Acadia Realty Trust Q2 FY2025 Earnings Call

Thank you for standing by, and welcome to the Acadia Realty Trust Second Quarter 2025 Earnings Conference Call. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, John Forster, Property Accountant. Please go ahead, sir.

Good afternoon, and thank you for joining us for the Second Quarter 2025 Acadia Realty Trust Earnings Conference Call. My name is John Forster, and I am a property accountant in our accounting 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, July 30, 2025, 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. 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, John. Great job. Welcome, everyone. Notwithstanding continued noise and uncertainty around the broader economy last quarter, we saw continued momentum across all of the three key drivers of our business. The first driver is delivering superior internal growth through our highly differentiated core portfolio dominated by street retail. Last quarter's leasing activity puts us well on our way to a fourth year of delivering annual same-store growth in excess of 5%, and as A.J. Levine will discuss, we are making important progress on our 2026 and our 2027 goals as well. Then the second driver is adding to our internal growth with accretive and complementary external growth, both on balance sheet and through our investment management platform. Last quarter, we completed nearly $160 million of acquisitions, and over the last 12 months, a total of $860 million in acquisitions, including nearly $0.5 billion of street retail. Reggie Livingston will walk through our transactions closed last quarter and the opportunities we are seeing going forward. Then the third driver is maintaining a solid balance sheet with the liquidity and the flexibility to drive both internal and external growth. John Gottfried will walk through our balance sheet metrics and successful refinancings last quarter and how this positions us for growth going forward. So taking a step back, as we look at the current operating environment, we seem to be in an ongoing tug of war with fear of tariff-induced stagflation on one side and then surprising resilience on the part of the consumer and the overall economy on the other. So far, thankfully, team resilience seems to be winning. That is certainly what we are seeing as we look at our quarterly results. Resilience is showing up both in continued strong tenant demand for space as well as retailers' performance in our portfolio. And this momentum is not just conceptual. It is reflected in many of our metrics, including $15 million of executed leases in our signed-not-open pipeline that John Gottfried will elaborate on further. For a variety of important reasons, retailers are looking past short-term uncertainty and continuing with their leasing initiatives. In meeting with our retailers, I've been impressed with their ability to successfully navigate tariff uncertainty. Now, this is not to make light of the headwinds that tariffs could play on retailers' profit margins. But unlike most of us who only began seriously focusing on tariffs on Liberation Day, most of our retailers have been refining their distribution channels for years. And this preparation by our retailers and then a resilient consumer is just part of the reason we are seeing continued momentum in our leasing. Other reasons include a favorable supply-demand balance due to lack of new development. And then probably even more importantly, as it relates to our portfolio and to street retail, there is the added tailwind of retailers continuing to place greater long-term value on establishing their own network of stores, often migrating sales out of department stores and into mission-critical street locations. Additionally, our portfolio is concentrated in corridors that primarily serve highly affluent consumers. And while the broad consumer spending might be moderating some, the affluent consumer is continuing to maintain and in many instances, increase spending. With a strong stock market and a stable job market, our retailers are still seeing their shoppers showing up, and we're seeing this play out in our portfolio. While certainly not a perfect analogy, in the airline industry's recent earnings reports, several airlines noted that while the industry is seeing some softening in the main cabin, premium seating demand continues at record levels. So in short, these strong tailwinds, favorable supply-demand backdrop, and long-term shift by brands to their own direct-to-consumer stores, the continued strength in demand by the affluent consumer. All these reasons help explain why even though our street retail portfolio is discretionary retail, the continued momentum we are seeing is, in fact, stronger for our street retail than in our other more necessity and value-based open-air formats. These tailwinds also impact how we think about external growth as well. This strong retailer demand for street retail, coupled with its favorable lease structure makes street retail screen attractively from an investment perspective. It provides further support for why we are focused on building Acadia into the premier owner-operator of street retail in the U.S. The combination of strong contractual growth of generally 3%, coupled with more frequent accretive mark-to-market and lease-up opportunities means we can deliver superior growth. In our case, we're shooting for above 5% compounded annual growth for the foreseeable future. Furthermore, what makes us most excited about this segment of retail is seeing the benefits of scale that we're achieving through both having a nationwide platform and more concentrated ownership in given corridors. Our focus is to not just own strong individual stores but rather making sure we own multiple stores clustered together in the right corridors. We are seeing the benefits of this operating leverage in a majority of our street portfolio in markets ranging from M Street in Georgetown to North 6th Street in Brooklyn to Henderson Avenue in Dallas. The benefits of owning street retail at scale not only help our leasing efforts in a given corridor, but also help our leasing efforts nationally. And just as importantly, it helps our acquisition efforts as well. We're seeing this operating leverage emerge in our street retail platform in ways that have remained more elusive in other open-air formats that we're active in. As we screen for specific investment opportunities, both on balance sheet and through our investment management platform, our philosophy of external growth is simple. For our on-balance sheet acquisitions, we will continue to allocate capital in a disciplined manner that is accretive to earnings, accretive to net asset value for long-term growth with a differentiated focus on those street retail markets where we can derive benefits of scale. As John will highlight, we have the liquidity and the flexibility to continue our balance sheet investments. And then equally important, our investment management platform enables our team to create value in a broader range of opportunities within our core competencies. Finally, our third driver is the continued health of our balance sheet. John will discuss how we continue to expand our liquidity, reduce our borrowing costs, and extend our maturities. And while we did not raise any equity last quarter, prior to that, we raised over $800 million, providing us with flexibility for growth going forward. My one observation here is while the real estate equity capital markets are evidencing certain levels of uncertainty and volatility, the debt markets are very strong, both secured and unsecured, both proceeds levels and spreads. And while a healthy debt market is only one leg of the stool, it's a critical one. So in conclusion, as we look forward, our multi-year strong internal growth looks like it has several years of tailwinds behind it. Coupled with continued external growth opportunities and a balance sheet with multiple avenues of access to capital, we are well-positioned to continue to execute. And with that, I'd like to thank the team for their continued hard work, and I'll hand the call over to A.J. Levine.

