Good day, and thank you for standing by. Welcome to the Q2 2023 Acadia Realty Trust Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mackenzie Teper. Please go ahead.

Good morning, and thank you for joining us for the second quarter 2023 Acadia Realty Trust Earnings Conference Call. My name is Mackenzie Teper, and I am an intern in our Marketing 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, August 2, 2023, and the company undertakes no duty to update them. During this call, management may refer to certain non-GAAP financial measures, including funds from operations and net operating income. Please see 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 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. Great job, Mackenzie. Thank you to you and all of the summer interns. It's been a pleasure to work with all of you. Welcome, everyone. I'll give a few comments, then I'm going to turn the call over to Stuart and then to John. As you can see in our earnings release, we had another solid quarter. Same-property NOI growth was a strong 5%, and our earnings were ahead of forecast as well. And this is not just one good quarter in isolation. For more than two years now, our same-property NOI growth has averaged just under 7%, and we've raised our earnings forecast six times. And notwithstanding the most anticipated recession in my career and the fact that retailer quarter-over-quarter performance has been choppy, retailers are continuing to look past any short-term shifts in consumer demand and are continuing to pursue key locations. On our last couple of earnings calls, I discussed the likely drivers of this continued growth. And while I run the risk of this feeling like Groundhog Day, let me briefly reinforce a few key drivers. In terms of macro trends. First of all, the threat of retail Armageddon has passed. While online retailing is here to stay, retailers recognize that physical stores are their most profitable channel in an omnichannel world. Second, tenant demand, especially in our key corridors, is quickly outpacing existing supply, and retailers are stepping up to secure these must-have locations, whether it's brands establishing their own stores or luxury retailers continuing to double down on key streets, the demand is there and the rental growth is following. Then more micro or specific to our portfolio, the combination of increased tenant demand coupled with several hundred basis points of potential occupancy gain in our Street portfolio positions us for several years of above-average growth. And while there's solid growth throughout our portfolio, both suburban and Street, a further differentiator for us is the continued strong growth we are seeing in our key streets. As Stuart will discuss, this growth contrasts significantly with a narrative of shoppers moving out of key cities or the negative impact of hybrid work on retail in markets like New York. In fact, over the past year, as vacancies have been filled, market rent growth for the majority of our street portfolio is continuing to accelerate. Neighborhoods such as SoHo, Williamsburg, M Street, Rush & Walton, Armitage, Melrose Place, Henderson, Greenwich, and Westport are not only performing better than pre-COVID, but notwithstanding macro headwinds, tenant demand for our locations is not declining. It's not leveling off. It's increasing. And when demand increases, along with adding occupancy, there are additional ways we can further drive growth. One example, in SoHo, at one of our locations on the corner of Prince and Broadway, we signed a lease for that space in October of 2021 at a rent that exceeded pre-COVID rents and was a positive indicator for the rebound of SoHo. However, recently, we were able to negotiate the recapture of the space. And last week, less than two years later, we executed a new lease at a 45% increase compared to the prior lease. John will discuss the significant economic impact of this lease, but all of this bodes well for our continued growth. Another driver of additional growth is from fair market value resets, which is a feature unique to the street portion of our portfolio. Not only do our street leases have higher annual contractual growth, but the way these FMV provisions work is that, upon a tenant exercising its renewal option, the rent resets to the greater of fair market value or a fixed percentage. This year, for the first time in a while, we have achieved resets ranging from increases of about 20% to nearly 50% above prior rents. All of this simply reinforces our view that not only are our internal growth forecasts of 5% to 10% on track, but as John will discuss, we see upside potential beyond simply remaining on track. To be clear, our growth assumptions also include a sober outlook for our re-tenanting in slower-to-recover markets such as San Francisco or North Michigan Avenue, as well as conservative credit loss, if and when the looming recession becomes a reality. But even after taking this into account, we expect our leasing progress to more than compensate for any of these re-tenanting efforts. Turning now to external growth and the transaction markets. Given the volatility in the capital markets and borrowing costs significantly higher than two years ago, transactional activity remained muted last quarter as many sellers are still on the sidelines. Nevertheless, we are starting to see a gradual increase in deal flow, and we are hopeful that we'll be able to close on some compelling and accretive opportunities this year. Since it doesn't take much volume to move the needle for us, even a few acquisitions, whether on balance sheet in conjunction with capital recycling or utilizing our institutional capital relationships, can meaningfully add to our external growth. In July, Fund V acquired Cypress Creek in Tampa, Florida for just under $50 million, consistent with our other Fund V investments, with a going-in yield in the low 8% range, and we expect a levered mid-teens IRR on this transaction. This center is well-leased with anchors, including Burlington Coat Factory, Total Wine, Home Goods, and over time, there's the ability to add value through re-leasing opportunities as well. The team remains active with several deals under review, and we will be successful in deploying the remaining capital in Fund V even in this quiet market. More importantly, to the extent that additional opportunities arise, we're in a position to leverage our institutional relationships for continued growth. So to conclude, we recognize that macro news headlines continue to create uncertainty and concern for commercial real estate in general. Nevertheless, our leasing fundamentals remain strong, and our internal growth is exceeding our expectations, and even though this strong growth has been showing up for a couple of years now, we still have several years of tailwinds on internal growth in front of us. Along with this strong internal growth, the uncertainty in the capital markets is beginning to create interesting investment opportunities that will enable us to add external earnings growth to our strong internal growth. And with that, I'd like to thank the team for their hard work this last quarter, and I will turn the call over to Stuart.

