated approximately 75% of our Fund V capital commitments and we have until August of 2022 to deploy the balance. Given the amount of capital on the sidelines and recovering retail fundamentals, this is also a good time to opportunistically harvest properties in our older vintage funds. One area of focus is our grocery-anchored properties which have gotten a pandemic boost and remain in favor in the capital market. Last quarter, as previously discussed, we completed the sale of four grocery-anchored properties in Fund IV. Looking ahead, we anticipate that our disposition volume will be focused on this product type. 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 and the recent opening of BASIS Independent and Elementary School in approximately 60,000 square feet in Phase III. On the leasing front, we're pleased to report that last week, we executed a lease with an international retailer for 70% of the space formerly occupied by Century 21. We look forward to sharing more details over the next several weeks but in the meantime, know that we are excited by this addition which nicely complements our existing merchandise mix. The new lease replaces nearly all of Century 21's prior rent obligations with 30% of the space still remaining to be leased. Construction is anticipated to commence shortly and the retailer is expected to open in the second half of 2022. With all these positive indicators, this is an appropriate time for us to go to market to refinance this project over the next several months. So 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.

Our first question comes from Todd Thomas with KeyBanc.

Hi, thanks. Good morning. First question, John, I think you said in your remarks that you would expect around $0.25 to $0.27 per quarter, excluding Albertsons' gains over the next few quarters and you ran through some of the move-outs that are taking place this month and in January of next year, I think you said about $4 million of ABR there. And some of the leasing in the pipeline will begin to offset that later in '22 it sounds. Is that the right read there? I realize you're not providing '22 guidance but your comments around the $0.25 to $0.27 is that the right quarterly range to think about sort of through midyear '22, I guess is that right, is that what your comments were suggesting?

Yes, I believe the first half will be offset by the pipeline. You're interpreting that correctly, with growth expected to begin in the second half from leases that are already signed, significantly accelerating in 2023 and continuing into 2024.

Okay, that's helpful. And then, Ken, you talked about above-average growth in the near-term and sound very encouraged about internal growth. Previously, you discussed 5% to 10% same-store NOI growth per year through '24. How do you feel about that range today? Is that still intact or do you see any changes to that forecasted range at this time and then sort of alongside that, I guess, maybe for John, the net absorption of $10 million to $15 million that you included in the $25 million increase in core NOI that you anticipate by the end of '24. Does that imply getting back to the 95% occupancy rate? Are those sort of comments tied to that occupancy target and is that the right time frame to think about getting back to 95% core occupancy?

So things remain on track. But John, there's a lot there to unpack. So why don't you walk through this?

Yes. I believe that for the same-store performance in 2022, the trend we previously outlined is still valid. It's important to remember that we considered absorption along with the credit aspect and the growth from contractual rents. We are maintaining our target for a 5% to 10% growth each year, with more focus on the second half of the year due to upcoming lease expirations and already signed agreements. Therefore, we are on track to achieve the 5% growth for next year.

And then in the following years is when you'll start seeing the uptick of occupancy and then the other longer-term drivers to provide this above-trend NOI growth. And Todd, just keep in mind, NOI growth and FFO are related but distant cousins.

Okay. But to get back to 95% occupancy, do you anticipate that you could be there by the end of '24?

Yes, we do.

Absolutely. And then just keep in mind that our suburban occupancies can move with very little NOI shift and our urban square footage substantially less but really drives NOI. So that's why I said in the prepared remarks that occupancy is a rough measure but everything we are seeing put aside, everything we are seeing is tenants stepping up with greater enthusiasm than we had projected.

Our next question comes from Ki Bin Kim with Truist.

Thanks and good morning. Can you discuss the trends and leasing momentum you've observed across the portfolio? Earlier this year, there was a noticeable renewal of interest in tenants for street retail. Has that momentum continued, and can you provide any statistics to indicate whether things have accelerated or remained steady?

Tenant interest is continuing to grow in areas that we initially thought would take longer or where we had concerns. Even beyond this interest, which is always positive, especially when leases are signed, we are observing tenant sales performance that has significantly surpassed both our expectations and those of our tenants. This is notable even before a full return to the office and international tourism. Discussions with retailers and various market participants reveal that the situation is better than anticipated. Consequently, we're witnessing sales growth that drives rental growth. A key metric we consider in evaluating tenant interest and viability is rent to sales, and we are seeing trends where retailers are approaching us, very satisfied that they are already achieving sales exceeding pre-COVID levels. This level of performance was not something we could have predicted just six months ago, particularly in some markets that are still in the process of reopening.