Thanks, Ken. Good afternoon, everyone. So first, let me start by echoing Ken's comments. Our shopper, especially the higher income street shopper, continues to show no signs of slowing down. For anybody wondering how street retail is holding up, I would encourage you to visit our tenant Doan on Bleecker Street in the West Village of Manhattan. What you'll see is a line that stretches out the door and down the street and a 20-minute wait to use a dressing room. So Doan on Bleecker is just one example, but a similar display can be seen at Brandy Melville on the Gold Coast of Chicago, Skims on M Street in D.C., Sephora in Williamsburg in Brooklyn, or at any of the advanced contemporary tenants at our Green Street Collection in SoHo. This is a phenomenon that you will only see along our high-growth streets. And it's why our tenants remain in the game, off the sidelines, and continue to compete for space. But this isn't just anecdotal. We hear it directly from our tenants, and we continue to see it reflected in reported sales. Across our mission-critical streets, our shoppers continue to show up in full force, and reported comp sales have increased double digits, both quarter-over-quarter and year-over-year. Compared to what we're seeing in our suburbs, the sales growth we're seeing in our streets is staggering, with year-over-year growth on the majority of our streets well north of 20%. And with strong sales and healthy occupancy ratios, our tenants remain focused on long-term growth. As a result, we continue to see leasing momentum that's ahead of the pace we've seen over the past several quarters and year-to-date sits at 2x the volume we achieved at this time last year. So to give you a sense of that activity, last quarter, I mentioned our pipeline of $6 million of leases in advanced stages of negotiation. Since that time, in Q2 and so far in Q3, we've executed another $4.5 million in new leases, with substantially all of that volume coming from our high-growth streets, where we see the highest annual contractual growth within our portfolio and relatively frequent opportunities to mark-to-market through food and beverage resets. So not only has the pace of our leasing accelerated, but we've already replenished and grown the active leasing pipeline, which now stands north of $7 million of leases in advanced negotiation. Now looking at some of those markets more closely. SoHo continues to be a meaningful driver of our internal growth. In Q2 and early Q3, we signed new leases in SoHo with the luxury tenant Richemont and with Veronica Beard, which is a highly coveted advanced contemporary tenant. In addition, through our pry-loose strategy, we recaptured another undermarket lease, and simultaneously expanded and renewed Faherty, generating a double-digit spread in the process. Following the quarter end, we also finalized two important renewals in our Green Street collection with Theory and Frame Denim. So the Faherty, Theory, and Frame spreads blended to double digits and will all grow by 3% contractually. While the SoHo portfolio is now 97% leased, we're still finding opportunities to unlock embedded value, improve merchandising, and enhance credit. On Armitage Avenue, we once again proactively recaptured an underperforming space and executed a double-digit mark-to-market by bringing in Huckberry, a highly complementary brand that fits our curation on the street. Since the start of 2024, we have successfully marked to market over 40% of the tenants at Armitage Avenue at an average spread north of 50%, with the majority of those efforts resulting from our proactive pry-loose strategy. Even so, over half the leases within our Armitage portfolio remain 50% below market, which means there's an embedded 25% mark-to-market opportunity remaining for us to unlock on Armitage. For those remaining 60% of tenants that remain under market, we have already identified replacement tenants, and we are hard at work strategically prying those spaces loose. Again, we often use Armitage as a proxy for what we're seeing across our streets, but similar mark-to-market opportunities exist elsewhere in our portfolio, including in markets like Bleecker Street in the West Village, SoHo, Williamsburg, Melrose Place, and on Henderson Avenue in Dallas. A common thread across all of our high-growth streets is that tenant demand continues to materially outpace supply, M Street being a perfect example. Despite limited availability, the team receives consistent interest from top-tier brands asking when space will be available and if we can get it back any sooner. We have a space right now on M Street that we're in the process of recapturing, and we already have three offers to backfill at a significant improvement to both rent and merchandising. Just a few months ago, the focus on M Street was around the potential impact of DOGE, which never really materialized. In reality, the real challenge on M Street, like many of our streets, is how to accommodate three tenants that all want the same space. That's where the benefits of scale and a concentrated portfolio come into play. By owning a sizable portfolio in the market, we can use that scale to be thoughtful about merchandising while providing a home for each of those interested tenants, and nobody goes home unhappy. We're seeing a similar dynamic play out in SoHo, Melrose Place, Williamsburg, and of course, on Armitage. In each of those markets, we are actively negotiating deals well in advance of actual availability. It's not an easy task, but it's one where our team continues to execute by recapturing and repositioning space in a highly accretive way. Shifting for a moment to San Francisco. For the last several years, the question was when will our tenants return? Well, if the activity from this year is any indication, that time is now. In Q1, we announced a new lease with T&T for 50,000 square feet at our City Center asset and the dynamic co-tenancy that T&T attracts. So far under Mayor Lori and the new administration, our entitlements are significantly ahead of schedule. Now this quarter, I'm pleased to share that we've executed another key lease, this time with LA Fitness' Club Studio concept, which will occupy around 35,000 square feet at 555 9th Street. It's another clear signal that the momentum in San Francisco is building. Given Club Studios' pricing and targeted audience, it's another indication of the strength of the higher income consumer. While I can't share the specifics just yet, we are currently in discussions for another impactful lease at 555 9th, which we hope to announce in the coming months. Staying out West in Las Vegas. At the LINQ Promenade, which is an asset we own in our investment management platform, early signs have been very encouraging. After signing three new leases, we are already well ahead of pro forma. Even with the ebbs and flows of tourism in Las Vegas, retailers are looking past short-term choppiness and remain focused on strategic long-term growth. Finally, a quick update on City Point in Downtown Brooklyn, where both traffic and comp sales are up double digits year-over-year. Earlier this month, we celebrated the grand opening of Van Leeuwen Ice Cream in addition to signing two new leases, including one with Swarovski along our Prince Street passage. The momentum that's been building over the last several quarters with the opening of the park and the addition of Sephora is only accelerating, and we currently have an additional 20,000 square feet of space under advanced negotiation, most of which is concentrated on our highest valued space along Prince Street and across from the park. While some of that space is currently occupied by temporary tenants, in contrast to that temporary income, these long-term leases would allow us to achieve our pro forma rent expectations. So with that, I'm happy to report another quarter of strong leasing. Thank you, as always, to the team. And with that, I'll hand it off to Reggie.