Thank you, Ken. I will spend a few minutes addressing the narrative and press reports suggesting that a new hybrid work paradigm is impacting street retail. There is a view held by some that there must be headwinds for urban retail in places like SoHo in New York or Melrose Place in L.A., given these cities are experiencing weak office attendance or changing commuting trends. Such views gain momentum with reports and articles linking the stalled return to the office and hybrid work with negative implications for all urban retail without specifics. These reports generally conflate amenity-oriented retail located in densely office submarkets, which depend on office workers and commuters, with dynamic retail corridors, which have entirely different traffic drivers. Office attendance is just not relevant for the vast majority of our portfolio. Under 5% of our annual base rent is from tenants, which we believe are office worker dependent. Now the data does show that as a result of hybrid work, foot traffic is still significantly below pre-pandemic levels in office-oriented central business districts, such as Midtown Manhattan. At the same time, what we see in our key retail corridors is that, one, foot traffic is virtually unchanged; and two, tenant demand and rents are stronger than pre-COVID. We are seeing diminished availability, and we are benefiting from multiple tenants competing for spaces. We have a highly differentiated street portfolio in key high-growth corridors such as SoHo and Williamsburg in New York City, Armitage and Rush & Walton in Chicago, Greenwich Ave and Westport in Connecticut, Georgetown in D.C., and Melrose in L.A. We have examined statistics, which are segmented by submarkets. For example, we looked at foot traffic data in four New York City submarkets, including Midtown, the Financial District, SoHo, and Williamsburg. Year-to-date compared to the same month in 2019 pre-pandemic, foot traffic was down 27% in Midtown and down 32% in the Financial District. However, over that same period, foot traffic was only down 1% in SoHo, and it was up 6% in Williamsburg. While the foot traffic is about flat in SoHo, as Ken highlighted, demand for our space is stronger than pre-COVID. According to Cushman & Wakefield, the occupancy rate in SoHo has increased over 10% from pre-COVID at Q4 2019. Despite reports of migration away from New York City, apartment rents and occupancy are at near peaks, with rents up over 6% from June of last year. This strength is not limited to New York City. In the Gold Coast of Chicago, Anine Bing, an aspirational luxury brand had a very strong opening recently, achieving the highest sales volume in its 20-store chain. In Washington, D.C., ALO Yoga had a very successful opening of its flagship store in our M Street Georgetown portfolio. As an aside, we have a signed lease for another flagship ALO Yoga at our fund asset at 717 North Michigan Ave in Chicago, which will open soon. Also in Georgetown, at our Wisconsin Avenue redevelopment, we completed the retail leasing and have reached 100% lease-up. In L.A. in Melrose Place, in the past four months, we have had three leases with these fair market value rent resets, and the average increase was 29%. One final point, not all occupancy and not all occupancy pickup are created equal. While our overall portfolio is 92.2% leased and 95.2% occupied, let me clarify that, it's 92.2% occupied and 95.2% leased, our Street portfolio is currently 85% occupied and 88.5% leased. The NOI gain through this lease-up will be disproportionately impactful to our bottom line. Our average in-place street rent is $84.50 per square foot as compared with our overall portfolio average in-place rent of $32.50. Based on our current leasing activity, including the street leases within our signed not-open pipeline, we expect this differential to widen further. And now I will turn the call over to John.

