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

Explicit Guidance:

• Full-Year 2026 Same Property NOI: Raised to 7.5%–8.5% growth (previously 5%–9%), reflecting continued strength into Q4; a full point above the prior midpoint.
• Full-Year 2026 FFO (Adjusted): Maintained at $1.24–$1.26 per share, representing approx. 10% growth over 2025; outperformance in the core portfolio offsets timing delays from investment management dispositions.
• 2027 FFO Contribution: Pipeline expected to generate approx. $0.68 cents incremental FFO per share in 2027, with approx. $0.01 in Q4 2026 and the remainder in 2028 as the pipeline reaches full run rate.
• 2027 Same Property NOI: No formal numerical guidance provided; management expresses "real conviction" in "another strong year" of growth for the re-portfolio (including redevelopments) prior to Henderson Avenue tenant openings.
• Acquisition Yield Targets: Expect cash yields north of 6% within three years of acquisition and north of 7% upon business plan stabilization.
• Lease-Up Targets: Henderson Avenue project remains on time, on budget, and on brand, with tenant openings expected throughout 2027 and into 2028.

Business-Segment Outlook:

• Street Retail (Key Streets): Rent growth averaging >12% CAGR over the last three years; expected to outpace suburban NOI by >300 bps annually. Portfolio remains approx. 25% below market rents, providing a multi-year growth runway (approx. 4.5 years for market rent growth alone to reach 20% rent-to-sales ratio).
• Suburban Retail: Growing at 2.5% in line with expectations; challenged by pre-negotiated contractual options limiting early rent capture, leading to dampened external acquisition activity.
• Specific Markets:
  • SoHo: Market rents grew 20% CAGR over three years; 15 of 19 storefronts marked to market with >30% rent increases; portfolio estimated 30% below market.
  • Williamsburg, Chicago, Westport, Greenwich, West Hollywood: Significant leasing activity and yield capture opportunities identified; Chicago streets up >20%, SoHo up 16%, Williamsburg up ~10%.
  • North Michigan Avenue (Chicago): Currently a drag on earnings due to carry costs/taxes on undeveloped space; recovering with major anchor activity (Mango, Nike, Levi's) and competing offers on vacant spaces; expected to act as a growth lever in 2027–2028.
  • Henderson Avenue (Dallas): Over 90% retail pre-leased; new lineup includes Lululemon, Zadigan Voltaire, and various F&B concepts; full economic rent recognition expected in 2027–2028.
  • San Francisco: Larger format spaces (T&T Supermarket, Club Studios) coming online in Nov 2026; momentum shifting toward smaller, high-rent spaces within centers.
• Leasing Pipeline: Signed & Open (S&O) pipeline stands at record ~$22 million ABR; 33% commencing in Q4 2026, 33% in Q1 2027, nearly all by end of 2027. Additional $15 million ABR actively negotiated.

Market and Competitive Outlook:

• Supply-Dynamics: Supply-demand fundamentals are strongest in decades due to lack of new development; demand is deep with waiting lists for street retail spaces.
• Tenant Demand: Driven by Direct-to-Consumer (DTC) shift (brands reducing reliance on department stores) and European brands entering the U.S. Market; retailers using data for disciplined location selection.
• Pricing & Spreads: Cash rent spreads of 25% recorded in the quarter; street retail sees higher spreads (avg. 54% on recent FMV resets) due to fair market value (FMV) resets rather than contractual options.
• Transaction Market: Institutional capital flowing into open-air retail, but competition is lower in street retail compared to other formats. Sellers modestly reducing prices to close; market may see repricing, which benefits the company's value-add model.
• Share Shifts: Dominant buyer position in key corridors allows for deal flow priority and superior underwriting knowledge (waiting lists, tenant mix) compared to competitors like Blackstone.

Macro / Industry Outlook:

• Inflation & Rates: "Higher-for-longer" inflation and interest rates viewed as a net tailwind for retail real estate (higher rents offset higher costs); inflation driving tenant top-line sales growth.
• Consumer Resilience: Consumer remains resilient despite price sensitivity, supported by strong job and stock markets; demand concentrated among higher-earning consumers.
• Economic Risk: Acknowledges risk of hard landing or stagflation, but current backdrop does not reflect this; retailers are better data-driven than prior cycles.
• Capex/Financing Environment: Higher rates dampen suburban activity but do not alter levered return requirements for street retail; manageable interest rate exposure (~$250 million unhedged floating debt in REIT portfolio) with ~$45 million cash + $350 million unsettled forward equity.

Strategic Initiatives:

• Acquisitions: $150 million in street retail deals in Q3; $350 million YTD 2026; $850 million over last two years. Focus on NAV-accretive assets, 1-cent FFO accretion per $200 million acquired, and building scale in specific corridors (SoHo, Bleecker St, Westport, Greenwich, Melrose Ave).
• Development & Redevelopment:
  • Henderson Avenue: ~$200 million capital deployment required; timed with rent recognition in 2027–2028.
  • North Michigan Avenue: Recovery phase; no costs capitalized currently; potential for earnings drag to turn into growth.
  • 129 Fifth Avenue (NYC): Leased within 30 days of acquisition; tracking to >9% yield on cost.
  • Sunset Park Loan: Converted from mezzanine to senior capital position ($200 million total, $120 million incremental); floating rate asset matched with floating liability.
• Disposition Strategy: Active profit-taking in Fund 5 assets; net seller in investment management, with intent to redeploy capital into high-growth street retail assets.
• Capital Allocation: Maintaining strict hurdle rates; will not compromise accretion, growth, or IRR thresholds despite high deal flow.

Risks and Headwinds to Outlook:

• Interest Rate Volatility: Managing ~$250 million unhedged floating rate debt; potential for higher financing costs if rates move meaningfully higher, though current liquidity ($600M+) allows for pay-down.
• Macroeconomic Reversal: Possibility of hard landing or stagflation could impact consumer resilience and tenant sales.
• Suburban Market Dynamics: Increased competition and lower rent growth potential in suburban markets compared to street retail dampens external acquisition opportunities in that segment.
• Lease-up Execution: Dependency on converting active negotiations ($15M+) into signed leases and on-time opening of redevelopment projects (Henderson, North Michigan).
• Market Rents: Potential for market rent growth to slow if consumer demand weakens, though current trajectory suggests continued growth.

Management Tone on the Future:

• Confidence: "Real conviction" regarding 2027 growth; "exceptional quarter" of leasing; "palpable" excitement on Henderson Avenue.
• Differentiation: Strong emphasis on structural advantages (FMV resets, short WALT) allowing capture of market rent growth faster than peers; belief that historical guidance (200-300 bps street outperformance) is now "conservative."
• Strategic Discipline: Unwilling to lower return hurdles despite rate environment; "nothing... makes us inclined to lower our levered return requirements."
• Growth View: Internal growth (NOI) is primary driver; external growth (M&A) is opportunistic and scalable.

Miscellaneous:

• Balance Sheet Strength: No significant debt maturities until 2031; 6x debt-to-EBITDA target inclusive of investment management debt; $600 million liquidity available.
• Occupancy: Street portfolio ~93% leased; peak occupancy previously 97%; remaining upside exists in Henderson Avenue, DC, and acquisition vacancies (e.g., SoHo, Westport).
• Tax/Accounting: 2026 FFO guidance excludes development capitalization impacts (approx. 4 cents currently capitalized, previously 8 cents); drag on earnings from North Michigan taxes/carry costs.