管理層發言
Good day, and welcome to the Acadia Realty Trust Second Quarter 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question, you will need to press *1 on your touch-tone telephone. As a reminder, this call is being recorded. I would like to turn the conference over to George Horst, summer intern. Please go ahead.
Good morning, and thank you for joining us for the second quarter 2026 Acadia Realty Trust earnings conference call. 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 Act of 1933 and the Securities Exchange Act of 1934 and the actual results may differ materially from those indicated by such forward-looking statements. Due to a variety of risks and uncertainties, including those disclosed in the company's most recent Form 10-K and other periodic filings with the SEC, forward-looking statements speak only as of the date of this call, July 29, 2026, and the company undertakes no duty to update them. During this call, management may refer to certain non-GAAP financial measures, including funds from operations and net operating income. Please see Acadia's earnings press release posted on its website for reconciliations of these non-GAAP financial measures with the most directly comparable GAAP financial measures. Once the call becomes open for questions, we ask that you limit your first round to two questions per caller to give everyone the opportunity to participate. You may ask further questions by reinserting yourself in the queue, and we will answer as time permits. Now, it is my pleasure to turn the call over to Kenneth F. Bernstein, President and Chief Executive Officer, who will begin today's management remarks. Thank you.
Great job. Welcome, everyone. As you can see in our press release, we had another strong quarter driven by continued momentum across both internal as well as external growth initiatives. And while geopolitical events have certainly added unwanted uncertainty to the global economy, our results tell a different story. In fact, it is worth pausing at this point for a moment. For instance, the tariffs on labor were announced on April 2nd. So this is really the natural quarter to compare against to see what has actually happened to our business. And since then, we delivered earnings growth of 11% year over year. Last quarter, same-property NOI came in ahead of our plan at 8.7%. We produced record leasing activity, with rent spreads exceeding 90% this quarter compared to single digits a year ago. So while the headlines have been relentless, what our retailers are telling us is a very different story. The U.S. consumer has remained resilient, and retailers are doubling down on must-have real estate. That strength shows up across the key drivers of our business. First, with respect to internal growth, which A.J. Levine will discuss in more detail, our operating metrics continue to reflect the strength of our street retail thesis. Second, with respect to external growth, as Reginald Livingston will discuss, we were busy last quarter on the transactional front with important street retail additions to our REIT portfolio and more to come. Simultaneously, we were harvesting profits from several assets in our investment management platform, where we have now disposed of or recapitalized over $500 million year-to-date at a nearly 2x equity multiple. And then third, as John Gottfried will discuss, our balance sheet metrics are right where we want them, with plenty of dry powder to fuel future growth. But taking a step back, what this quarter really reflects is our street retail thesis being validated in real time. On previous calls, we discussed why tenant demand and tenant performance in street retail is so strong, and those same drivers remain firmly in place: limited new supply, strong tenant performance driven by the affluent consumers who shop our corridors, and most significantly, the increasing demand due to the long-term migration of brands away from wholesale and department stores toward their own direct-to-consumer stores. This DTC shift has been gaining steam over the past few years and it appears we are still in the early stages of this important multi-year demand driver. It is an important reason why we are seeing the strongest growth coming from the street retail portion of our portfolio. But this increased demand and ensuing market rent growth is only half the story. The other key driver of our results comes from this differentiated structure of our street retail leases that allows us to capture this growth faster than in other formats. First, our street retail leases generate higher contractual rent escalators, generally with 3% annual growth. They also require a lighter relative capital on retenanting, so more of that top-line growth drops to the bottom line. But most importantly, our street retail leases carry fair market value resets that allow us to have faster and more frequent mark-to-market opportunities—a structural advantage that simply does not exist in other formats. This means that to the extent that we are now operating in a longer term inflationary environment, as we have experienced over the past couple of years, these resets provide for inflation protection as well. The combination of superior contractual growth and more frequent mark-to-market opportunities means our street retail portfolio is positioned to generate 200 to 300 basis points of incremental same-store growth above what we achieve in our suburban portfolio. In fact, over the last three years, we have delivered closer to 400 basis points of superior growth. And given that demand seems to be increasing, we expect this outperformance to continue. We are also seeing proof of concept where our performance is being further enhanced when we achieve scale in a given corridor. We have found that once we own about 20% to 25% of the retail on one of our key streets, we can better drive curation, better drive sales performance, market intelligence, and operating efficiencies that result in about a 10% incremental NOI increase for our properties. Thus, with these tailwinds and goals in mind, our acquisitions are focused on those deals that both stand on their own from a return perspective but also position us to further recognize the benefits of scale. Since the third quarter of 2024, we have invested approximately $700 million in street retail acquisitions in our REIT portfolio. And with our current pipeline, our goal is to hit $1 billion by year end, nearly doubling the size of our street retail portfolio. These investments have already created approximately 3% FFO accretion per share and an even higher percentage of NAV accretion. Importantly, this focus is bringing us closer to our goal of being the premier owner-operator of street retail in the U.S., which is also bringing scale benefits to our platform. Now to be clear, our discipline here is unchanged. Our investments continue to be accretive to earnings and accretive to net asset value from day one and continue to deliver on our target of initial accretion of one penny of FFO for every $200 million we deploy. As a result, the benefits of scale that we hope to recognize in the future are additive to what these deals already deliver on their own. So in conclusion, the results we are delivering today are a direct reflection of the strategy we have been executing for several years now, both with respect to our focus on street retail for our REIT portfolio as well as our execution through our investment management platform. The internal and external opportunities in front of us give us a clear line of sight into multi-year top-line growth, with increasing confidence that this growth will continue to drop to the bottom line. And with that, I would like to thank the team for their continued hard work, and I will turn the call over to A.J. Levine.