And for tenants that have been open more than a few months, how would you describe the durability of that sales trend that you're talking about? So I would imagine if you're kind of exciting new retailer opening a new space, there might be an initial surge and then maybe calm down a little bit but has that durability remained high?

Let me clarify that many of the instances I'm discussing involve retailers in our portfolio or nearby that have been open since before COVID. What we're all trying to understand is how much of this is driven by pent-up demand and how much is attributable to strong government support and stimulus. In some segments, such as our street retail, I don't believe this is relevant. What has pleasantly surprised us is that consumers, particularly affluent ones, are emerging from this recession in a markedly different position compared to past downturns like the global financial crisis. Their housing values have increased, their stock portfolios are performing well, and their job prospects are strong. There could also be some pent-up demand at play. It's challenging to discern how much of this spending can be classified as revenge spending, but our retailers are indicating, through their actions of signing long-term leases, that they believe this trend will continue over the long term.

Our next question comes from Floris Van Dijkum with Compass Point.

Thanks. Good morning, everyone. I have a question about the same-store NOI, John. It's interesting to observe that typically when lease spreads are reported, renewal leases are significantly lower than new leases because new tenants often pay higher rents. However, in the last quarter, your lease spreads were almost identical, and your same-store NOI was strong at 7%. Could you explain what was included and excluded in this figure since you mentioned it was relatively clean? There was some fallback, but not the majority, so any additional detail would be appreciated. It would also help to demonstrate that the underlying engine is performing well.

Yes, absolutely, Floris. Regarding the pool and the out-of-periods you mentioned, the cash collection we received was related to City Center, our redevelopment project in San Francisco. We received some cash from past due rent, which was not included in our same-store pool, so it didn't contribute to the 7% increase. As for the spreads, I see the gap between the GAAP spread and the cash spread narrowing. In the past, there was a significant difference between cash and GAAP coming out of COVID due to a few deals that we did where rents increased to market levels. That discrepancy has largely disappeared, and we're now achieving market or even better rents. This tightening is a component of the situation. Additionally, our renewals were influenced by our street strategy. As I mentioned, we typically reassess every five years, which is what occurred recently; for example, in L.A. on Melrose Place, we had a renewal that reset to market and achieved a spread of over 20%. These are all positive indicators, reflecting meaningful underlying NOI growth despite occupancy remaining fairly flat. This trend is truly driven by solid fundamentals.

Thanks. Referring back to the $2 million projected for next year from the $16 million pipeline, it seems that this net figure accounts for the move-outs. It appears you're aiming for approximately 5% growth in net operating income, although you mentioned a range of 5% to 10%. Therefore, as the recovery progresses, the potential for your same-store net operating income appears to increase. Is that an accurate interpretation?

Absolutely. I think we highlighted these expirations a few quarters ago, and everything is unfolding as we expected. Some of the rents we're seeing are exceeding our expectations. So stay tuned, but we feel positive about that range.

Last question, if I can. Regarding your exit strategies for the fund, particularly for Amy, you have about $1 billion in assets. There are numerous private equity players actively seeking to acquire assets, especially yielding ones, due to their income needs, including some private REITs. Is there a possibility of selling either a partial or full stake while still managing or maintaining an interest in that business to keep earning management fees, or do you believe the best approach is to make a clean break moving forward?

Hi, Floris. Who knows but we're certainly considering all options that would include kind of the couple of scenarios that you just referenced. It's a little early.

We wouldn't forget that, unlike other low-yielding assets, our investors are currently achieving mid-teens returns while we evaluate various optimal transactions. It's still early, and we have additional funds to invest. There's still an arbitrage opportunity, and as seen with other funds, the possibility of a partial sale is definitely on the table.

Our next question comes from Linda Tsa with Jefferies.

Hi. In terms of the school that moved into City Point, what's the lease term and do they fall under the 3% contractual rent increase?

I don't actually know the exact rental increase but…

Term is long term.

It's long term, it's more than 10 years and this is an existing school within the Brooklyn submarket; so it's a nice addition for the property which will complement the other new anchor that I mentioned that will be moving in next summer.