Thanks, A.J. Good afternoon, everyone. I'd like to share specifics around our Q2 acquisition activity and provide insight on how we're positioning the company for continued growth. As noted in our earnings release, we completed nearly $160 million of acquisitions in the quarter. These acquisitions continue our focus on the core pillars of our external growth business, funds from operations and net asset value accretion, strong compound annual growth rate, and increasing our concentration in key markets. Q2 was another quarter of delivering on that mix. So let's discuss those deals in more detail. We closed over $100 million of deals along the key retail corridor in Williamsburg, Brooklyn, North 6th Street. The buildings, including 70, 93, 95, 97, and 107 North 6th Street are on the most prime blocks along the corridor. The tenants include great contemporary brands such as Lululemon, Abercrombie, MAJOURI, On Running, Birkenstock, and Patagonia. While this concentration of names in three blocks is great for our consumers, it also benefits our shareholders. In an eight-month time period, we have purchased ten storefronts along North 6th, laying the foundation for the benefits of that scale to drop to the bottom line in the form of higher rents, as Ken and A.J. have discussed. Also, in the vibrant Flatiron and Union Square submarket in Manhattan, we acquired 85 5th Avenue for $47 million. This asset is on a key corner in the market and leased to a Fortune 100 company. It marks our fourth storefront in this market where we see a favorable supply-demand dynamic that should continue to drive rent growth. Where does this leave us through the first half of the year? We've acquired $420 million of assets, delivering accretion consistent with our $0.01 per $200 million target with an attractive going-in GAAP yield in the mid-6s and a five-year compound annual growth rate in excess of 5%. The bottom line is we continue to deliver on our external growth mandate despite some of the first half headwinds of capital market volatility, political noise, and economic uncertainty. So now let's turn to the second half of the year. What are we seeing and what are we focused on? There's no sign that asset pricing has receded. Private capital has stepped into any void from volatility in the REIT sector, ensuring prices remain firm. Despite this competitive environment, we're pretty confident we can remain active for the balance of the year, and I'd point to two reasons underlying that confidence. One, while institutional investor interest in retail remains strong, street retail, in particular, is a less crowded trade, and we maintain an actionable street retail pipeline, so we can pounce when the cost of capital stars align through capital recycling or otherwise. Remember, the majority of our balance sheet acquisitions consist of off-market transactions, so we are already missing opportunities in any period of inactivity. In fact, all $350 million of balance sheet acquisitions this year were either off-market or buying out existing partners. This pipeline development is a key ingredient in our ability to act quickly when we see our accretion objectives can be met. The second reason is our investment management platform, where we are not dependent on accessing the public markets, is busy underwriting north of $1 billion of assets that fit squarely into our core competencies. The increased number of retail investors has brought many sellers off the sidelines, hoping to monetize in this high-demand environment. As always, we'll be disciplined for the right deals and are confident we'll get our fair share of these opportunities. To summarize, our Q2 activity continued to connect the dots in key corridors with strong long-term growth potential, and our focus on that remains unabated. We're seeing exciting opportunities for our investment management platform where we can leverage our talent and our institutional capital relationships. I want to thank the team for their hard work this quarter. And with that, I'll turn it over to John.

