Acadia Realty (NYSE:AKR) Trust reported robust same-store growth of nearly 6% in its Q3 2023 earnings call, along with a positive outlook for the coming year. The real estate investment trust, which focuses on retail properties, highlighted strong demand from retailers and a recovery in suburban and street retail segments. The company anticipates same-store net operating income (NOI) growth to continue on par with economic growth and is on track for its multi-year growth goals.
Key takeaways from the call include:
- Acadia reported significant progress in leasing volumes, with $8 million of new leases signed in the first nine months of 2023 and an expected $2-3 million more in the fourth quarter.
- The company has made significant strides towards increasing core NOI by $30 to $40 million over the next few years.
- Major market street retail, including Soho in New York and Melrose Place in LA, has seen significant rent growth, with market rents now 20% to 40% above 2019 levels.
- Acadia is actively monitoring opportunities in the capital markets and is confident in mitigating earnings exposure through interest rate swaps and managed debt maturities.
- The company expects to achieve a quarterly run rate of $0.30 to $0.34 by 2024, which would result in a projected FFO of $1.28 for the year.
The company reported strong demand from retailers across various sectors, including luxury, grocery, and specialty retailers. The favorable supply-demand dynamic in the market contributed to the company's success in leasing activities, especially in New York City, with high cash spreads and short payback periods.
With a proactive approach to taking back space when conditions are right, Acadia outlined key drivers for growth, including the performance of their core portfolio, reductions in interest expenses, and initiatives to increase profitability. The company also highlighted the momentum and unique curation at City Point in downtown Brooklyn, including new anchor tenants like Sephora.
Acadia announced increased full-year earnings expectations for 2023, with a projected FFO of $1.26, resulting in a 6% year-over-year earnings growth. The same-store NOI growth for the quarter exceeded expectations at 5.8%, and the company is on track to achieve the upper end of their 5% to 6% full-year 2023 guidance.
The company also provided updates on various properties, including the redevelopment of 555 Ninth and the potential inclusion of City Point in the same-store pool after stabilization. The redevelopment plans for 555 Ninth include splitting the space into three sections, two anchors, and a small shop space, with a portion already leased to The Container Store.
Acadia also discussed the end of the quiet period for acquisitions and the search for value-add opportunities. They clarified that they are not currently looking to add diluted transactions and are willing to wait for accretion. The company provided an estimate of $0.30 to $0.34 for the quarterly run rate in 2024, with growth expected throughout the year.
During the call, AJ Levine discussed the potential impact of rising interest rates on tenant retention and failure rates. He mentioned that local retailers, especially those in suburban areas near supermarket anchors, may be more sensitive to interest rates and could experience stress on their business. However, no slowdown has been observed so far.
In terms of new tenant trends, luxury retailers continue to enter high-growth markets, while discounters like TJ Maxx and Burlington (NYSE:BURL) are leading in suburban areas. The company highlighted the profitability of physical stores in an omnichannel world and the willingness of retailers to sign leases despite uncertainty. The call concluded with the company expressing gratitude and looking forward to the next quarter.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.