Thanks, Kenneth. Good morning, everyone. I will start off with an update on leasing activity and the trends that are driving our results this quarter. Then I will focus specifically on the rent growth we have seen on our key streets, and how that is translating through to pry-loose and mark-to-market opportunities in our portfolio. Starting with leasing activity. During the second quarter, we signed approximately $8.9 million in new leases, which is the highest volume for any quarter in our company's history. While we continue to see strong fundamentals and leasing momentum from all sides of our portfolio—street, urban, and suburban—it is the performance of our streets that continues to fuel the majority of our growth. Approximately 80% of the new ABR signed in the second quarter was from our street and urban markets, where we will see the highest contractual growth at 3% per annum as well as more frequent opportunities to mark-to-market through FMV resets. And even with the record volumes we have achieved during the second quarter, the pipeline of prospective leases in advanced negotiation remains strong, with $10 million in additional ABR being actively negotiated. As far as what is driving that demand, there are several factors at play. The first being the current supply-demand dynamic on our streets: vacancy rates in markets like Madison Avenue, Greene Street in SoHo, North 6th Street in Williamsburg, Armitage Avenue in the Gold Coast in Chicago, and Melrose Place in Los Angeles are at historical lows. As far as tenant demand, the decline of traditional wholesale channels coupled with the recognized benefits of DTC retail has given rise to the deepest pool of specialty, advanced contemporary, and luxury tenants that we have perhaps ever seen. It is clear from the activity on our streets and from speaking with our tenants that retailer demand continues to meaningfully outpace supply. That is naturally creating heightened competition for space supported by unmitigated consumer demand. And that brings us to the second factor, which is tenant sales growth and occupancy costs, especially for those tenants catering to the higher-earning customers that shop our streets. The annual sales growth that we have seen from tenants such as Aritzia on M Street, Alo Yoga on Michigan Avenue, Violet Gray on Melrose Place, Doen on Bleecker Street, Tecovas on Henderson Avenue, and Zimmermann in SoHo is averaging over 25% year over year, and the blended health ratio for those tenants is below 9.5%. So unlike the 2015–2016 cycle when rents ran well ahead of what sales could support and ultimately had to correct, today's tenants remain healthy and four-wall profitable, even before taking into account the halo effect and other benefits of omnichannel retail. So as we look for additional opportunities for growth, this is where we find it. The sales data continues to signal that despite several years of elevated rent growth on our streets, we still have significant room to run. And the third dynamic, which is perhaps the most intentional, is the scale that we are building along these dynamic corridors that is allowing us to curate our streets, positively influence tenant performance, and ultimately capture outsized rent growth. A good example of these dynamics at play would be Armitage Avenue in Chicago, where we control over 30% of the retail on the street and have spent years thoughtfully curating with brands like Serena & Lily, Jenny Kayne, Huckberry, and Levain Bakery. Over 65% of our GLA on Armitage has undergone some form of a rent reset since 2019 and over that time rents on the street have effectively doubled. The street has virtually zero vacancy, but that has not stopped us from unlocking embedded value, both qualitative and quantitative. Through our pry-loose strategy and FMV resets, we continue to improve merchandising and drive rents on the street. In our latest example from the second quarter, we re-leased space on Armitage at a 75% spread. But when you consider that the prior tenant's initial rent from 2010 was $76 a square foot and the new rent is $155 a square foot, that means that rents on Armitage have grown over 100% since 2019—that is a 10.5% annual rent CAGR. And just one year ago, we signed a lease on Armitage at $130 a square foot, which means rents on the street have increased by 20% year over year and signals that the market is, in fact, accelerating. That level of growth does not happen by accident. It flows from thoughtful, intentional merchandising, space by space, tenant by tenant, prying loose an underperforming tenant and replacing them with the likes of Jenny Kayne, who has the ability to generate sales at two times the previous tenant. The type of planning and impact that can only come from achieving scale within a market. But while this level of rent growth is fairly unique to our streets, it is not unique to Armitage Avenue. We have seen a similar dynamic on M Street in D.C., on North 6th Street in Williamsburg, on Newbury Street in Boston, and on Worth Avenue in Palm Beach. On Greene Street in SoHo, for example, where again supply is near all-time lows and competition for space is the strongest it has been in over a decade, this past quarter we signed a new lease with a European luxury retailer at a 34% spread. But when you factor in the 3% contractual increases typical of street retail, the true spread against the previous tenant's starting rent from 2022 was closer to 43%. Again, that is close to a 10% CAGR