Thanks, Reggie, and good afternoon. We had another strong quarter and are continuing to see stability along with positive momentum building across our street retail portfolio. Aspects of our business that continue to excite us include the continuation of net operating income growth in excess of 5% for the next several years, the strength and liquidity of our balance sheet, and lastly, our ability to add external growth, whether that be on balance sheet or through our investment management platform. In terms of growth, we remain on track to deliver 5% to 6% same-store net operating income growth this year. This growth is dropping to our bottom line with projected year-over-year NAREIT funds from operations growth of about 10% at the midpoint of our guidance. Secondly, our balance sheet is rock solid. We have over $0.5 billion of liquidity, along with the financial flexibility to accretively fund and grow our business. Lastly, external growth. As Reggie highlighted, our pipeline of actionable opportunities is full, and we have various avenues to fund it, whether it be with on-balance sheet dollars or with institutional capital through our investment management platform. Before diving into the quarter, I want to spend a moment to reiterate and put some data behind the continued leasing momentum that we are seeing, particularly within our street and urban markets. At our proportionate share, we executed approximately $7.5 million of new leases in the first half of 2025. Just to put that in context, this equates to approximately 3.5% of annualized minimum rents and is up nearly 100% over the $3.8 million of leases that we executed during the comparable period in 2024. It's worth highlighting that this momentum is coming from our street and urban portfolio, with approximately 85% of the executed leases in 2025 coming from this portfolio compared to 30% in 2024. Now let me walk through some details of the second quarter, starting with earnings. We reported NAREIT funds from operations of $0.27 a share, representing an 8% increase over the $0.25 that we reported in Q2 of 2024. At the midpoint of our 2025 guidance, our NAREIT funds from operations is on track to be up approximately 10% year-over-year. Additionally, funds from operations as adjusted for realized gains from the sales of Albertsons stock was in line with our expectations at $0.32 a share. Moving on to same-store net operating income and occupancy. As outlined in our release, we reaffirmed our expectation of 5% to 6% core same-store net operating income growth for the year. As discussed on prior calls and embedded in our initial guidance, the first half of 2025 reflected our pry-loose strategy of proactively taking back below-market space and accelerating mark-to-market opportunities within our street retail portfolio. We remain on track to see a 200 basis point to 300 basis point acceleration of same-store growth in the second half of 2025 as these locations come online. While as a matter of practice, we don't formally update our annual same-store net operating income guidance, we are trending towards the midpoint, if not slightly ahead, of the 5% to 6% annual same-store growth. Additionally, driven by occupancy gains in our street and urban portfolio, we increased our total core occupancy by 50 basis points to 92.2% and anticipate further increasing occupancy to 94% to 95% by year-end. I want to focus on our leasing pipeline, which is one of the most important data points that we want to highlight this quarter. This strong and growing pipeline reinforces our conviction and confidence that we are laying the foundation to continue delivering net operating income growth in excess of 5% for the next several years. As always, I will warn those modeling to get ready. I'm now going to spend a few moments walking through how we anticipate this $15 million pipeline of signed-not-yet-open leases will impact our future earnings, same-store net operating income, and occupancy. As outlined in our release, the $15 million represents nearly 7% of pro rata annualized base rent, with approximately 85% of it coming from our street and urban portfolio, and it is entirely comprised of incremental annual base rent, meaning it represents executed leases on space that is currently unoccupied. All amounts discussed are at our proportionate share. The $15 million pipeline is comprised of $7.8 million in core operating, which means our same-store pool. $6.5 million comes from our core redevelopment projects, and $700,000 comes from our share of the investment management business. So let's start with the overall earnings impact. $12 million of the $15 million will hit our bottom line earnings after adjusting for interest and other carrying costs that we are currently capitalizing primarily for core assets and redevelopment. In