Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Acadia Realty Trust (AKR, Financial) reported strong second-quarter performance, leading to an increase in full-year earnings guidance and a quarterly dividend hike.
- The company has maintained a solid balance sheet with strong liquidity, limited maturity exposure, and attractive debt access.
- Acadia Realty Trust (AKR) has seen significant internal growth, with same-store NOI growth averaging over 6% for the last two years.
- The company is making progress on several high-quality street retail acquisitions in key shopping corridors, including Manhattan and Brooklyn.
- Acadia Realty Trust (AKR) has a robust leasing pipeline, with significant increases in leasing velocity and advanced negotiations for additional leases.
Negative Points
- Despite strong performance, there is still a lag between tenant sales growth and rent growth, which can take between two to five years to catch up.
- The company faces challenges in maintaining and increasing occupancy rates, particularly in its street and urban portfolio.
- There is uncertainty in the market, with sellers previously sitting on the sidelines due to unclear lending and interest rate environments.
- Acadia Realty Trust (AKR) has a relatively small percentage of leases with percentage rents, limiting potential upside from tenant sales growth.
- The company has to navigate the complexities of retenanting and remerchandising properties to achieve higher yields and growth.
Q & A Highlights
Q: Given where sales are today, is it realistic to believe that Soho rents can return to their prior peaks? If not, where do you think Soho rents will top out relative to previous highs?
A: (Alexander Levine, Vice President, Leasing and Development) We believe there is a lot of room to approach prior peaks based on strong tenant sales performance. The ability to mark to market based on sales performance will help us take advantage of this strong sales growth.
Q: Can you quantify how rental sales compare today versus where they were at prior peaks in Soho?
A: (Alexander Levine, Vice President, Leasing and Development) Prior peak occupancy costs were well north of 20%. Currently, our portfolio's occupancy costs are in the mid-teens range, indicating significant room for rent growth given the strong sales growth.
Q: Any more color on your expectations for the volume of external opportunities heading into the back half of the year?
A: (Kenneth Bernstein, President, Chief Executive Officer, Trustee) We are starting to see sellers who need liquidity come to the market, providing us with opportunities. The clarity over the next 12 to 24 months regarding lending and rate cuts is encouraging sellers to transact.
Q: Are the post-pandemic retailer sales growth of over 40% mostly from digitally native brands?
A: (Alexander Levine, Vice President, Leasing and Development) No, the sales growth is not unique to digitally native brands. We are seeing it across traditional retailers and emerging brands focused on brick-and-mortar DTC.
Q: Regarding the $75 million Manhattan and Brooklyn portfolios, is this an opportunity you've been working on for a while?
A: (Kenneth Bernstein, President, Chief Executive Officer, Trustee) Some deals have been in the works for a while, while others have come up more recently. The current environment has brought buyers and sellers closer to an understanding of what the next five years should look like.
Q: How are you thinking about the level of gains and promotes in 2025 versus 2024?
A: (John Gottfried, Chief Financial Officer, Executive Vice President) We are seeing a consistent level of activity in 2025 as in 2024. Our fully hedged balance sheet and internal growth projections support continued strong performance into 2025.
Q: Can you talk about the guidance increase at the low end and what drove it?
A: (John Gottfried, Chief Financial Officer, Executive Vice President) The increase was driven by quicker-than-anticipated lease commencements, a large signed-not-yet-open pipeline, and strong tenant health. We also had a few acquisitions that closed, contributing to the guidance increase.
Q: How much more reserves are embedded in the guidance for the balance of the year?
A: (John Gottfried, Chief Financial Officer, Executive Vice President) We initially had about $0.03 of reserves in our full-year guidance. For the balance of the year, we are projecting another $0.01 of reserves, but we are seeing very positive trends on the tenant side.
Q: Can you talk about the volume of contributions to the investment management platform and whether assets have been identified from the core portfolio?
A: (Kenneth Bernstein, President, Chief Executive Officer, Trustee) We may migrate some suburban assets from the core portfolio, but we are more focused on identifying third-party transactions. The majority of our external growth will come from street retail additions, where we see the most differentiation and ability to move the needle.
Q: Can you give a range of where street retail pricing is in Manhattan versus Brooklyn versus M Street?
A: (Kenneth Bernstein, President, Chief Executive Officer, Trustee) Street retail pricing varies widely. Leases signed recently with 3% contractual growth and fair market value resets are compelling, with going-in yields in the 5% to 7% range. We are targeting yields that grow to the upper sixes or unlevered sevens in due course.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