over the last four years. On Melrose Place, we re-tenanted the space at a 48% spread, but when you compare today's market rent against the market when the previous tenant last renewed in 2021, the growth over that period is 66%—that is an 11% CAGR. Those are just a few examples. But overall, spreads for the quarter came in at 91%. Now let me be clear: we recognize that posting 90% spreads is extraordinary. But given the current market dynamics of street retail—double-digit market rent CAGR over the last several years and the performance and demand we are seeing from our retailers—we do expect to see consistent double-digit spreads moving forward, plus the 3% contractual growth that is standard for our streets. The spread is the headline, but the compounding is what really drives returns over time. What makes all of this particularly powerful for our portfolio is that because of FMV resets that are unique to street retail, we are able to capture this rent growth sooner than we can from suburban leases. Therefore, a meaningful portion of our portfolio will be resetting to current market in the near term, allowing us to seize the momentum in real time. John will walk you through what that embedded mark-to-market translates to in terms of earnings growth potential. It is also worth noting that the average payback period for the quarter's new conforming street leases was slightly above nine months, accounting for commissions and CapEx, whereas the payback period on a new suburban box is typically five to seven years. That is just one more reason why not all spreads are created equal. So in summation, despite a record quarter of leasing activity, the runway ahead remains significant. Market rents on our core streets have compounded meaningfully since 2019. Those rents continue to accelerate as available supply further contracts, and our lease structure ensures that we can capture that growth on a recurring basis. As always, I would like to thank the team for their hard work, and with that, I will turn the call over to Reginald.
Thanks, A.J., and good morning, everyone. I will start my remarks covering our recent transaction activity and current pipeline, which is keeping us on our traditional pace of $400 million to $500 million of street retail acquisitions per year. Year-to-date, we have closed over $228 million in acquisitions for our REIT portfolio, including $149 million in Q2 to date, all while hitting our key metrics: accretive to NAV, accretive to FFO at a rate of a penny per $200 million, with NOI CAGR in excess of 5%. Specifically, our recent activity included 4 and 28 Newbury Street in Boston. These assets are anchored by Chanel and Cartier and possess meaningful value-creation opportunity we are actively working to harvest. 8888 Melrose Avenue in West Hollywood is leased to Jacquemus, the acclaimed French retailer; this too has value-creation opportunities that could drive cash yields to north of 8% in the near term through redevelopment and retenanting. And finally, we added another door in the key Flatiron/Union Square market where we now own five storefronts and are further realizing the benefits of scale there. On top of those acquisitions, we are excited about our pipeline. We have built a platform that routinely closes $100 million a quarter of street retail and we expect to exceed that pace for 2026, and John has raised all the money needed to do it. This pipeline has all the Acadia hallmarks, including off-market deals leveraging the less crowded street retail space and our first-call advantage, tenant-driven market intelligence infused in our underwriting, building more scale on corridors that continue to experience outsized rent growth, and below-market leases that allow us to harvest that growth in a relatively short period of time and stabilize significantly above our going-in yield. In fact, we have already delivered several examples of converting below-market leases to market rent on our recent acquisitions. On our 2024 SoHo portfolio purchase, we have signed leases that will increase NOI by 90%, stabilizing to a 6% yield and a high-sixties yield in a few years through another F&B opportunity—all on an asset that would trade below a 5 cap today. Same with one of our 2024 Williamsburg purchases where we have more than doubled the NOI, also slated to stabilize to a 6% yield—an asset that would trade at a low-5s cap rate today. In other words, we do not just buy deals with upside, we are actually executing on our plan to capture that upside. On the IMP side, the increased capital appetite for open-air retail has certainly made competition for this product stiff, but we remain confident we will secure the right assets at attractive prices—confidence driven by our history of doing so. On the flip side, we are taking advantage of this increased competition through select dispositions of IMP assets where we have successfully completed our business plan. To date, we have sold and recapped north of $500 million, with another $200 million-plus of dispositions by year end. This continues the success of this platform where we have achieved a nearly 2x equity multiple and mid-teens IRR on these deals this year. So in conclusion, the bottom line is we are well on our way to cross the threshold of $1 billion of street retail over the last two years, and we are doing it in a way that is accretive, disciplined, and building scale with a growing pipeline to fuel more growth. And with that, I will turn it over to John.
