Thank you for being here, and welcome to Acadia Realty Trust's First Quarter 2024 Earnings Conference Call. I will now turn the call over to Jose Vilchez. Please proceed.

Good morning and thank you for joining us for the First Quarter 2024 Acadia Realty Trust Earnings Conference Call. My name is Jose Vilchez, and I'm an analyst in our Capital Markets 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 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, April 30, 2024, 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 a reconciliation for these non-GAAP financial measures with the most directly comparable GAAP financial measures.

Great job, Jose. Thank you. Welcome, everyone. I'm here with John and Stuart and A.J. Levine. And I'll give a few comments, then hand the call over to A.J. Then John will discuss our earnings guidance and our balance sheet metrics. And after that, our team is here to take questions. As you can see in our earnings release, our first quarter performance was strong and continues a multiyear trend of peer-leading top-line growth that is reflective of both the cyclical as well as the secular tailwinds that our portfolio is experiencing. I'll let A.J. and John discuss the building blocks of our NOI growth going forward and the moving pieces of our earnings in detail, but in short, the strong rebound and continued acceleration of the street retail component of our portfolio continues to drive this performance. As A.J. will discuss, the combination of strong contractual growth and favorable recurring mark-to-market opportunities is positioning us for continued strong internal growth going forward. And as John will discuss, the stability of our balance sheet, further enhanced with our recent extension and expansion of our bank credit facility, positions us with limited maturities and limited floating rate exposure. All of this supports our goal of creating superior top-line growth at the property level and then having that growth translate into bottom line earnings growth. The positive trends we're seeing in both supply-demand dynamics and retailer performance means that we are past this being just a cyclical COVID recovery story. Even once we get our portfolio to full economic occupancy, our internal growth still looks strong. And that's because our street retail component should provide long-term growth of a couple hundred basis points higher than our suburban assets. Our goal here is to continue to craft the portfolio driven by street retail that has the highest likelihood of producing superior annual net effective growth in excess of wherever the new normal lands for both inflation and GDP growth. So this brings us to external growth. While the bid-ask spread for transactions is still a bit wide and the bond market volatility is elongating that reconciliation, the spread is narrowing. And we're beginning to see actionable opportunities for external growth. This is true both as it relates to additions to our core portfolio as well as opportunities for our investment management platform. First, in terms of balance sheet additions, our primary focus will be adding street retail to our core portfolio, both due to what we view as compelling risk-adjusted returns and because we believe our shareholders will be rewarded by our continuing to grow this differentiated strategy in the public markets, where we are the only REIT with this as a major focus. We have several hundred million dollars of deals consistent with this focus in our pipeline. Some are further along than others, and the stars still have to align, so we'll see how many actually come to fruition, but I am more encouraged today than I have been in a long time. In terms of funding, we should be able to do this accretively and on a leverage-neutral basis through a variety of different sources, including capital recycling from portions of our core portfolio that might not be as high growth or as mission-critical. Along these lines, we have, subsequent to quarter-end, finalized an agreement for the sale and recapitalization of one of our high-quality but lower-growth suburban assets currently in our core portfolio. Assuming it closes as anticipated this quarter, we will retain a 5% ownership stake plus customary fees for operating the asset with an additional promote potential upside on the eventual resale. The transaction is anticipated to set the table for future acquisition opportunities with this institution, and it will be modestly accretive at closing, but then create more growth as we redeploy the capital. Along with our focus on accretively growing our core portfolio, we're also seeing opportunities through our investment management platform, where we can leverage our skills, leverage our deal flow, and match it with our institutional capital relationships. The benefits of this component are that it's a profitable business; it enables us to punch above our weight; it makes us better investors; and it also enables us to participate in special situations, whether it's transactions like Albertsons or Mervin's or distressed debt, where being solely reliant on the public market may not be the right fit.