Thanks, Stuart and good morning. We had another outstanding quarter with each of our key operating metrics exceeding our expectations, resulting in another strong beat for the quarter and raising our full-year earnings guidance. This call marks the seventh anniversary that I've been fortunate enough to sit in this position, and I can say without hesitation, and by a long shot, that this is the strongest leasing environment I've experienced during my tenure. The demand for our space is extraordinary, whether it's in SoHo or Williamsburg in New York City, Georgetown in D.C., Melrose Place in L.A., or Armitage Avenue in the Gold Coast in Chicago. With that demand pushing rents, our portfolio is well-positioned to capture that growth, whether it's from multiple tenants bidding for the same space, such as what we saw with the opportunistic re-tenanting that we completed in SoHo last week, or through our ability to capture outsized growth for fair market resets, such as we did on several occasions on Melrose Place in L.A. This confidence in our multiyear growth projections continues to strengthen as we see real opportunities to exceed them. Now, I'll dive into the quarter. Starting with our second quarter FFO before special items, we reported FFO of $0.36, significantly beating our quarterly model. The outperformance was driven by better-than-anticipated operating results within our core portfolio, including improvements in tenant recoveries, a robust and strengthening leasing environment, and cash recoveries, primarily within our fund portfolio coming in above our expectations. As highlighted in our release, our quarterly results included a non-cash gain of $0.08 associated with the termination of the below-market Bed Bath & Beyond lease at 5559 Street in San Francisco. As we had discussed on the first quarter call, this gain resulted in an incremental $0.05 of unbudgeted FFO, as we had conservatively assumed $0.03 of earnings throughout the year within our initial guidance. While I'm not suggesting this gain deserves outsized prominence, it is worth noting that the accounting captures the economic reality of the value created now that we can capture market rents significantly above what Bed Bath was previously paying. Moving on to our full year guidance. For the second consecutive quarter, we increased our full-year earnings outlook. On an apples-to-apples basis, if we strip out the incremental $0.05 associated with the unbudgeted gain, this takes us to $1.25 at the midpoint, representing an increase of about 3% above our initial guidance. Regarding our tenant credit assumptions, given the macro backdrop and lingering risk of a recession, we continue to hold prudent and conservative levels of reserves within our updated guidance for the balance of the year. Turning now to same-store NOI, our second quarter same-store NOI of 5% was in line with our expectations, particularly given the headwinds from cash recoveries in the comparable quarter from the prior year. With year-to-date same-store growth of just under 6% along with profitable lease-up commencing in the second half of the year, our model has us trending toward the upper end of our initial 5% to 6% full-year guidance, with an opportunity to exceed it. In terms of spreads, we reported GAAP and cash spreads of 22% and 13% respectively for the second quarter. As highlighted in our release, it was our Street portfolio that drove this growth, with cash spreads in excess of 30% from leases on Armitage Avenue in Lincoln Park in Chicago and Melrose Place in L.A. Notably, if we measure cash spreads since inception on our street leases, the 30% cash spread increases to over 60% when factoring in the contractual rental growth we received during the lease term, which ranged from 3% to 4% annually, along with a compounded annual growth rate (CAGR) exceeding 6%. As we start the third quarter, we are seeing these same trends continuing, if not actually accelerating on our key streets. As Ken mentioned, I'll provide some of the economics of the Broadway and Prince Street lease that we signed in SoHo last week. The 45% cash spread translates to an incremental annual NOI of approximately $900,000 when compared to the prior lease signed less than two years ago. Additionally, inclusive of the payment to terminate the prior lease, as well as the upfront costs associated with tenant improvements and leasing commissions, our payback period is less than a year. To date during the third quarter, including the SoHo lease I just mentioned, we have already signed or renewed nearly $4 million of street leases within our core portfolio at an average cash spread of about 40%. To provide further context, given our size, a 40% cash spread on $4 million of ABR generates about 100 basis points of same-store growth and adds more than $0.01 a share, about 1% of incremental FFO growth. Next, I want to provide a quick update on our multiyear internal growth projection and reaffirm that we continue to see $30 million to $40 million of incremental core NOI growth over the next several years. I'm