Thanks, Reggie, and good morning. I will start off my remarks with comments on our second quarter performance, including building blocks for the balance of the year and into 2027, and then closing with an update on our balance sheet. As outlined in our release, we delivered $0.31 of FFO. It was another clean quarter that exceeded our expectations, enabling us to once again raise our full-year earnings guidance. And to keep it simple, it was our street retail portfolio that drove the quarter, contributing nearly 16% same-property growth equating to nearly $0.02 of incremental FFO versus the prior year quarter. The growth was pervasive across our street markets, and in our scaled corridors the growth was even more pronounced. For example, on M Street in Georgetown and Armitage Avenue in Chicago, we exceeded 20% same-property growth during the quarter. As a matter of practice, we do not revise our same-property guidance during the year; that said, with same-property growth of 7.3% through the first six months and continued strength expected in the second half of the year, our full-year model has us trending above the midpoint of our 5% to 9% range. I want to spend a moment on our signed-not-yet-open pipeline. As A.J. highlighted, through our team's record leasing, our SNO pipeline increased nearly 60% during the second quarter, reaching an all-time high of $16.5 million, or roughly 7% of our pro rata ABR. About half of our pipeline is projected to commence in 2026 and is heavily weighted to the fourth quarter—that is when the growth of TNT and LA Fitness's Club Studios, both in our San Francisco redevelopment projects, are slated to come online—with the balance of our SNO expected to commence throughout 2027. When factoring in our estimate of rent commencement dates, let me now translate the anticipated impact of our SNO pipeline on FFO. In aggregate, our SNO pipeline represents about $0.08 of incremental FFO net of roughly $0.03 that we are capitalizing within our development and redevelopment. Based on estimated commencement dates, we expect to realize about $0.01 or so in the second half of 2026, another $0.03 to $0.05 in 2027, and the balance in 2028 building to the full $0.08 run rate. Now let me turn to a topic A.J. touched on in his remarks involving market rent growth and the potential earnings upside of below-market leases in our street retail portfolio. We have historically been reluctant to provide specific mark-to-market data across our streets, but given the high volume of leasing activity that has and continues to occur, we now have enough empirical data that supports our increased conviction in the opportunity ahead. And just to point out, we have already been capturing this market growth in our streets over the last few years—having increased our street and urban occupancy by over 500 basis points, accelerating mark-to-markets through fair market value resets that are unique to our street retail, and through our pry-loose efforts—all of which have been driving double-digit rent spreads, same-property, and FFO growth that we have been experiencing. Even after all of that, we still have plenty of room to run. We estimate that our high-growth streets are still approximately 25% below market today, and keep in mind this does not include the additional upside we anticipate from market rental growth over the remaining lease term, which further increases the mark-to-market opportunity. But for purposes of walking through the earnings impact, let's just stick with the 25% that we think we capture today. This represents about $20 million to $25 million, with some of the largest contributors being SoHo in Manhattan, which we estimate to be about 35% below market; Henderson Avenue in Dallas about 60% below market; Armitage Avenue in Chicago at about 50% below market; and North 6th Street in Williamsburg at about 25% below market. In terms of timing between natural lease expirations, FMV resets, and our pry-loose efforts, our team is highly focused on capturing a meaningful amount of this mark-to-market opportunity within the next five years. Thus, between several hundred basis points of remaining street lease-up, 3% embedded contractual growth, the executed leases in our SNO pipeline, and our below-market street retail portfolio, we are increasingly confident in our ability to continue producing 5%-plus same-property growth and strong earnings growth over the next several years. Let me now turn to our 2026 guidance. Given the strong operating fundamentals and increased confidence heading into the second half of the year, together with the accretion from our external growth, we raised our full-year earnings guidance again this quarter, now targeting approximately 10% year-over-year FFO growth at the midpoint. And it is worth noting that this strength more than offset about $0.01 or so of positive rent dilution from our investment management business, which is the short-term dilution we absorb when we profitably sell investment management assets ahead of redeploying the proceeds. You heard from Reggie—we have sold or recapitalized well in excess of $500 million of investment management assets at nearly a 2x multiple with more in the pipeline. So while short-term dilutive, it gives us meaningful