Great. Thanks, Ken. So once again, I'm happy to report that from where I sit and from what I'm hearing and seeing from our retailers, the positive trends, both secular and cyclical that have fueled a strong recovery over the last 36 months, continue unabated. That's true for our suburban assets, but even more so on the high-growth, higher barrier-to-entry streets where we operate from Soho to Melrose Place, the Gold Coast to M Street, and everywhere in between. We are still seeing more demand than the markets can accommodate. Our tenants are healthy, and their sales are significantly above where they were in 2019. There continues to be a shift out of department stores and non-A malls, and into open-air street retail. And for the vast majority of our retailers, the physical store remains the primary driver of profitability for their businesses. And as time moves along, we're seeing leases getting signed well ahead of where we thought rents were just one quarter prior. Now Ken mentioned the building blocks of NOI growth in our portfolio. Why will we continue to outperform and provide a higher rate of growth than our peer set? We'll start with our signed, not yet open pipeline. At the end of the quarter, our signed, not yet open pipeline sat at $7.7 million, which represents 5.5% of in-place ABR. That includes the $1.2 million we added in the first quarter, and we've already doubled that number in April, which puts us right on pace with last year. We see no signs of a deceleration and have an additional $6 million of ABR in advanced stages of negotiation. And of course, it's only April, and there are no meaningful expirations on the horizon. It is worth noting that the vast majority of that signed, not yet open pipeline originates from our street portfolio, which provides for higher contractual increases, typically 3% per annum as opposed to the blended 1.5% typical of suburban assets. And of course, there are those fair market value resets at outsized mark-to-market opportunities that are embedded in our street portfolio. So let's expand on that a bit and use Armitage Avenue in Chicago as a proxy for what's happening across our streets. The average retail rent on our 12 buildings on Armitage is around $80 per square foot. We are receiving offers to backfill space upwards of $120 a foot. So over the next several quarters, we should have the ability to mark-to-market a large percentage of that portfolio at close to a 50% spread. In fact, since the end of the quarter, we signed a new lease at 823 West Armitage at a 50% spread. So why is that? First, scale. We control 12 buildings on the street. No other single landlord controls more on the four relevant blocks on Armitage than we do. Scale not only gives us pricing power, but it allows us to curate the street and foster the best ecosystem of tenants to drive traffic and accelerate sales growth. Second, barriers to entry. Four blocks, that's the entire market. The L train to the West and Halstead to the East continues to serve as a barrier that a certain category of retailer just won't cross. If you're looking for space along Armitage, we are your first and only call. Third is performance. Armitage is just one example of a street that saw a lift in sales as a result of COVID. People were staying closer to home and shopping local. And even now with people back to work, those tenants continue to post solid sales growth, and their performance remains well above prepandemic levels. And fourth, of course, is basic supply-demand. No vacancy on the street, a waiting list of tenants that consider Armitage to be a must-have location. We are able to promote a highly competitive leasing environment where we can drive rents while we continue to curate the street. But this is not unique to Armitage. This is our street retail business, identifying the right markets and the right streets where we can scale meaningfully and do what we do best to drive growth. You can swap out Armitage for Greenwich Avenue, the Gold Coast, Knox Henderson in Dallas, or M Street, and it's largely the same dynamic. We have scale, we have barriers to entry, and we have performance. At Melrose, it's a similar recipe, but in the case of Melrose, you can add luxury to the list of ingredients. We know that luxury expansion is one of the strongest catalysts for rent growth. We've continuously seen this play out over the last 36 months in Soho, on the Gold Coast in Chicago, on Madison Avenue, and even in Williamsburg. It is no mystery that luxury tenants are capable of paying strong rents. But it is the ripple effect that luxury has on the overall market that makes the biggest impact. It's the clustering of the advanced contemporary and aspirational brands and the competition for space around those luxury tenants that truly drives rent in a market. Clustering is one byproduct of that secular shift of luxury and advanced contemporary tenants pivoting away from malls and department stores and focusing primarily on our high-growth streets. This is not a fad. This is the new reality for these dynamic tenants that are focusing their growth on where their customers want to shop. Now I say this all with a caveat that despite our efforts, we will not get all of our under-market space back all at once. But over the next three to five years, we should be able to make a meaningful dent in unlocking that embedded value within our portfolio. Some of that will occur through natural lease-up, and some will come from those fair market value resets that are relatively unique to street retail. And others, as our team has shown their ability to do, will be accelerated through our pry-loose strategy, where we are constantly looking for opportunities to pry-loose leased space and accelerate a positive mark-to-market. Now not all streets have begun their rebound. In San Francisco and on North Michigan Avenue, those markets are slower to recover but fall squarely into the bucket of when and not if. In the meantime, we can afford to be patient, and we're using this time to figure out the highest and best use for each of our projects. In San Francisco, for example, both of our projects are under serious consideration for the addition of significant residential to meet a city and state push for additional housing. It's too early to go into detail, but we are spending this time exploring what would be needed to advance those initiatives. On North Michigan, the interest we're seeing is starting to feel like the early days of recovery on Fifth Avenue and Madison Avenue. We still have a ways to go, but there are several retailers that are circling the market. And when they land, they should kickstart that recovery that we always knew was coming. Earlier this year, we were happy to see a luxury tenant like Paul Stewart relocate from the Gold Coast to 822 North Michigan Avenue, just one block south of our asset at 840 North Michigan.

