Acadia Realty Trust

Good day and thank you for standing by. Welcome to the Acadia Realty Trust First Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. please be advised that today's conference is being recorded. I'd like to hand the conference over to your first speaker today, Chantal Voss, Director of Leasing. Please go ahead.

Good afternoon, and thank you for joining us for the first quarter of 2025 Acadia Realty Trust Earnings Conference Call. My name is Chantal Voss, and I am Director of Leasing in our Leasing 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 meeting 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, April 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. 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 into the queue, and we will answer as time permits. 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, Chantal. Welcome, everyone. Notwithstanding significant volatility in the capital markets and increased uncertainty for the overall economy, when we look at the key drivers of our business, we see that they continued to deliver in the first quarter. And more importantly, as we look forward, we see this momentum continuing. The first and most significant driver for our business is our internal growth, primarily from the street retail segment of our portfolio. We saw this outsized growth again in the first quarter. And as AJ Levine will discuss, with a nice combination of long-term contractual growth and incremental lease-up, we see no signs of slowdown. Now, retailers are certainly not ignoring the current challenges around tariffs and the economy. But in discussions with our retailers, they are moving ahead with their leasing needs, especially from mission-critical locations like those in our portfolio. This continued momentum in leasing is likely due to a combination of the lack of new high quality supply, then along with several longer term or secular demand tailwinds that our industry is experiencing, especially for street retail. We have discussed these tailwinds on previous calls, but in short, the strong tenant demand we have seen over the past couple of years was not just a COVID recovery. It was coming from retailers recognizing the increased importance of having their own physical store in an omnichannel world, both for relevancy and profitability. In prior years, retailers and leading brands could rely on selling just through department stores or just online or just in malls. for most brands to be relevant. They must have stores in the key shopping corridors where they can connect directly with their customer. Our retailers are telling us that while online sales will remain important, they need to continue to build out their fleet of stores that meet this direct-to-consumer need. These stores are especially critical in the must-have, high-conviction corridors that dominate our street retail portfolio. Now we appreciate that there are increased concerns around both inflationary pressures from tariffs and simultaneously an economic slowdown, creating so-called stagflation. In terms of the inflationary side of the equation, given that this is a policy-driven inflationary disruption, it is subject to very sudden changes and corrections. and to the extent that the ultimate impact from the final tariff policy changes are more moderate, which is what is generally anticipated, those inflationary pressures will likely be highly disruptive in the short term, but then more of a one-time increase in cost of goods once the uncertainty settles down. Now, the sooner that this is resolved, the better. Since the risk of a policy-driven recession increases, the longer that this continues. But most of our retailers are telling us that they are prepared to navigate this volatility. And keep in mind, cost increases in and of themselves are not necessarily a headwind. As we saw in 2022, when inflation and supply chain disruptions were met with strong demand, it was actually a tailwind for top-line tenant sales And that also translated through into growth in market rents. All things equal, we'll take inflation over deflation as long as demand remains stable. So while not ignoring the challenges to retailers' margins or supply chain issues, it is a long-term decline in demand that would be more of a concern. And we're watching this carefully. Here's what we're seeing so far. consumer spending has remained surprisingly resilient to date, especially for the more affluent consumer. The decline in consumer sentiment could predict a decline in spending in a recession, but consumer sentiment surveys are more often misleading indicators as opposed to leading indicators. We also appreciate that discretionary retail in general might fare worse in a recession. but the consumers served by our tenants in our must-have markets tend to be some of the most affluent in our economy, and their spending habits tend not to correlate as closely with these broader economic indicators. Most importantly, economic cycles and slowdowns are inevitable, and tenants prepare for them, and we do as well. When a tenant signs a 10-year lease They know that they are subject to these inevitable cycles. Thus, the feedback from our tenants as to why they are continuing full speed ahead makes sense. And given the limited new supply, barring a significant worsening of economic forecasts, tenants tell us that they expect to continue with their growth plans. Second key driver of our business is external growth. In the first quarter, we were quite productive and looking forward. We see this momentum also remaining intact. Reggie will discuss our most recent acquisitions and how they continue to meet our goals. But taking a step back, our external growth goals and focus remain, as we have discussed on prior calls. First, for on-balance sheet acquisitions, our goal is to add street retail properties consistent with our focus. of being a dominant owner-operator of street retail in key mission-critical corridors, corridors where our shareholders will benefit from the scale and operating leverage that we are already beginning to see in several of our markets, including Georgetown, Armitage Avenue, and now North 6th Street in Williamsburg. We will make sure that these additions are accretive both from an earnings and a portfolio enhancement perspective and that they continue to drive our superior long-term NOI growth goals. Then second, with respect to our investment management platform, our focus will remain to opportunistically add assets utilizing our core competencies in open-air retail and leveraging our institutional capital relationships over the last 12 months we have closed over $800 million of acquisitions, about half being street retail properties for our core portfolio, and then the other half were transactions for our investment management business. That transaction volume is a significant needle mover for a company of our size. We recognize that in connection with the current volatility in the market, cost of capital has increased. It is true for private buyers, who are generally seeing their cost of secure debt increase, and public companies like ours, who have seen an impact on our cost of equity. But we don't see this materially sidelining our external growth for a few reasons. First, with respect to core acquisitions, given the strength of our balance sheet, enhanced by having raised approximately $800 million last year and to date, we can weather the volatility and then opportunistically invest during this period. And given that there is substantially less bidding competition for street retail than other formats of open air retail, we will stay focused on motivated sellers who are prepared to transact. As Reggie will walk through, the majority of our transactions were negotiated either off market or in conjunction with our buying out existing partners, and we have found sellers who are ready to transact today and have been reasonable in taking into account the current market volatility. And then for our investment management platform, where we utilize capital from our private institutional partners, the volatility and headwinds in the public markets probably are net positive. So in short, we don't wish for this current volatility, but it is very likely to create some additional buying opportunities both for our street retail investments and our investment management platform. Then finally, with respect to our balance sheet, our leverage and other metrics are right where we want them. And as John Gottfried will discuss, we have dry powder to continue to execute our growth plan. And with that, I'd like to thank the team for their hard work last quarter and turn the call over to A.J. Lewin.