And Linda, in Amy's defense, we generally do not disclose individual leases. Our tenants prefer that we keep this information private, but this is a significant addition, and fortunately, the middle school that will be attending here is performing exceptionally well.

Got it. And then, if you had to rank the comeback of your various urban markets, you discussed SoHo coming back pretty nicely. You highlighted LA, are Chicago and DC keeping up pace and what are some of the factors that might impact the pace of recoveries? Are there any specific factors?

Yes, it's been interesting because much of this is different from what I might have expected. We spent time in SoHo during the early reopening days and noticed tenants starting to return, although many stores remain vacant. The key difference in SoHo is that most of these vacant stores are already leased to exciting tenants. Looking at other cities, Chicago has been slower to reopen, particularly North Michigan Avenue. However, we've seen positive developments through the summer and now with the reopening of areas like Armitage Avenue and our Gold Coast assets, specifically Rush and Walton, where Celeron expanded by 50% during COVID due to strong sales demand. In fact, Rush and Walton are now in a stronger position than they were before COVID, which is a good indicator for Chicago. A similar situation applies to Melrose Place, and then there's M Street in DC, which has been interesting. Before COVID, M Street faced challenges with lagging tenants and lacked new, appealing retailers. However, based on the leases that have been signed, we expect M Street to be much more vibrant in the next year compared to its pre-COVID state. This is quite intriguing, though not entirely predictable and doesn't necessarily reflect the broader situation in DC, where we are still waiting for the return of federal office workers and tourism. It's not just about different cities; within each city, certain neighborhoods are recovering faster than others. For the most part, we are well-positioned, but there are still some areas that are just beginning their reopening process, and we hope to see progress in the next 12 to 24 months.

Thanks for that color. And then, just a quick one for John. On Albertsons, you have the $30 million of embedded gains in original guidance and given ACI has done well year-to-date in 2022 guidance, I assume this would be a bigger number and you'd continue to break out what you expect to realize?

Yes, definitely. In our original guidance, we projected $5 million to $12 million, which was based on a share price that was about half of what it is now. We currently hold just over one million shares at our pro rata share. With the current share price at around $30, we expect to see this play out as I mentioned in my remarks, potentially later this year but more likely in 2022, and probably spread over a couple of years; so it's around $30 million.

Our next question comes from Craig Schmidt with Bank of America.

Thank you. I've been hearing commentary that the lower store closing pace that we witnessed in 2021 could very well continue into 2022. I know that you've been talking about the enthusiasm of the retailers. Do you think that the elevated new opening of space will continue in 2022 as well?

It seems that way, Craig. However, I would advise breaking it down into various segments. Some retailers experienced a significant boost during COVID, particularly those focused on necessities, and many of them are indicating they have the appropriate number of stores and their growth has already happened. On the other hand, discretionary retailers are still actively expanding and I expect this to continue for several years. This includes luxury retailers, who have confirmed that their stores are crucial to their direct-to-consumer strategies, especially when they can manage their own locations. Meanwhile, many aspirational retailers are thriving as they transition from department stores or less favorable malls, recognizing that physical stores are the most profitable channel in a multichannel environment. Additionally, single-channel retailers, also known as off-price retailers like Burlington Coat, T.J. Maxx, and Ross Dress For Less, are persistently opening new stores in various formats, and I don't anticipate this slowing down. T.J. Maxx, in particular, has excelled with its other brands, HomeGoods and HomeSense. Overall, I’m optimistic about that aspect and expect to see growth among these strong retailers in the next 12 to 24 months.

Great. And then, it's clear that the supply chain disruption didn't impact your third quarter numbers. Is it your sense that it is not going to be an issue for holiday or later in 2022, or are you retailers saying that wait and see on that issue?

Well, so let's separate supply chain as it impacts us as landlords able to reopen or get open stores. And if you have an HVAC unit, you could lend our leasing team, they would be greatly appreciated because the supply chain certainly is something that we're all focused on so far. It has not had a material impact and we don't anticipate it does in our ability to open our locations but that's something that every landlord is watching and developers of new space are specialty watching. But put that aside, thankfully, the vast, vast majority of our NOI growth is coming from re-tenanting of existing stores and thus, not a big concern. Then on the retailer side, what our national retailers have told us, is they think they have made adequate adjustments in their supply chain. In the case of some large national retailers, you've seen them take the supply chain into their own control. But across the board, they're feeling that they can navigate through this, provided that this is a 2022 issue and doesn't bleed into multiple years. It's something that I think everyone has to watch. It is certainly something that we're not going to take for granted. However, keep in mind that the consumer continues to show a level of flexibility that is on the delivery date of their car or price at a restaurant, that the consumer seems to be showing a level of demand and a level of flexibility that retailers have been able to manage through this and keep their top line growing and in most instances, their bottom line as well.