Thanks, A.J., and good morning. We are off to a strong start with our operating results and key metrics coming in ahead of our expectations. We have also made considerable progress on our balance sheet. In addition to improving our debt-to-EBITDA by over 0.5 a turn during the quarter, we also successfully extended the maturity of our $750 million unsecured facility by an additional 4 years, along with upsizing our borrowing capacity, all while maintaining our existing credit spreads. I will now provide some further color. Starting with our first quarter results, we reported FFO of $0.33 per share, coming in slightly ahead of our expectations with strong tenant credit, along with solid property operating fundamentals. We are continuing to see encouraging trends within our portfolio. But as we just issued our guidance a few weeks ago, we felt it was a little too premature to make an upward revision at this point. But we remain on track to meet, if not hopefully exceed, our expectations, which as a reminder was year-over-year FFO growth of 7.5% after stripping out promote income with this projected earnings growth being driven by an increase of 5% to 6% in our same-store NOI. In addition to year-over-year growth, I thought it would be helpful to walk through our sequential growth and how we see that quarterly trajectory contributing to our annual expectations. Sequentially, our first quarter FFO grew by approximately 7% or an increase of about $0.02 a share after excluding promotes and the $0.03 of termination income we highlighted in our release. And precisely as we had anticipated, it was our core NOI or more specifically our differentiated street retail portfolio that drove this growth. But before diving into the numbers, I'm going to pause and do a quick overview of how we report and discuss our results, both those that are newer to the name as well as a refresher for those that know us well. All of these numbers can be easily traced back to our financial statements and supplemental, and we are always available to assist should anyone have any questions. First, our total NOI, defined as our share of net operating income from our core and fund business, was $43.4 million for the first quarter. This sequentially increased by approximately 4% from the $41.8 million that we reported in the fourth quarter of 2023. And in terms of quarterly run rate, prior to factoring in any acquisitions or dispositions, we expect that this $43.4 million that we reported this quarter will increase to approximately $45 million by Q4 of this year. Within the $43 million of pro-rata NOI, our share of fund NOI was sequentially flat, at approximately $7.5 million. Thus, it was our core portfolio that drove our growth, sequentially increasing by about 5% or about $0.02 of incremental FFO to $36 million. And just to be clear, I am referring to total pro-rata core NOI growth inclusive of redevelopments, not same store, which I'll discuss in a moment. And I want to reiterate a point that I made last call: we remain on track to grow our total core NOI inclusive of redevelopments by 4% in 2024. This projected growth is even with the 500 basis point drag from our redevelopment projects at North Michigan Avenue in Chicago and 555 Ninth Street in San Francisco. As we have discussed last call, the long-discussed impact from these redevelopment projects is now behind us. Our share of NOI from these three assets, meaning 664 and 840 North Michigan Avenue in Chicago and 555 Ninth Street in San Francisco, declined from approximately $9 million of NOI in 2023 to less than $2 million in 2024, which we believe demonstrates the resiliency and strength of our portfolio by achieving solid growth in spite of these significant headwinds. Now moving from total NOI to same-store NOI. As outlined in our release, we reported 5.7% same-store growth for the quarter. And again, while early, our model has us trending towards the upper end of our 5% to 6% initial guidance range. It's also worth highlighting that the first quarter of this year faced a headwind of about 100 basis points from the April 2023 bankruptcy of Bed Bath & Beyond. As we've previously discussed, dislocation in Brandywine, Delaware was profitably released to Dick's House of Sport with an anticipated rent commencement date in the fall of this year. As A.J. discussed, we sequentially increased our signed-not-yet-open pipeline by approximately 10% during the quarter to $7.7 million. As a reminder, the $7.7 million is just our core same-store signed-not-yet-open pipeline. Approximately $6 million of this amount is coming from street leases. In terms of timing, approximately 30% of the signed-not-yet-open pipeline is expected to commence during the second quarter with the remaining balance weighted towards September and October of this year.