terms of estimated timing and impact on annual earnings, approximately $11 million of the $15 million of annual base rent is projected to commence in the second half of 2025, with the remaining $4 million expected to commence in 2026. When layering in the expected rent commencement dates, we are expecting incremental earnings of approximately $3 million in the second half of 2025, of which $2.5 million of this is expected to be reported within our same-store pool, followed by incremental earnings of $8.5 million in 2026, with approximately $5.3 million of this being same-store, leaving us with $3.5 million of incremental earnings in 2027. Please note, the amounts discussed reflect just the annual base rent impact of the $15 million, meaning the actual net operating income will differ slightly, as it doesn't factor in the additional tenant recoveries that we will receive or the impact of the cost capitalization I mentioned earlier associated with assets and redevelopment. While it's early, our initial 2026 model has our net operating income increasing in excess of 10%. While our team still has some leasing to do to achieve this target, we are well on our way with the $15 million of executed leases in our signed-not-open pipeline. Stay tuned as we refine our 2026 budgets and expectations, but given the strong and continued momentum of net operating income growth as we head into 2026, along with a fully hedged balance sheet with no meaningful maturities, we remain confident that this net operating income growth will drop to our bottom line earnings. Additionally, as we prepare for our 2026 earnings guidance, while we aren't revising any of our earnings metrics for 2025, we're exploring ways to simplify our reporting to clearly highlight the anticipated net operating income growth from our real estate business. While we have increased conviction on our net operating income heading into 2026, there's inherently more variability of other items that could factor into our bottom line earnings, including the transactional profits for our investment management business or the interest income from the City Point loan. Keep in mind, while these profitable parts of our business can cause some variability and/or timing implications in our quarterly earnings, they have minimal, if any, impact on net asset value and thus how we think about the value of our company. Regarding the Investment Management business, our transactional gains over the last few years have come from the sale of Albertsons stock. As of June 30, we have approximately 500,000 shares remaining. Our current intent is to monetize the balance of our holdings in 2025. As we think about the $2 billion plus of assets under management in our investment management platform, we are actively executing our business plans. While it's too early to pinpoint specific timing, we are projecting net profits in excess of $30 million. We will provide additional details as we get closer to execution. Turning to the City Point loan, our partners have the ability to convert their interest at any point, which could be dilutive to our short-term earnings but ultimately accretive upon the stabilization of the asset. While our partners are pleased with the progress we have made, we expect that some of our partners will convert this year. For those modeling our 2025 earnings, if all of our partners were to convert during the third quarter, it would be about $0.03 dilutive in the short term. However, this short-term dilution would be recaptured through incremental net operating income as the asset stabilizes. So stay tuned. We look forward to continuing to expand our ownership interest in City Point, particularly at this pricing into this irreplaceable asset in Downtown Brooklyn. Finally, I'll close with an update on our balance sheet, which remains rock solid. While we continue to remain disciplined, we have the liquidity and dry powder on call to fund the accretive core and investment management opportunities that Reggie and his team are actively pursuing. As of June 30, we had approximately $600 million of available liquidity with net debt to EBITDA at 5.5x. Additionally, we continue to see strong support from our lending partners. During the quarter, we executed a new five-year $250 million term loan, enabling us to reduce our borrowing costs and extend duration. The facility was priced at 120 basis points over SOFR, which, when factoring in the impact of the interest rate swaps, equated to an all-in cost of about 4.6%. In summary, given the continued leasing momentum and strong pipeline of external growth opportunities, supported by a fully hedged and liquid balance sheet, we are excited about our growth prospects over the next several years. And with that, I will now turn the call over to the operator for questions.