often asked whether we have any potential upside to those projections. The short answer is absolutely, and in fact, it's coming to fruition. Within those projections, we have assumed conservative assumptions on market rents. We did not account for opportunistic re-tenanting, such as we accomplished last week in SoHo, nor do we assume extraordinary growth from fair market resets within our street leases, as we have experienced over recent months at Melrose Place in L.A. Moving on to core occupancy, our leased occupancy increased 60 basis points to 95.2% as of June 30. During the quarter, approximately 40 basis points of occupancy commenced, contributing around $1.7 million of ABR predominantly from street leases. Additionally, our leasing team further increased our sequential signed but not yet open pipeline to 300 basis points as of June 30. This 300 basis points represents $6.8 million of ABR at our share or about 5% of our in-place core ABR. In terms of anticipated rent commencements on the $6.8 million, we expect about half of it to commence in the second half of the year, with the vast majority expected to commence during the first quarter of 2024. This represents an acceleration from our prior quarter's estimates primarily due to our tenants' strong desire to expedite their openings, along with the resolution of supply chain issues. Please note that given the timing of commencements, we won't get the full benefit in our reported results until the subsequent full annual or quarterly period. I also want to highlight that the $6.8 million of signed but not yet open leases relates solely to our core operating portfolio; this excludes any core assets of redevelopment as well as our share of any lease-up within our fund portfolio. If both of these were included, it would double the ABR in our signed but not yet open pipeline as of June 30. I now want to provide a quick update on City Point. From a leasing perspective, we remain well on track with our stabilization plan. As of June 30, we have approximately 60,000 square feet of leases signed but not yet open, including Fogo de Chao, Court 16, DIG, the expansion of Alamo, and several others. Our leasing pipeline continues to expand with a number of new and exciting retailers in advanced stages of negotiations. I also want to give an update on the projected FFO accretion we expect to achieve upon stabilization of the asset. As a reminder, we currently own about 60% of City Point with the potential to increase our ownership to nearly 100%. As we've said in the past, we anticipate increasing our ownership in City Point over time. While we don't have a specific update at this time, we don't expect a significant impact, if any, to our 2023 guidance. Keep in mind, the incremental cash outlay, should we have the opportunity to acquire all or a portion of our remaining partners' interest, is not overly significant. If we were to acquire all of the remaining ownership interest, the additional outlay would be about $15 million, factoring in the $65 million of previously funded partner loans from last year's recapitalization. Upon stabilization, the anticipated earnings accretion relative to our current FFO run rate ranges from about $0.06 if we were to acquire all of the remaining interest or approximately $0.04 if we maintain our current 60% ownership. This $0.04 to $0.06 of projected net accretion incorporates all components of the investment, including anticipated NOI growth upon stabilization, interest income on partner loans, future funding costs, etc. The timing of the partner's decision to convert their interest prior to stabilization of the asset may create some short-term earnings implications given the structure, but nonetheless, in the near term, we are projecting $0.04 to $0.06 of incremental accretion, representing growth of nearly 5% of our current earnings. Lastly, I want to touch on a few items regarding our balance sheet. Our balance sheet remains strong, with no meaningful core maturities for the next several years and virtually no exposure to base rates within our core until 2027, given our nearly $900 million of interest rate swaps. Within our core portfolio, while the reset in rates was particularly painful, we are optimistic that the worst is behind us. In fact, during the second quarter, we successfully completed about $250 million worth of refinancings and extensions of fund loans. As you'll notice within our supplemental materials, the all-in borrowing costs within our funds remained virtually unchanged from the prior quarter. So all else being equal, given the duration of our debt and interest rate contracts in our core, coupled with the reset of rates within our funds, we expect nominal impacts from interest rates on our earnings over the next several years. In summary, we once again had another very strong quarter, with momentum continuing to build as tenant demand for our locations remains elevated, fueling further confidence in not only achieving but exceeding our multi-year internal growth goals. We will now open up the call for questions.