It's Lizzy Doykan standing in for Jeffrey. Congratulations on the quarter. I would like to get an update on what you're seeing in transactional activity, especially now that you have some clarity on the activity you're helping to finalize with a few institutional partners. So to start, what are the key opportunities for capital cycling right now? And also, what are you approaching in terms of acquisitions?

Sure. So let me take a crack at both of them. As I mentioned in our prepared remarks, Lizzy, the bid-ask spread is narrowing, meaning there are buyers and sellers showing up for a variety of open-air retail. And while the volatility of the bond market is elongating that process, we are seeing interest from both buyers and sellers for a variety of products. The most crowded, most focused trade is supermarket-anchored. It was very defensive during COVID, necessity-based, and institutions are continuing to focus there. So I would say that's where you're seeing the most opportunity to sell assets and probably the most competition. Then in the other areas of open-air retail on the suburban side, the more junior anchor-focused or sometimes referred to as power center, buyers and sellers are both showing up. We're seeing deals, albeit sellers who are showing up now are probably motivated for some reason other than profit-taking. Bids are still in the higher yield range. And so those sellers are probably showing up because they either are finite life funds, have capital expenditures necessary for that asset elsewhere, or have other redeployment opportunities. If you can find those types of sellers who are motivated to get out, they can get out at a reasonable price, but we're also seeing buying opportunities. So that's on the suburban side. Where we're seeing the best, most compelling risk-adjusted returns is in the street retail side. Now it's going to take a while. But as A.J. pointed out, retailer demand is very strong. So as we think about what kind of deals are we going to buy, part of it is what you're going in yield, what's your purchase price per square foot or otherwise. But the other side of it, because we are focused on value creation, is where might there be retenanting opportunities. And so while the bid and ask spread between buyer and seller is still a little wide, the enthusiasm from our retailers, which greatly assists us in underwriting assets, that enthusiasm from the retailers is as strong as I've seen in a while. Final point to this then of what is it taking to put these deals together is where is the lending community. Now base rates are problematic and we are in a higher-longer world. But as it relates to proceeds available and spread, that market is healing as well, especially for companies like Acadia. So there are some borrowers, who are finding it incredibly difficult to refinance. But as John outlined, we have great access to capital. So to summarize, we are seeing opportunities both as a buyer and a seller in the suburban side. The sellers that are showing up are motivated for a variety of factors. The bid-ask spread is still wide, but as long as we're being selective in what we're choosing, we do think that there will be good risk-adjusted returns. That being said, the area that we're most excited about, although we still have some work in front of us, is to add street retail to our core portfolio because of the embedded growth that we're seeing there and the fact that the risk-adjusted returns and the going-in yields are enabling us to acquire assets on an accretive basis. Final point on that, just to take a step back. If we are in a higher-for-longer economy, if once the Fed settles through whatever it's going to do and inflation runs hotter, we want to make sure we own a portfolio that has a high likelihood of being able to drive top line and bottom-line growth in excess of that higher-longer inflation rate. The street retail component, for the reasons that A.J. discussed, is best situated for that. So we think acquiring those assets will provide our shareholders with compelling upside. I know I threw a lot at you, but hopefully, that answered your question.