dry powder to redeploy into future earnings growth as we reinvest that capital. And now moving to our balance sheet. Starting with our capital raising: our acquisition goal is to add roughly $400 million to $500 million of accretive street retail on balance sheet each year. Based on our penny per $200 million target, this translates to over $0.02 of annual FFO accretion. And as you heard from Reggie, with a very busy second half of the year ahead of us, we remain on track to achieve that goal again. During the second quarter, as this pipeline of accretive external opportunities began to increase, we match-funded it with approximately $200 million of equity. Following this raise, we have all the equity we need to achieve our current external growth goal along with the funding we need to complete our Henderson development project, which we continue to anticipate an 8% to 10% yield on cost. In terms of our balance sheet, we have virtually no maturities over the next several years, nearly $1 billion of liquidity, and significant dry powder to fund our REIT expansion and investment management businesses. So in summary, we had an outstanding quarter, achieved record leasing volumes, better-than-expected operating metrics, and a balance sheet that has ample capacity to support the disciplined execution of our growth strategy. And with that, I will turn the call over for questions.
分析師問答
Thank you. If your question has been answered and you would like to remove yourself from the queue, please press *1 again. Our first question comes from Craig Mailman with Citi. Your line is open.
Thanks. It is Nick Joseph here with Craig. Just on the street retail strength that you are seeing, curious, number one, if the retailers are reporting any changes in consumer behavior? And then on the rent levels that you are seeing today, do you think these are sustainable or are they stretching same-store economics at all?
Let me start, and then A.J. will chime in. There are some shifts underway that I think are important and we should not lose sight of as it relates to open-air retail in general, discretionary retail specifically, and you need to take into account omnichannel. To be more specific, over the last few years, the move out of wholesale and out of department stores, as department stores have been reducing the number of doors they have, retailers are recognizing the most profitable channels, and the most important one is having their own store as opposed to being in department stores. Similarly, in an omnichannel world, online is still very important to these retailers, but the store is the most profitable channel. So from an overall makeup, what we are seeing is a bunch of retailers that were not historically active users of their own stores showing up. That is the first step. A.J., why don't you chime in in terms of health and what our tenants are telling us in terms of the profitability and viability of these stores?
Yeah. There are a few things I would point to. First, sales growth and health ratios. Sales growth is outpacing market rent growth, so health ratios are actually declining, which is a good indicator of where rents can go. As Ken mentioned, this is the deepest pool of tenants and the tightest supply that any of us can remember, and some of those are European retailers that are entering the U.S. for the first time or expanding in the U.S., looking to the U.S. as their main growth driver moving forward. Some of these are traditional wholesale players that are pivoting to DTC. Momentum matters—most of the rent growth we have seen has actually happened post-2024, so this is not just a pop that happened coming out of COVID that is now leveling out. It is sustainable. And, of course, do not want to discount our ability to actually curate because of the scale we have achieved in a number of these markets. We can actually influence rents and influence tenant performance through co-tenancy. So we do believe that this is a sustainable trend moving forward.
Thanks. That is very helpful. And then maybe just on the kind of balance sheet and tying that to the busy acquisition pipeline that you spoke of, how do you think about forward equity offerings from here? And how do you think about pricing relative to the returns that you are targeting?
Yeah. So as outlined in our remarks, I think we have the equity we need. We talked about getting to about $500 million of acquisitions, which we think by the end of the year we will get there, and we have the equity we need to fund that as well as to fund our Henderson project. So we are not looking to raise any additional equity beyond what we have currently under wrap. In terms of forward equity, the rationale is this: Reggie is out shaking hands on deals, and we look through the math to see if it hits our metrics—NAV accretive, FFO accretive, growth accretive, etc. When we lock in that price of capital, the diligence and closing process often takes several months to get to that point. I want to make sure Reggie has that capital on hand to fund it. So we do like that element to fund it, and we raise equity when we have conviction that we are going to put it to work. Thank you.
Thank you. Our next question comes from Andrew Reale with Bank of America. Your line is open.