And our first question will come from Floris van Dijkum of Compass Point LLC. Your line is open.

Good morning, guys. So nice results, encouraging on what's happening in SoHo. Maybe if you can provide us with a little bit more detail on the demand you saw from tenants for this space. I believe it was a feeler that was in the space before. If you could also give a little bit of view on what's happening to lease terms in terms of bumps? Are you seeing your peers are all talking about raising bumps in their suburban portfolio? What does that look like for your street spaces, and maybe also touch upon, in particular, what your one office REIT just sold an asset, I think, in Spring Street as well. Presumably, you're looking at some of these opportunities as well, where do you see the potential for external opportunities in your street retail portfolio?

Technically, Floris, I think that was more than one question, but let me at least start with a step at a - let's start with contractual growth. I do think that it's going to be a multi-year education process in suburbia, getting especially junior anchors accustomed to perhaps a higher growth rate. Given lease durations, even if we are successful, it takes about 50 years to turn a shopping center when accounting for options. So I'm in favor of it, and depending on your view of inflation, I think it would be healthy for us to get higher bumps to keep up with inflation and growth, but it may take a while to realize that. In contrast, street retail has had about 3% annual contractual growth, about 100 basis points higher historically, and has had fewer option periods, where the options show up and allow us to get fair market value resets that grant us more opportunities. Over the last five to six years, that didn’t matter much because we had a global pandemic, rents were declining, and now we are beginning to see that turn. I do think we will see higher contractual growth in our street portfolio than in our suburban properties. Increased tenant demand has resulted in significant rental growth. So let me use the SoHo example. We signed a lease a couple of years ago with FILA. We were very excited about that at the time. We not only mentioned it was at a rent that was better than pre-COVID when people were still concerned, but we thought it was a healthy spread. FILA was working through design decisions, and I credit our leasing team for being aware of various retailers looking to relocate, as well as new retailers interested in the SoHo market. They negotiated a termination at a fair price, so the payback period will be very short, and then signed a very accretive lease. That doesn't happen every day, but these opportunities tend to show up in places like SoHo, where we are witnessing a quick rebound in rents despite the overall negative narrative. I credit our team for achieving this incremental close to 100 basis points of growth, and we are actively working on other situations as well. No promises as to when it shows up, but when you see such a rebound, we spend significant time positioning ourselves for it. I'll get into the acquisition market conversation for us later in the Q&A. I want to give others a chance to ask their questions.

If I can follow up, perhaps with the funds, I noticed that you acquired an asset in Tampa. How much more dry powder do you have? And remind us again, I believe it's end of the third quarter or certainly before the end of the year that you have to invest that. Do you think all of your dry powder will be used up before that goes away?

Yes, we do anticipate that existing dry powder at Fund V will be put to good use. We are observing enough opportunities. As I mentioned earlier, to the extent we encounter additional opportunities that do not fit into the existing investments of Fund V, we will find a good way to execute those as well.

One moment for our next question. And our next question will come from Ki Bin Kim of Truist. Your line is open.

Good morning. So you guys made some favorable remarks about street retail picking back up. I was wondering if you could make those comments a little more tangible for us and maybe try to quantify how much improvement you're seeing from tenants?

Sure. There are two ways we can think about this: one is the tenant's long-term sales trajectory, or tenant health, and the other is supply and demand. SoHo is just one example; also, Stuart and John mentioned Melrose Place, where we saw a fair market reset in one instance of a 20% increase and in another instance, a 50% increase. Whether using a 45% increase in SOHO over two years or a 50% increase in Melrose Place over five years, you are witnessing a very favorable trajectory. Remember, there’s also contractual rent growth of 3% to 4% on top of those spreads. I think you will start reading in the next year or so, as it takes a while for the narrative to change, that market rents in these must-have markets have grown disproportionately compared to many other suburban markets, which is a very healthy and welcome rebalance after several tough years.

Okay. So when you think about your SoHo lease rate of 81% or M Street at 89%, both which saw a nice pickup in leasing, how does that strength and demand translate into when these retail corridors can see much more occupancy? Is that a '24 event? I'm just kind of curious about how long it takes.

Yes. Frustratingly, the time it takes for a retailer to express interest and actually open can be lengthy. Some elements are within our control, while others are dependent on the retailer's design timeline. My guess is the result will manifest in 2024. I am not altering John's guidance on rent commencement dates, but if you were looking for new space in SoHo as a retailer, you’d find most of the spaces are already claimed, and moving quickly is essential. It seems that there’s active dialogue not just in SoHo but also thankfully now on Madison Avenue.

