Q3 2026 Acadia Realty Trust Earnings Conference Call - ACADIA REALTY TRUST

Financial Performance:

• Same-Store NOI grew 10.2% in Q3 2026 (Streets +15%, Suburban +2.5%), with Chicago (+20%) and SoHo (+16%) leading growth.
• Adjusted FFO per share for Q3 was $0.31 (up 7% YoY); full-year 2026 adjusted FFO guidance maintained at $1.24–$1.26 (approx. 10% growth vs. 2025).
• Full-year 2026 Same-Store NOI guidance raised to 7.5%–8.5% (up from original 5%–9%) due to sustained performance through Q3.
• Strong lease spreads: Q3 saw 54% average increase on mark-to-market renewals in key markets (e.g., Madison Ave, SoHo), with market rents on streets growing >12% CAGR since 2023.
• Net operating income from street assets driving bottom-line growth; 200 bps of NOI growth outpacing suburban segment expectations.

Guidance and Future Outlook:

• 2027 outlook: Management anticipates another strong year of Same-Store NOI growth (no specific guidance provided) driven by Signed & Open (S&O) pipeline and redevelopment completions (e.g., Henderson Ave, San Francisco, Chicago).
• S&O pipeline reached record $22 million ABR (up 30% QoQ); ~11 cents FFO impact at full run rate, with ~1 cent expected in Q4 2026 and ~8 cents in 2027.
• Henderson Avenue project: ~$200 million investment to be drawn as leases commence (2027–2028); target stabilized yield of 9%.
• Pipeline momentum: Over $15 million in active negotiations to refill pipeline; nearly all current S&O expected to commence by end of 2027.
• Long-term goal: Maintain "one penny accretive" FFO on every $200 million of acquisitions and continue prioritizing NAV-accretive street retail.

Business Segments and Product Lines:

• Street Retail Portfolio: Core growth engine with fair market value (FMV) resets allowing rent marking every 5 years (min 3% increase); leases structured for high rent growth capture vs. suburban fixed options.
• Suburban Portfolio: Modest growth (2.5%) constrained by contractual renewal options; management notes less attractive rent growth dynamics compared to streets.
• Acquisitions: $150 million in street retail deals added in Q3 (total $350 million YTD, $850 million in 2 years); key transactions include SoHo (Green St, Bleecker St), Westport, Greenwich, and West Hollywood (Melrose Ave).
• Redevelopments: Henderson Ave (Dallas, >90% pre-leased with tenants like Lululemon, Zadigan Voltaire), North Michigan (Chicago), and San Francisco (T&T, Club Studios, Sprouts) progressing on time/budget.
• New Leases: $8.4 million ABR executed in Q3, 75% from street/urban markets; 15+ new leases across Williamsburg, Chicago, Dallas, and SF.

Market and Competitive Landscape:

• Macro environment: High inflation and interest rates viewed as net tailwind for retail REITs due to rent growth and resilient consumer spending; demand for direct-to-consumer (DTC) stores accelerating.
• Supply-demand: Tight supply of new retail development creating decades-best dynamics; waiting lists common for premium street locations.
• Competition: Institutional capital rotating into open-air retail; primary competition from Blackstone on large single-asset trades; Acadia leverages corridor scale and tenant curation to outperform.
• Market trends: Shift from wholesale/department stores to DTC; European brands entering U.S. market; large-format urban spaces (e.g., North Michigan, SF) recovering and showing strong demand.

Risks and Challenges:

• Interest Rate Risk: $350 million unhedged variable rate debt (REIT portfolio); mitigated by $45 million cash, $350 billion unsettled forward equity, and natural hedge from floating-rate Sunset Park loan.
• Debt Maturities: No significant maturities until 2031, providing stability.
• Economic Sensitivity: Potential for hard landing or stagflation acknowledged but not seen as current risk; consumer resilience remains key assumption.
• Investment Management: Net seller of Fund 5 assets creating timing lag in fee income and NOI until capital redeployment occurs.
• Specific Asset Drag: North Michigan Avenue currently a "penny drag" on earnings due to taxes and carry costs; expected to recover as leasing completes.

Management Commentary and Tone:

• Tone: Highly confident and optimistic; management emphasizes structural advantages of street retail lease terms (FMV resets) and market dislocation opportunities.
• Strategic Focus: Unwavering commitment to high bar on acquisitions; will not compromise on accretion, growth, or IRR thresholds despite rate environment.
• Leverage View: Debt-to-EBITDA target of 6x maintained; ample dry powder ($600M+ liquidity) supports aggressive acquisition strategy in target corridors.
• Narrative: Inflation and rate hikes viewed as catalysts for rent growth, not headwinds, due to ability to mark leases to market faster than competitors.

Analyst Questions and Answers:

• Craig Mailman (Citi): Inquired about 2027 FFO offset risks; Management confirmed no known move-outs, investment management sales are timing-related, and pipeline is robust.
• Samir Canal (BofA): Asked about North Michigan drag and NOI/FFO growth disconnect; Confirmed North Michigan is a temporary drag, FFO guidance held due to timing of investment management dispositions.
• Floris Van Dichtum (Leidenberg-Dalman): Sought occupancy upside quantification; Management noted 97% peak was pre-"retail Armageddon" and current 93% leased includes potential upside from lease-ups and FMV resets, particularly on Henderson Ave and new acquisitions.
• Todd Thomas (KeyBank): Questioned Sunset Park loan underwriting; Management disclosed consolidation of entire debt stack, $20M payment received, high single-digit stabilized yield, and natural floating-rate hedge.
• Sydney McEntee (JP Morgan): Inquired on deal sourcing and mark-to-market spreads; Confirmed focus on existing corridors, Blackstone competition on large assets, and 25% market rent spread baseline expected to grow as leases roll.
• Anthony Howe (Truist): Asked about larger format urban recovery; Confirmed momentum in State St, San Francisco, and North Michigan with large-box tenants followed by high-rent smaller units.

Other Key Points:

• Fair Market Value Resets: Critical differentiator allowing 30%+ rent increases in SoHo over 5 years and capturing growth 30% faster than suburban competitors.
• Tenant Sales Growth: Street tenant same-store sales CAGR >20% since 2022; healthy rent-to-sales ratio of 12% vs. 20% industry threshold.
• Capital Deployment: $129.5 Ave (NYC) leased within 30 days of acquisition, targeting 9% yield; demonstration of ability to unlock value in vacant assets.
• Liquidity Structure: $600M+ available liquidity and $350B forward equity allow for significant acquisition capacity while maintaining leverage targets.
• Strategic Shift: Move away from suburban long-term options toward street retail with frequent FMV resets to capitalize on inflation-driven rent growth.