Good morning. Thanks for taking my questions. My line's kind of been going in and out, I apologize if either of these were touched on during the remarks. But I guess I was wondering if you could just tell us what the going-in cap rates are on acquisitions year-to-date, and then how should we think about both the timing and the magnitude of yield expansion on those?
Yeah. Unfortunately, when it relates to street retail, cap rates are just one of the many components we consider. Andrew, here's how we look at it: the going-in cap rate may be more relevant for suburban retail, but for our street retail we think about everything we have discussed with expansion of rent growth in various corridors. It is really about what we stabilize to and how we can use the platform to pull certain levers to stabilize to, call it, a 6% plus yield in a near time frame. A lot of that we can actually do because of fair market value resets, the rent growth in these various corridors, retenanting, pry-loose, curation, etc. So we think about it less from a going-in cap rate standpoint and more about where we stabilize to, and we are often finding opportunities where we are stabilizing 100 to 200 basis points above where it would trade today. That is really the difference between a going-in cap rate with meager growth and the opportunities that we are able to harvest.
Okay. Thank you. And then could you just remind us what share count you are assuming in the FFO guidance and if that includes settling all forward shares this year?
Yes, Andrew. So think of when we bring down an acquisition, that is when we will draw down on the share issuance. So I think we are just going to continue match-funding as we did this quarter. It is really going to vary with the timing of the closings of the deals.
Thank you. Our next question comes from Floris van Dijkum with Ladenburg Thalmann. Your line is open.
Hey, guys. Thanks. Solid underlying results. Interested in your dispositions a little bit as well, maybe diving into that. Obviously, you sold some of your JV assets and got pretty decent pricing on that. Maybe talk about how you thought about that. And I think the local press has also talked about Clark and Diversey portfolio being for sale in Chicago. Maybe you can talk a little bit about what you think that would have to price at in order for you to put that off the books.
So let me start, and then Reggie will chime in with some details. First of all, we do not comment on press articles—that is just a matter of practice. What we have said before and is the case for our on-balance-sheet dispositions is that while we will entertain them periodically over time, they will not create earnings dilution and they will not create NAV dilution. We have the balance sheet we need, and so we can be strategic about any dispositions. Reggie, why don't you touch on the overall disposition market where it feels the most crowded and where we see opportunity?
I think what we have always said historically is that one of the reasons we like street retail on balance sheet is it is a much less crowded field. A lot of suburban product—grocery-anchored centers, power centers—has increasingly become a crowded field as retail is having its day from an institutional investor standpoint. So we are leaning into that in our funds' dispositions. We are getting solid pricing for it, and a lot of it is because of the increased competition that investors are out there for. But we only sell when we have completed our business plan, so we are getting maximum value when we take it to market.
Thanks. Maybe as a follow-up: you guys are in a couple of really hot street nodes. How would you rank in terms of medium-term upside and also in terms of your ability to invest capital—SoHo market versus Williamsburg versus M Street and Boston? Where do you see some of the greatest opportunities right now?
Let me start, and then A.J. and Reggie can add color. Where we are most excited by far is where we can own enough assets on a given corridor that we can create what we call the benefits of scale. As I said in the prepared remarks, it does not mean a 100% ownership. Usually when we get to about 25% of the stores in a given market, because our team is active day in and day out, we can have a meaningful impact on that corridor. The ones I am most excited about are those corridors where our curation can raise the sales of the corridor, where our curation can help drive the rents, and where we are at scale in about half of the key streets that we are active in. In terms of which ones in the medium term are going to have the most growth, to some degree you are asking us to pick our favorite children, but to state the obvious, it is those that are in the earlier or early-ish stages of stabilization—Henderson Avenue in Dallas would be a prime example. A.J., what else would you add?
Yeah. The Flatiron and Upper Madison Avenue markets are still not back to prior peaks and still have a lot of room to run, with available supply extremely constrained. Bleecker Street is resonating with a lot of these traditional wholesale retailers that are pivoting to DTC. I also think SoHo still ranks at the top of the list—there's still a good amount of room to run given the demand we are seeing in SoHo and the room to put more capital to work there as well.
Appreciate it. Thank you. Our next question comes from Todd Thomas with KeyBanc Capital Markets. Your line is open.
Hi, thanks. Good morning. First question, John, you mentioned that you do not regularly revise the same-store growth forecast during the year but said that you are trending above the midpoint of the 5% to 9% range. Does the FFO guidance reflect that view? Has that been adjusted accordingly? And can you clarify and discuss the driver of the $0.02 increase at the low end of the range and where you sort of de-risked the outlook?