Our first question comes from Linda Tsai from Jefferies.

Could you speak to the disconnect between the performance in your stock price and the underlying health of your portfolio? It seems like a reason Acadia's stock has underperformed is due to tariff concerns and your tenants being more exposed to discretionary spending. What do you think the market is missing? And what's the catalyst that could spur better stock performance?

Yes. Well, Linda, certainly, when Liberation Day was announced and there were concerns about the impact of tariffs on the economy and the consumer, conventional wisdom was that we were more likely than not heading toward a recession and facing a period of stagflation. What we have seen now, based on our leasing activities, conversations with our retailers, and the shifting views of economists, is that we look more likely than not to avoid those serious headwinds. So point number one is that our leasing is holding up just fine. Point number two is that I think the market is underestimating the secular tailwinds that I discussed in the prepared remarks, but just to repeat them—the secular tailwinds that we are experiencing in street retail specifically: the migration from wholesale, the migration out of department stores, and into DTC, meaning our retailers are recognizing it is mission-critical that they have these locations. It helps that the consumer is continuing to show up. It helps that these stores are very profitable, but they are also looking over the next three, five, and ten years and realizing they need to be on the corridors that A.J. was talking about, that Reggie was discussing. They need to have these mission-critical locations. Yes, it has been a volatile six months due to all that noise, but I think proof is in our leasing fundamentals.

And then maybe related to that, my second question is, could you compare and contrast what landlord scale looks like in a suburban shopping center portfolio versus street retail? Like what's the tenant negotiating power for consumer-driven suburban markets within a gateway MSA versus, say, owning ten storefronts in Williamsburg, Brooklyn?

Yes. This has been one of the fascinating eye-opening experiences that I've seen over the last year or two after having been in the open-air industry for decades. Traditional open-air suburban shopping centers find the benefits of scale beyond simply just reducing G&A as a percentage of revenue as we got larger. Finding those benefits vis-a-vis our retailers—the ability to drive more rents, drive more NOI—has always been elusive. Conversely, what we're beginning to see in street retail is significant benefits. Within any given corridor, what A.J. estimates is, where we own enough stores in a corridor, given our relationships with the retailers, and our ability to curate, we're able to get approximately 10% more rent than if we owned just one building or if we were not national in scale. You add that benefit to the national scale we have with these retailers, and we are regularly in front of virtually all of our retailers and the C-suites of these retailers. It's much more of a partnership than what we have experienced in the more traditional open-air side. Now, it used to be that way in open-air if you were a preferred developer, but now that new development is not really a driving factor for our retailers, we're just not seeing that benefit. Conversely, for street retail, we're seeing it within the given corridors and on the leasing side. We're also seeing it on the acquisition side. By that, I mean we are the first call or a buyer of choice for street retail because we have the proven track record, the capital, and the know-how. You add that up, and it's a pretty exciting time to be focused on building out this platform, which is already well on its way, but we think we will see continued economies of scale and benefits of scale as that plays out.

And our next question comes from the line of Craig Mailman from Citi.

This is Sydney McEntee on for Craig. There were a couple of acquisitions on North 6th Street in Williamsburg during the quarter, and Acadia now controls about $110 million in that submarket. Could you just talk a little bit more about the mark-to-market opportunities for those acquisitions in the market as a whole?

Sure. Reg, do you want to start and then A.J. chime in?

Sure. One of the things that we focus on from a GAAP deal perspective is, are there mark-to-market opportunities? When we talk to our tenants, and we do this in conjunction with A.J. from an acquisition standpoint and find out when the actual leases were signed, how the tenants are performing, we think there's running room ahead of us from a mark-to-market standpoint. Specifics, I won't get into, but A.J., you can add to some of that generally speaking.

Yes. Look, Reggie, your team has done a great job identifying under market leases. The challenge for my team is now we got to get to work prying them loose. In a market like Williamsburg, similar to what we've seen on Armitage, we're seeing 20-plus percent mark-to-market opportunities in the majority of our streets. That's not unique to Williamsburg. That's true for Bleecker and West Village, Armitage, SoHo, Melrose Place, Henderson Avenue—each of those because of the performance over the last year and because of the strength of tenant demand easily has double-digit upwards of 20%, 25% mark-to-market.

To finish on that, where we can control a meaningful portion of a given street, it doesn't need to be a majority. It generally means about 30%, which we are now on North 6th; where we can have that meaningful impact, we find we can benefit and drive rents and performance for our retailers even higher because of curation—putting in the right retailers. We can increase sales by being able to move faster if a tenant wants to be larger or smaller. If they have a new concept, we're in front of them, so we know what we can do. What you'll see play out on North 6th, as you've seen in Armitage, as you've seen on M Street, is that kind of benefit of scale.

And then one more, maybe along that vein. Have you seen any meaningful changes in the transaction market regarding either the competitive landscape for these street retail assets or in terms of sellers coming to the market?