Great. And then just, finally, can you describe the kind of interest you're seeing in the Nordstrom Rack space in San Francisco?

San Francisco has been a little slower to reopen but the interest is strong, thankfully. It was strong pre-COVID, it was strong during the dark days of COVID. That's one of those unique shopping centers with parking centrally located. So we feel good about that.

Our next question comes from Katy McConnell with Citi.

Great. Than you. Can you provide some more color on the increases you saw in leasing costs per square foot this quarter and how has that differed for suburban versus street deals in terms of what tenants are looking for from landlords today?

Yes, absolutely. So I think, Kate, as you look in our supplemental, our costs did tick up a bit and it is coming from the suburban deals that we did. So I think street has remained, there's just not a lot of work to put into the space so we're not seeing meaningful changes there. But in suburban is where the majority of the increase came from.

Do you look at that as a good run rate just as we think about the future leasing pipeline?

I think it all depends on the box that we're filling, when they're cutting up and doing it. So I don't know if that would apply the same per square foot cost to what we do forever and ever, just given the nuance nature of our portfolio, Katy. So I think it is one, probably each quarter, we'll have to work through it but we are certainly seeing a bit of an uptick and as Ken mentioned and cost to build out space, particularly in suburban.

Okay. Great. And then just one more quick one. If you could talk about the economics and timing around the 70,000 square foot box you signed for City Point, just in terms of splitting up the space and to the progress of remaining the balance?

Sure. The space is in good condition because it was previously leased to a retailer who is open and operating there. So we just signed the lease. As I mentioned, construction is going to start soon and then we expect that the tenant will do their own work as well and open in the second half of next year. And in terms of economics, I mentioned that this one lease is able to replace almost all of Century 21's rent. So a little bit of square footage left, 30,000 square feet, will put us into a nice profitability point on this re-tenanting.

Our next question comes from Paulina Rojas with Green Street.

Good morning. Can you please discuss the structured financing you closed this quarter? It is interesting that in the current low interest rate environment, someone has to pay a high 5s or low six interest rate for financing. Any details about the counterparty and the general circumstances of the transaction would be appreciated.

Sure. And while every cycle is a little different, this is cycle consistent. And by that, I mean, when entrepreneurs start stepping up usually around this time and are looking to get deals done, often, they need capital, they need certainty of execution and they need it quickly and that was the case here, I won't get into the specifics of the counterparty but larger institutions, whether public or private, are so focused on every last basis point of cost of capital and entrepreneurs are often in a position where they say, you know what, over the next two years, I can do these great things if they can, great and then we're happy to assist in that, especially and this is the key for us, where we then can get the opportunity to convert our structured finance into long term ownership. We've done that successfully in the past and I'm hopeful we'll continue to.

Okay. Can you elaborate on the sources for operational upside on the two properties you acquired this quarter, particularly regarding the marketplace which is currently 99% leased?

I'll address that, and Amy can add in as well. The strategy behind our Fund V acquisitions is centered on achieving mid-teens leveraged yields by purchasing properties in the 7s and 8s range. We ensure thorough underwriting so that when tenant turnover occurs or other challenges arise, we can retain those leveraged deals. Over the past few years, we've demonstrated our ability to do this effectively. In some cases, the properties we are acquiring have potential for value addition. However, our approach focuses on acquiring underperforming retail without anticipating any significant same-store NOI growth, positive lease spreads, or many of the metrics that the public markets emphasize. Instead, we expect mid-teens leveraged yields and, potentially in the future, cap rate compression that will generate the returns our funds aim for.

Our next question comes from Mike Muller with JPMorgan.

Hi, I just have one quick one here. Of the $25 million of NOI growth that you expect by the end of '24, beginning in 2025, what's the ballpark split between the street portfolio and the suburban portfolio?