Okay. And when you mention Madison Avenue, are you referencing the Sullivan Center type of area?

No, I mean Madison Avenue in New York City.

One moment for our next question. And our next question will come from Todd Thomas of KeyBanc Capital Markets.

Hi. Thanks. Good morning. First question, I guess, just quickly following up on SoHo and the lease transaction that you discussed at 565 Broadway. Are you seeing other opportunities across the street and urban portfolio to get back space from tenants that are in place paying rent and operating where they’re either underperforming or looking to close? Also, what’s the mean for the commencement at 565 Broadway?

Yes. The easy answer first: it will be in the first quarter of next year, so first quarter 2024. As for your other question, we are constantly reviewing our portfolio, also from a tenant health perspective. This isn't solely about capturing upside; it involves ensuring the right tenants are in the right spaces. The pivot that has occurred over the last 12 months is enabling us to actively monitor our tenant mix. While this process is manageable in suburban areas, it's typically much more complex and costly to replace a T.J.Maxx with a Burlington Co. However, our leasing team is actively doing this, and after several tough years, we are beginning to see market rent increases, which give us the leverage we need for those retailers looking to relocate.

Okay. And then second question, John, can you discuss or provide some detail around the impact in the 2023 guidance, and also discuss considerations around the model for 2024 as it pertains to 664 and 840 North Michigan Avenue, regarding the lease expirations at those assets and tentative plans for their redevelopment?

Yes. Let's start with 2024. Much of this is straightforward. We are not assuming we achieve leases for those two properties and are thus conservatively projecting them into later years. However, we are noticing some signs of life and tenant interest in Chicago. While that’s not reflected in my model, there’s potential for growth from the signed but not open pipeline, which has doubled in value, contributing to our earnings growth.

So yes, I hear you about the signed but not open pipeline, but for these two assets, is there any cost capitalization that will begin, or that will offset the ABR coming offline in regard to 2024?

Unless we commence active construction, Todd, we are not anticipating capitalizing in our 2023 model any associated costs. Stay tuned for next year, though. We haven’t issued guidance for 2024 yet, but conservatively I’m not assuming we capitalize all costs related to it at present.

One moment for our next question. And our next question will come from Craig Schmidt of Bank of America Securities. Your line is open.

This is Lizzy Doykan on for Craig. I just wanted to clarify, apologies if I missed it, on the exact credit loss impact just the assumptions for reserves for the full year again? And how much of that was recognized last quarter?

Yes. We are in the low 200 range regarding revenues for the year and maintained the heightened reserve. We projected that level to remain for the balance of the year.

Okay. Great. Thanks. You mentioned earlier on 5% of same-store NOI growth achieved this quarter, and that factors in still headwinds from prior period collections. I'm curious, if you could quantify more of that impact, how could we see that start to burn off going into the rest of the year? What expectations around that level of impact?

Yes. The first half of the year has seen the impacts from credit losses begin to burn off. I would consider that headwind largely behind us, which supports our trending towards the upper end of expectations.

One moment for our next question. And our next question will come from Craig Mailman of Citi. Your line is open.

Good afternoon. I want to explore the $30 million to $40 million of NOI growth expectation that you guys discuss here. I know 75% of that comes from street and urban, but just based on your positive commentary around demand and rent growth, could you walk through some of the basic assumptions there on absorption timeframes versus what you may begin to see from the demand? Some of these unanticipated bumps, like what you're getting at Broadway, and just give us a sense; this projection goes through 2026. Should we expect - I know, John, you said there's room above this, but at least from a timing perspective, do you anticipate this could come sooner than 2026, given the momentum you’re seeing on the demand and rate side?

Let me address the bigger picture first. John, while you gather your thoughts, in previous calls you've detailed the various drivers of the $30 million to $40 million. You're correct, Craig, that we observe improved retailer demand and rents surpassing expectations. Still, this growth has to be tempered with the time it takes to have tenants open, and economists are projecting recession risk within the next 12 months. We're pursuing exceptionally strong growth if we continue on track, and indications suggest we may exceed these projections. But I think it’s more about rent per foot rather than timing since that is contingent on various issues. John, please outline the key drivers again.