Yes. I mean, certainly within our portfolio, we've seen luxury show up in markets like Williamsburg where historically you might not have expected that. Even as we look to some of our growth markets, you've seen luxury show up in Asheville, you've seen luxury show up in Austin. So luxury expansion is very real. It's not isolated to New York, L.A., Chicago. It's something that's happening everywhere.

A.J., why don't you cover that?

Yes. I mean, certainly within our portfolio, we've seen luxury show up in markets like Williamsburg where historically you might not have expected that. And even as we look to some of our growth markets, you've seen luxury show up in Asheville, you've seen luxury show up in Austin. So luxury expansion is very real. It's not isolated to New York, L.A., Chicago. It's something that's happening everywhere.

First question, I'm curious about the new relationships you're entering into. Are these entirely new relationships, or do some of them involve legacy fund investors? Should we view these strategic investments as a replacement for a Fund VI vehicle, or should we assume that Fund VI fundraising is either ongoing or will commence in addition to these new relationships?

So we think that this format will serve our shareholders better than a one-size-fits-all Fund VI. Again, that could change, Todd. The investors are similar. There's some overlap, but it's also new institutions. The rationale for this is that while we still believe that that side of our business, the investment fund management business, is an important component of our dual platform for the reasons I outlined before, we're more excited in this current environment, where we don't think leverage is going to be as much of a tailwind for buyers as it was during the last couple of decades. We think the lower-leveraged public vehicle is where we're going to be able to drive more growth first and foremost. Secondly, Fund V, which thankfully is teeing up to be very successful, but it took us twice as long to deploy that capital. That elongated investment cycle isn't friendly to our LPs or our shareholders. So being able to do things on a small or more strategic basis seems to make sense. Final point. The fund, Fund V, let's say, or any of our funds are a one-size-fits-all pooled investment, which are great and having that discretionary capital is something that is very beneficial. However, that high teens return that is required, and especially in a higher interest rate environment, is going to be more difficult than the one-size-fits-all nature of it, a little more difficult going forward. My friends in the private equity side of that business are certainly feeling it. Now to the extent that they can go to industrial development or single-family rental and all that, there's ways they can pivot. But we want to stay focused in open-air retail. That's our core competency. So what we are doing now is working with different institutions with different leverage desires and different return goals. Some may be more core plus, low teens versus high teens. Some may have other initiatives such as distressed debt, and we can thus curate it better that way. You put it all together, and it's very likely going to look similar in terms of cash flows and revenue. Yes. So let me start with the second part of that, which is throughout our portfolio, we are constantly looking at which assets does it make sense to recycle out of, either because they are lower growth or not mission-critical or just not consistent with our growth strategy. And so yes, there are. We certainly do not need to rush to the exits. So you're not going to see us fire-selling anything. And if we don't do any more of those recycles, we can still grow this company just fine. But there are certainly opportunities. And then whether it's with this institution or some of the others that Reggie Livingston and the team are working with, some of that will be very dependent, Todd, on the kind of opportunities we see going forward. When you and I spoke a year ago, I thought the biggest opportunities would be distressed debt. Now, in fact, as it relates to retail, it doesn't look like that's going to be the window of opportunity. There are going to be other situations. So we'll see, right investor, right assets, and we'll be able to match it that way. We're feeling pretty good to very good about new institutional interest. Because keep in mind, the private institutions, for the most part, have been sidelined out of retail for the last 5-plus years. They need partners like us to execute as they want to pivot out of some of other asset classes and back into retail.

Yes, absolutely, Todd. So it's a vacant building at this point. That was the terminated contract. The highest and best use for that is not retail development. So it's really sort of a non-ancillary parcel. The go-forward drag is going to be a nominal amount of interest and taxes in our numbers. Like Ken just mentioned, we're not going to fire-sale anything but looking for the right time to sell. So this is not a meaningful needle-mover in terms of proceeds or otherwise. The amount of that payment we got was just under contract for an extended period of time. So that was with the size of it. We had carrying an opportunity cost as we were holding that for a buyer that ultimately defaulted given where the rates were at and their development plan for the asset.