Yes. I think for April 2, Liberation Day, there was a bit of a pullback. Ken alluded to that—a bit of a pullback on the street retail side from sellers. However, the fundamentals Ken and A.J. have talked about aren't a secret. We're starting to see more and more sellers saying, okay, the water is fine. Let me tip my toe back out there. We're having these conversations every day. The vast majority of our street retail acquisitions are off market, so we have to be constantly in dialogue with many of these sellers. We will continue to see that over the balance of the year. Regarding competition, a lot of the institutional investors are more focused on other segments of open-air, so we really like the opportunity in street retail because we believe it's less crowded.

And our next question comes from the line of Andrew Reale from Bank of America.

How would you characterize the pipeline for investment management deals similar to the LINQ Promenade? Could we see a similar large-scale investment management deal in the near-term?

Sure. I think you do because I think the large deals are out there. A lot of them are on the market. Obviously, we're going to be disciplined. We'll only do the deals that make sense. A lot of those large deals are either through direct conversations or marketing where people are saying, 'Hey, maybe we can get the opportunity to execute on large deals.' We're underwriting several of those large deals as we speak.

Okay. A lot of talk on the street portfolio today, but it would be helpful to discuss how your suburban assets are performing and if there have been any changes to that watch list or near-term vacate risks in that portfolio.

Yes. You are seeing this among our peer reports, and A.J., I'll let you chime in. Due to the lack of new development, high-quality suburban retail is holding up just fine. There were some tenants on the watch list, but what we've seen, both in our leasing just in terms of overall tenant demand, seems to be very strong, filling in any of those watch list items.

Yes. There was a flurry of watch list tenants filing bankruptcy. We saw it from Party City—the majority, again, of which were in our suburban portfolio. Luckily, we didn't have a tremendous amount of exposure there. I'd say the growth is there; it's not the same growth we're seeing on our streets. It's an important distinction to make. One of the differences between suburbs and the streets is obviously the length of term, and our ability to continuously identify those under market and underperforming tenants and pry them loose. The other distinction is, of course, CapEx. When we take back space proactively or otherwise on our streets, the amount of money we have to spend backfilling that space in relation to the rent is relatively small compared to the CapEx we have to spend in the suburbs.

And our next question comes from the line of Ki Bin Kim from Truist.

So a lot of positive commentary on your street and urban assets. Just maybe for Ken, where do you think occupancy ends up at the end of 2025 versus that 90.8% today and in 2026?

Ki Bin, you're referring specifically to the street?

Yes, street and urban retail occupancy.

Yes. I think in absolute occupancy, we're trending in the 92% by the end of the year for street and urban.

Okay. And John, you provided a lot of color on the financials. I think you mentioned you think NOI can increase 10% next year. I'm not sure if I heard that right, but if I did, what portion of that 10% increase is same-store?

Yes, you did hear that correctly. The portion that is same-store, one second here. In '26, we are expecting total incremental—this is just from our pipeline—$8.5 million showing up in '26, of which $5.3 million of that will be in the same-store pool. Remember that 3% contractual we get with our street goes on top of that, plus A.J. talked about his pipeline of stuff. Not giving 2026 guidance, but just given where we are in the year and that 10% we are targeting, we feel pretty good about.

Our next question comes from the line of Michael Mueller from JPMorgan.

I guess, first, John, maybe a couple of things on City Point. First, I just want to confirm, the City Point loan you're talking about, that's not in the supplemental structured investment schedule. That's separate from that, right? And then was the $0.03 dilutive you referred to if everybody converts, was that a 2025 number? Can you just give us a little more specifics there?

Yes. Mike, I think in terms of the dilution, that would be if every single one of them converted in the third quarter. That's certainly not our expectation, and that would be on '25.

Got it. Okay. I forget if you could have a follow-up here or not, but I'll throw it out anyway. Following up on the prior question in terms of the occupancy level, just drilling down to the street, where you were at 85% at June 30 or so. I remember in prior calls, you pointed toward closer to 90% by year-end, high 80s. Does that still seem on track at this point during the year for the Street component?

It does. Yes.

And our next question comes from the line of Todd Thomas from KeyBanc Capital Markets.

First question, John, so I just wanted to clarify on that year-end occupancy target that you mentioned, 92% for the Street portfolio. Is that comparable to specifically that 85.2% in-place occupancy for Street? Or is that more comparable to the leased occupancy, which is at 90.8% as of June 30?

Todd, just maybe take a step back. So total core operating occupancy, we think that's at our pro rata share is in the 94% to 95%. For the street and urban, I think we get to about 90%. When you factor in urban, it could be a little bit higher given the nature of those are bigger spaces. Overall, 94% to 95%, and we think that we get to around 90%, the low 90s for the street and urban piece.