Yeah. Todd, at the beginning of the year I put in a way too wide of a range at 5% to 9%. We do not update it on a regular basis because it implies a level of precision on a portfolio of our size that we prefer not to articulate on a quarterly basis. Going forward, we will have a much tighter range, but at this point we are not updating it quarterly. The $0.02 increase at the low end of our guidance was really a combination of things. One is the accretion from acquisitions as we continue to redeploy external growth. Credit performance is a second piece; we continue to see strength there. We also are getting spaces open and have a very significant SNO portfolio. Our team is getting those spaces open on time, if not ahead of schedule. So between acquisitions accretion, the ability to get stores open faster, and overall tenant health, that is what drove the $0.02. In terms of where we land between our range, we still have half the year left, so we will leave it where it is for now, but we continue to trend upward.
Okay, that is helpful. Second question: now that Acadia owns 100% of Fund 2's interest in City Point—effectively 95% of the asset—can you talk in a little more detail about the NOI upside opportunity and timeframe to realize that earnings growth from that asset? I think leasing has generally been excluded from the SNO pipeline you discussed, so can you clarify? And also talk about the longer-term ownership of that asset and whether you plan to keep it on balance sheet or recapitalize/monetize over time?
Sure. A couple of points: first, the $16.5 million SNO is pro rata across our entire portfolio, so that would include CityPoint. Because it was in the investment management structure, it was not in our same-store number, but it is included in the SNO total. As we outlined last night, we did acquire the remaining partner pieces in Fund 2, so the complexity of the loan and timing is behind us and the upside is in front of us. We have made significant progress on leasing and what we have signed or are in process of signing. We think the upside could start to show in 12 to 18 months as we continue leasing activity and mark-to-market opportunities.
If you have been to the asset multiple times, it is a combination of getting the remaining spaces on the park leased and getting the mark-to-markets that we think are available as tenant sales and new openings show strength—Sephora is a big positive, for example. Now that ownership is simplified, that gives us runway to execute. We have signed Warby Parker and Lovesac this past quarter, which will complement Lululemon, Sephora, Swarovski, and of course Trader Joe's. We are creating the right ecosystem, seeing strong sales growth, and the Ground Floor spaces are the ones that roll the most frequently and where we will capture the upside in rent. Stay the course, be selective, focus on curation, and we see a good amount of upside ahead.
Okay. Thank you. Our next question comes from Paulina Rojas-Schmidt with Green Street. Your line is open.
Good morning. Your portfolio leased rate is at 94.7%. So three questions related to that: where do you see the overall leased rate going over the next 12 to 18 months? What can Chicago realistically get to in that horizon? And more broadly outside of Chicago, are there any specific assets to call out as near-term needle movers on the leasing upside front?
Paulina, the 94.7% is a blend of our entire REIT portfolio—street, urban, and suburban. The street portion is lower in percent leased but represents higher-dollar ABR per square foot. The street portion still has several hundred basis points of room to run; historically we have peaked in the 97% range on street occupancy, so 95%–96% feels achievable on the street given the strength we have discussed. Suburban is probably pretty full at this point—around 95% to 97%—so when you blend our mix of street, urban, and suburban you will be in that 95%–96% blended range because there will always be a level of churn. On Chicago, we do not have a lot of vacancy there with the exception of North Michigan Avenue, which is in our redevelopment pool—96,000 square feet that is currently a drag on that metric and offers meaningful upside as we redevelop and lease it. As for other upside assets, SoHo and West Village (SoHo/West Village) are examples where we still have room to capture mark-to-market through FMV resets and pry-loose efforts. We see meaningful upside embedded across several streets.
To add, Henderson in Dallas is another where we are strategically holding space back given the development, so meaningful growth will come there through lease-up. San Francisco is rebounding as well; we expect anchors such as TNT and LA Fitness's Club Studios and Sprouts at 555 Mission to drive occupancy and further upside. I would argue the importance of FMV resets over the next few years may be more impactful than the occupancy gains we've seen, because retailers come to us years ahead of FMV resets to secure space and justify tenant investment in store improvements. All of that together gives us more excitement about the upside embedded in our portfolio today than we had even when we were in lease-up mode a couple of years ago.
Thank you. Second question: when you underwrite acquisitions across your different street retail corridors, do you find expected returns are broadly similar, or do some markets offer meaningfully more credible upside than others today—because of where they are in the recovery cycle, liquidity, or something else?