The $20 million of NOI, $0.18 from FFO coming online from street year-end '23 through '27, what does the cadence look like?

Looking at the near term, we have $6 million in signed-not-yet-open deals, which gives us clear visibility. About a third of that will begin in the second quarter, with the rest coming in the fall. A significant portion will extend into 2025, making it look strong for that year as the results of our prior agreements materialize. As for demand, that will also be a factor, but the largest element of the $10 million we expect will come from the signed-not-open category. The mark-to-markets are expected to arrive sporadically, contributing to the $4 million we discussed, likely in a relatively even cadence. The 3% growth is contractual and will occur annually. While I cannot guarantee a precise 10% year-over-year growth, I anticipate a generally smooth trajectory towards that 10% over the next couple of years as we progress.

Great. Last question. The contracts you announced in your press release to sell a core suburban asset and then the one you're under contract to buy. Could you talk a little bit about the pricing?

We'll talk about that more next quarter when everything hopefully closes. But well, since that was your third question and since I don't want to answer it, we'll leave it at that. It was accretive. So I think we could say that. I mean, we could say that. It was accretive.

So John, I understand you're aiming to be cautious at this time of year, but it seems like you might have subtly increased guidance. I wanted to ask about some of the sensitivities related to the midpoint. A.J. mentioned he's feeling more optimistic about rents now compared to last quarter. The deals are providing slight benefits, but Ken isn't ready to share pricing details. Additionally, tenant credit is showing positive trends. With that in mind, regarding the $1.28 figure compared to the range and these moving elements, could you provide an idea of the potential plus or minus you foresee at this stage in the year, assuming all these factors align, particularly in relation to your timing perspective?

Yes, the decision to raise was primarily based on our original guidance from a few weeks ago. One key factor is tenant credit, which I mentioned in the last quarter's call. We had anticipated $0.03 of FFO for tenant credit, and we are trending better, so there's potential for us to exceed that. That's one upside factor. Another factor is our significant signed-but-not-yet-open pipeline, which is largely dependent on timing. If we miss by a month, it could accelerate our NOI and income, but a few weeks' delay could have the opposite effect. Rent commencement on new leases is another variable, given the volume of opportunities and our dedicated team's efforts. Additionally, on the leasing front, if A.J. signs a lease for a suburban location today, we won't see NOI until 2025 due to the build-out. However, with 84% occupancy on the street, A.J. can sign leases that will generate income this year, which we've projected conservatively. A.J. and his team have already met our leasing goals, so they are in a good position for any further leasing opportunities. As for acquisitions, our Monday morning meetings are busier than ever, discussing potential investments, but we haven't finalized anything yet. This adds another layer of potential upside. Ultimately, the lack of a guidance range reflects the timing since our last communication with the market regarding expectations.

Yes. I'll jump in. A lot of the strategy we've discussed focuses on identifying opportunities for positive mark-to-market across our portfolio. Most of these are additional to what we've previously shared. Armitage Avenue is a great example, with an average retail rent of $80 per foot compared to a market rate of $120 per foot. We anticipate the possibility of losing some of that space in the coming quarters and years. This serves as a model, and similar opportunities can be found throughout the portfolio. It's important to note that the significant growth we've experienced over the last few years inherently includes these types of opportunities. That addresses the first question.

Yes. There is.

Yes. The main point is that we do not have any exposure to interest rates, no maturities, and no concerns with our balance sheet. The primary factors will be the commencement dates of rents. Given the significant growth we have experienced, these dates can influence outcomes positively or negatively. Retail demand, the rents we are securing, and the spreads we are achieving—whether through fair market value resets or retenanting—will be crucial. We aim to ensure that this growth materializes as soon as possible, striving for maximum levels because, in the long run, that is what will create value.

The perfect combination of John and Ken. Thank you all for taking the time. We look forward to speaking to you soon.

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