Yes, Mike, we'll provide more details as we progress. I would say, as mentioned previously, a significant part of this is coming from our street and urban portfolio. Currently, the split is 60-40, with street and urban making up 60, and it is going to contribute more than its fair share to that.

Got it. On the transaction side, Ken mentioned the 7's and 8's regarding fund acquisitions as a benchmark, so it's reasonable to assume those acquisitions had similar economic characteristics. However, could you provide an approximate yield for the structured finance investment on the core?

Yes. And I will let Paulina take credit for it. She mentioned, it's in the high 5's, 6's. She had a pretty good educated guess. We don't break that out specifically but that was a relevant range.

Our next question comes from Floris Van Dijkum with Compass Point. Can you give us a rough going in yield on the structured finance investment in the core? Yes, and I will let Paulina take credit for it. She mentioned it's in the high 5's and 6's. She had a pretty good educated guess. We don't break that out specifically, but that was a relevant range.

I have a quick follow-up question. I know you prefer not to discuss it in detail just yet, Ken, but you mentioned some upsides related to activating your redevelopment projects. I’m thinking specifically about two locations: the former Sears or Kmart in the Westchester Shopping Center and your significant properties on Michigan Avenue. Are these the main areas for redevelopment potential, or are there other parts of your portfolio that could also attract redevelopment investment?

Well, there are multiple others for us, some that are already redevelopments, certainly those are two that we're keenly focused on and I think what I said is we'll talk about it next quarter and so we will talk about it next quarter. And we hopefully have everything teed up by then.

Our next question comes from Katy McConnell with Citi.

Hey, Ken. If you've already addressed this, I may need to log off soon. Could you share what you're hearing from your retailers regarding their profit margins? You mentioned sales growth and how retailers are managing their sales. What preparations are they making for the coming months, especially concerning product availability and labor shortages? For example, my local Starbucks in New York is closing at 4:00 PM due to staffing issues. How does all this impact their store openings, profitability, and their ability to pay rent? If you've already discussed this, we can follow up later.

Yes. So there is no doubt that both labor constraints and short-term, some supply constraints are impacting a variety of retailers differently. So far, what the retailers are telling us, is they think they have made adequate adjustments in their supply chain. In the case of some large national retailers, you've seen them take the supply chain into their own control. But across the board, they're feeling that they can navigate through this, provided that this is a 2022 issue and doesn't bleed into multiple years. It's something that I think everyone has to watch. It is certainly something that we're not going to take for granted. However, keep in mind that the consumer continues to show a level of flexibility that is on the delivery date of their car or price at a restaurant, that the consumer seems to be showing a level of demand and a level of flexibility that retailers have been able to manage through this and keep their top line growing and in most instances, their bottom line as well.

Have you noticed any changes in the store opening strategies or capital spending of traditional e-commerce companies that have transitioned to physical stores now that they are using public shareholder funds instead of private capital?

The change showed up actually before any of the steps to IPO because what they saw was, in many instances, when they opened a store, their online sales went up. When they opened a store that was the most profitable channel for them. And what I would tell you is the VC world and the private equity world are demanding that those retailers with interesting digital initiatives have a ground game, have physical stores as part of their outlook so we're seeing most of them say, we've got to have stores. It's now proven critical to our long-term success, whether we stay private or eventually go public. So this has been an ongoing question for years asked now and answered, the store is going to work.

Okay. Lastly, in terms of filling the fund with the remaining capital to be spent, are your institutional investors reaching out to you for side-car investments, especially regarding the initial capital allocation for suburbs or streets? Could you provide more insight into what they are considering?

So they're waking up thankfully and saying, OK, we thought retail was in secular decline and now they recognize it's not. And especially when they compare it to other alternatives, the kind of yields we're providing are looking very attractive. So that's a positive. Here's the negative, if you will we are still picking needles from a haystack. The United States is still over retail, not every shopping center is going to get to the other side with stability. The ones we are buying are stable but we've been unable to piece together large portfolios that would justify the sidecars. We're trying. Maybe it happens. But every 10 or 20 property portfolio we look at we end up with two or three assets, not all 20 of them. So we're going to continue to be selective, we can afford to.

Showing no further questions in queue at this time. I'd like to turn the call back to Ken Bernstein for closing remarks.

Great. I appreciate everyone taking the time and I look forward to talking with all of you again next quarter. This concludes today's conference call. Thank you for participating. You may now disconnect.