It really depends on the asset and the business plan. There are a ton of deals—some in early innings, some mature markets—but it is all about rent-to-market and whether you can get to that rent-to-market based on FMV resets. So it is less about the market delivering different returns and more about the asset, the business plan, and the execution.
That being said, you will see us most active in deals that check the box on right price, right unlevered IRRs, right long-term growth, and where we can build scale. We are able to—and have proven we can—be active in corridors where controlling enough stores enables us to capture tenant interest and execute quickly. We recently acquired a deal where we underwrote $300 per square foot, and now A.J. and team are finalizing leases at 30% higher than that. That is just one example of how scale and market knowledge create upside.
Thank you. Our next question comes from Michael Mueller with JPMorgan. Your line is open.
Hey, I will try it again this time with hopefully the right PIN. So sorry about that. When I look at the street portfolio, you are in six or seven markets if you include smaller exposures. Looking over the next three to five years, where do you think you will see the most investment opportunities? More in larger existing markets like New York? Focusing on building out smaller markets or adding new markets to the list?
You will see us add a couple of new markets, but we will also continue to build in markets where our retailers view distinct corridors differently—West Village, SoHo, North 6th Street in Williamsburg, Northern Madison Avenue are different. Expect most additions in markets where we are currently active. Last quarter we planted seeds in Palm Beach and Newbury Street in Boston—two more markets where we can deploy capital over the next few years. Overall, New York, Boston, Chicago, San Francisco, Los Angeles, Dallas, Georgetown are all important markets for our strategy, and we will remain highly relevant to our retailers nationwide.
Got it. And for a second question, John, there was some nice color on the mark-to-market. If we are trying to simplify and think about go-forward spreads, is there any reason we can’t use your 25% figure for street portfolio mark-to-market and blend that with suburban for 10% as a proxy for the next few years to think about spreads, outside of mark-to-market growth?
I would say it is at least partially dependent on the markets. Over time, averaging could work, but because markets such as SoHo are meaningfully further below market today versus others, you will see volatility quarter to quarter. Over an extended period, our goal is to capture 25% plus on our high-growth streets given the embedded opportunities, but expect some variability in the short term.
Thank you. Our next question comes from Kenneth Billingsley with Compass Point Research & Trading. Your line is open.
Thanks. I wanted to ask a question on fair market value resets. In general, are those resetting every five to eight years? And can you give color on the percentage that is resetting in 2027 and 2028?
So the short answer is generally they reset every five years after the primary term. Sometimes when we sign an initial lease it will have a 10-year primary term, but thereafter the options tend to run five years.
In terms of the number of leases that would be rolling to FMV in the next year, it is definitely a significant number, and when you add those to the active pry-loose pipeline, the opportunity to capture growth is meaningful.
Okay. And the other question I have is within the corridors that you are curating, at what percentage of ownership do you tend to start pricing yourself out—where do you see that the benefit that is going to the other properties you do not own start to create acquisition problems for that corridor?
It is tricky and more art than science, and macro cycles matter. There will be times where we feel priced out of a market, but then cyclicality changes dynamics. When we are active in a corridor, like Armitage Avenue, we typically add one or two buildings a year and there is not a lot of competition for that. Conversely, in a place like SoHo when a market really gets moving, we may have to step to the sidelines for a bit. Thankfully, we have enough other markets where we have unique positions that we can continue to do meaningful acquisitions without getting priced out. It does irritate us when we curate a street and make other buyers rich, so we prefer to keep ownership where possible—and we will continue to add buildings in markets where it makes sense for us to own the upside ourselves.
Thank you. Our next question is a follow-up from Paulina Rojas-Schmidt with Green Street. Your line is open.
Short follow-up: you talked about the lighter CapEx as a structural advantage of street retail. Can you help quantify that—perhaps the CapEx run rate as a percentage of NOI or however you find it most intuitive?
Right now we are in an extraordinary period of lease-up, so our CapEx is running at a higher percentage because we are bringing many tenants in. Upon stabilization, consider the full CapEx load: on power-center product we target around 15% of NOI for total CapEx. Grocer-anchored is lower by a couple hundred basis points—call it 10% to 12%. And street we are in the 7% to 10% range. That is what we like about street: higher growth with lower CapEx, which increases net effective rental growth. The dollar spend might be higher in absolute terms, but rents are higher too, bringing the percentage down.
I am showing no further questions at this time. I would like to turn the call back over to Kenneth F. Bernstein for closing remarks.
Thank you all for taking the time. Anthony Paolone, we missed you, but we look forward to speaking to you all again soon.
Thank you for your participation. You may now disconnect. Everyone, have a great day.