Okay. And then I just wanted to follow up a little further on leasing and some of the conversations around the mark-to-markets. We talked about Armitage and then Williamsburg. If we step back and look at the entire core portfolio where you have about 17% or 18% of ABR scheduled to expire through the end of '26. Any early thoughts on the outlook for tenant retention through that time period? Do you have any general idea of mark-to-market or what kind of leasing spreads you might anticipate based on current demand and where market rents are today?

Yes. Look, demand is very strong. The only sort of role I anticipate, frankly, is space that we are proactively taking back. We have a track record of doing that. We will take back underperformers. You're going to have a period of time where you see occupancy dip and then it returns at a higher total ABR. So we're not really forecasting any significant move-outs other than those where I'm going to take it back proactively and replace them accretively.

Mark-to-market on Barry Street?

Yes. Mark-to-market, like I said, blending across our street portfolio is double digits, and we don't really drill into individual markets, but the majority of them are seeing upwards of 20% mark-to-market opportunity embedded in those leases.

To finish, compared to November and December when we were discussing this, we are relative to today in terms of tenant interest, tenant performance, tenant renewals, rents—everything is holding up, notwithstanding a lot of noise over the last six months. We haven't seen any meaningful deterioration for street retail. We had one retailer early on after Liberation Day put a couple of leases on hold, but those were quickly signed thereafter. I can't think of another instance where a retailer has said we are slowing down, we can't afford the rent, or we no longer need to be here. Whatever we were guiding to in November, December, A.J., you sure you have, you better deliver it.

Just to clarify, that one retailer, the deals they were putting on hold were for non-mission-critical markets—suburban markets. They were still moving forward with mission-critical street leases. In fact, we signed one with that retailer. So it's an important distinction.

And our next question comes from the line of Floris Van Dijkum from Ladenburg.

Are you worried about the movement of cap rates? I think, Reggie, you indicated that there's still very strong investor demand. Ken, you were talking about spreads being pretty tight right now. What does that mean for cap rates in the markets that you want to expand in—presumably SoHo, Williamsburg, maybe Rush and other key corridors? Can you buy as attractively as what you've been able to achieve so far? My follow-up is: You do have a little bit of liquidity. Would you consider selling some more suburban, where cap rates are also pretty tight to be able to fund some of the growth in your street portfolios?

Reggie, let me first talk about some of the different ways we can continue to drive growth, and then why don't you chime in. Yes, Floris, you're absolutely correct; we do think we can sell assets on the suburban side or migrate them as we have done into our investment management platform without any material impact on earnings and use that capital along with additional dry powder we have, along with other avenues of capital so we can continue to be active as we see opportunities. Reggie touched on before, sellers are starting to show up again. What I would caution is that cap rates are much trickier in street retail—going-in yields because of all of the moving pieces. Our team is able to underwrite through that and understand the long-term internal rates of return and long-term yields. I am confident we will be able to find deals, find the right way to capitalize on them, and proceed. Sure, there's some competition; Blackstone has shown up periodically, and there are other legitimate bidders out there. For the most part, there is so much less competition that I'll leave it to Reggie and his team to ensure that we're seeing a fair share of attractive investments.

Yes. I think we're finding those attractive investments. Big picture from a cap rate standpoint, as Ken said, particularly on the street, it's dependent on one building to the next, two buildings next to each other with different mark-to-market opportunities and lease expirations are going to trade differently. Big picture in the markets we're really focused on, it could easily be low-5s in SoHo and mid-5s plus elsewhere but also 6 plus in other markets around the country. That's why we're really focused on our portfolio construction. We think we can find the right level of assets at 5% to 6% cash yields, GAAP yields in the mid-6s, with that outperforming compound annual growth rate because of the mark-to-market that screens very well from an IRR standpoint. We're finding those attractive opportunities, and we're not deterred.

If you think about your annualized base rent, it's about $100 million from street, $60 million from suburban. What will that look like in three years, if you had a crystal ball? Ideally, what would you like it to look like?

If I ever had a crystal ball, I threw it out during COVID. I believe that our shareholders will benefit from our dual platform, having the vast majority of our assets being street and urban retail. We will be the premier owner-operator of street retail in the United States. Whether that means migrating assets off-balance sheet from the suburban side or otherwise, it really needs to be growth at appropriate prices, at the appropriate time for street retail. I see no reason, based on the deal flow we're seeing, if the stars align, we couldn't double the size of our street retail portfolio, accretively, accretive to net asset value, accretive to earnings, and that will be the main focus on balance sheet. Our investment management platform activities is where you will see any and all suburban activity, our opportunistic activity—deals like the LINQ that we touched on earlier today. If I had a crystal ball, Floris, that's what I would predict.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Ken Bernstein for any further remarks.

All right. Thank you all. I hope you all enjoy the summer. We look forward to speaking with you again next quarter.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.