Sure, Craig. The key drivers of that $30 million to $40 million are largely contractual growth averaging about 2% over the years. This is the easier portion concerning lease-up. For the earlier years of the model, we are seeing the expected lease rollovers. For 2024, we anticipate pushback from rollovers, while still trending above 5%. Thus, 2024 is when we start feeling the impact of the rollovers but significant lease-up is still in front of us. In contrast, I believe 2025 will showcase acceleration, as the rollover effects begin to diminish alongside the onboarding of new rentals, providing us with heightened cash flow. We also have some redevelopment projects in the pipeline. These are not costly constructions but rather leasing growth metrics, and we anticipate these developments will yield benefits in 2025.

No, that was helpful. I'm interested in understanding your differentiated strategy, relative to traditional open air, right? CapEx as a percent of NOI is lower, and I'm curious if that trend is becoming even lower given the rise of rents. It sounds like, while your same-store metrics have been promising, translating that into AFFO growth has been challenging, given leverage. The sense I get is that starting in 2025, that's where you believe you will see that AFFO growth align more closely with your same-store growth. Is that a fair interpretation of the outlook?

I hope to start seeing that alignment in 2024, but absolutely by 2025.

One moment for our next question. The next question will come from Carlos of Jefferies. Your line is open.

This is Linda. My question was on City Point. How are discussions with your partner progressing? At what point would a decision need to be made?

I think it will be a multi-year process, Linda. As John discussed, the difference in earnings between our current ownership of 60% and 100% is minimal—only about 4% to 6%. Therefore, it isn't a pressing issue. I expect some of our investors will remain long-term while others will cash out. John highlighted the lack of significant cash outlay to acquire the remaining interest means we can plan for the gradual increase of our ownership. More importantly is the strong leasing traction we've observed, as it is vital for both our current and potential ownership scenarios.

Could you talk about what drove cash recoveries above expectations this quarter?

The recoveries were mainly within our funds. We were able to collect some previously uncollected accounts with the diligent efforts of our legal team. This was focused on our funds, not our core or same-store segments.

One moment for our next question. The next question will come from Michael Mueller of JPMorgan. Your line is open.

I apologize if I missed it at the beginning of the call, but the acquisition opportunities you're starting to see more of, are they predominantly in the funds, or are you seeing where the math is working for on-balance sheet acquisitions?

In terms of opportunities, I'd say they span across both avenues. We have been identifying possibilities in street retail and opportunities to capitalize on power centers. The financial structuring of these is crucial; if we are doing it on-balance sheet, it likely involves capital recycling, given the challenging climate for our stock. However, we've historically found ways to enable good accretive opportunities while managing our leverage.

One moment for our next question. The next question will come from Paulina Rojas-Schmidt of Green Street. Your line is open.

Good morning. I hope I didn't miss this, but regarding the lease you signed in SoHo, what is the net effective rent of these new leases compared with the in-place rents you have for similar assets in the neighborhood?

So, Paulina, your question is regarding the net effective rent of this compared to other assets in the neighborhood? I would say the cost of our new leases compared to existing ones provides a promising indicator. The cost to commence this lease is under a year, and this is a 10-year lease. Meaning 10-year recovery of payback within a year is significant. This net effective is very much in line with the broader trend we are observing in key neighborhoods, marking about a 45% increase over 24 months, and this indicates a robust rebound given the prior downturn we experienced over the pandemic.

Yes, a related question. I see in your presentation, you mention your street portfolio has a mark-to-market ranging from 10% to 50%. Can you remind me where your key corridors fall within this range? Not to specific numbers.

Sure, Paulina. When we think about our key corridors, that encompasses our differentiated strategies in high-growth markets, such as SoHo, Williamsburg, Melrose Place, Georgetown, Westport, and the Gold Coast in Chicago. The mark-to-market for these varies widely, ranging from around 10% at the low end to 50% at the high end.

Ultimately, it comes down to timing. After experiencing several years of headwinds, these increases are very welcomed.

And Paulina, just to add, what we laid out in that slide, we mentioned having a 10% CAGR over the next several years. What I’ll say is when we created that slide, it did not factor in the recent SoHo lease, which now enhances our projections positively because it wasn’t included within that existing estimate.

I would now like to turn the conference back to Ken Bernstein, CEO for closing remarks.

Thank you for joining us. Everyone, enjoy the remainder of the summer, and we will look forward to speaking to you next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.