Acadia Realty Trust (NYSE:AKR) Q3 2024 Earnings Conference Call October 28, 2024 11:00 AM ET

Company Participants

Alec Aaronson - Development Analyst
Ken Bernstein - President and Chief Executive Officer
A.J. Levine - SVP, Leasing and Development
John Gottfried - EVP and CFO

Conference Call Participants

Linda Tsai - Jefferies
Floris van Dijkum - Compass Point
Jeff Spector - Bank of America Securities
Todd Thomas - KeyBanc Capital Markets
Ki Bin Kim - Truist
Paulina Rojas Schmidt - Green Street
Michael Mueller - JPMorgan

Operator

Hello, and welcome to Acadia Realty Trust Third Quarter 2024 Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to Alec Aaronson, Development Analyst. Sir, you may begin.

Alec Aaronson

Good morning, and thank you for joining us for the third quarter 2024 Acadia Realty Trust earnings conference call. My name is Alec Aaronson, and I'm an analyst in our development 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 meaning 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, October 28, 2024 and the company undertakes no duty to update them.

During this call, management may refer to certain non-GAAP financial measures, including funds from operation 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.

Ken Bernstein

Thank you, Alec. Well done. Good morning, everyone.

We had a very active and productive third quarter with a lot to discuss, so let's jump in. As we've discussed on prior calls, there are three critical drivers of our business. The first is delivering continued strong internal growth most significantly coming from our Street retail portfolio. A.J. Levine will provide more details on our continued success on this front. But as you can see from our earnings release, we had another strong quarter and have averaged over 6% same-store NOI growth, for the past three years. Most importantly, we see this growth continuing.

The second driver is maintaining a strong balance sheet, which provides us the liquidity and the capacity to thoughtfully grow our portfolio. John Gottfried will discuss these important steps that we've taken this year to get our key metrics and our liquidity, where we want them.

And then the third driver, is to provide external growth through accretive acquisitions, both with respect to our on-balance sheet investments as well as through our investment management platform. This third driver is kicking into gear. So let me spend a few minutes discussing our progress on our external growth initiatives.

First, with respect to our on-balance sheet activity for our core portfolio. Our goal here is to add assets that are consistent with our highly differentiated portfolio dominated by high-growth street retail properties in critical shopping corridors.

As we've discussed, we are focused on acquisitions. That are accretive to earnings, accretive to net asset value and that enable us to continue to deliver peer-leading growth, long after full stabilization of our existing portfolio. And after several years of the REIT industry in general and Acadia specifically facing a challenging capital market backdrop for on-balance sheet acquisitions. Conditions have finally begun to shift.

This has enabled us to move to offense and allowed us to amplify our focus on street retail properties in key must have high-growth markets. Starting last quarter and to date, we have closed or are under contract for a total of $270 million of acquisitions for our core portfolio. We have closed approximately $120 million of them with the balance closing over the next couple of quarters. I'll let A.J., give more color on the leasing trends we're seeing in these corridors, but here's a quick overview of the transactions.

As previously announced, we closed on a four property retail portfolio along the Bleecker Street retail corridor in the West Village of Manhattan. Over the last several years, Bleecker Street has begun to emerge as a coveted landing spot for many of our younger advanced contemporary brands and reflects the same curation, same fundamentals that we've seen in our other high-growth streets. We have an attractive going in yield and the ability to significantly grow rents over time.

We have also expanded our Williamsburg assets by adding four buildings on North 6th Street in Williamsburg, Brooklyn. What we have seen in Williamsburg over the last several years since our Bedford Avenue acquisition, is tenant demand and tenant performance continues to grow. And with that growth, North 6th Street has emerged as a must have corridor for leading retailers in Williamsburg.

Our investment there is a combination of lease up and redevelopment opportunities combined with below market leases that provides us with long term growth and attractive returns. We have also acquired a three-tenant building that will further enhance our presence on Green Street in SoHo with leases substantially below market in arguably the highest demand corridor in SoHo. This building is adjacent to the building we own on the corner of Princeton Green, currently occupied by Bang & Olufsen. This edition now gives us two contiguous clusters on Green Street.

Lastly, we have approximately $150 million in assets under contract primarily in Georgetown and D.C. and in SoHo. We anticipate closing the balance of these transactions early next year and will discuss them in more detail as we close.

In terms of pricing, while we're not going to discuss individual pricing of deals, these day one accretive acquisitions have an initial GAAP yield in the mid-6% with a cash yield in the mid-5% with compounded annual growth rates north of 7% and growing to a cash yield also north of 7% in the next few years.

In terms of earnings accretion, as we said in the past, given our size, relatively small amounts of external growth can really move the needle. And that's certainly the case here. As we previously discussed, we have been targeting transactions that on a leverage neutral basis provide approximately $0.01 of earnings growth for every $200 million of acquisitions with further growth then upon stabilization.

These $270 million of acquisitions are slated to meet or exceed that goal and should contribute over 1% earnings accretion upon closing. And close to 3% upon stabilization in 2027 and 2028.

And then along with these on-balance sheet acquisitions, we expect significant long term growth through some of our recently announced expansion plans for our core portfolio assets on Henderson Avenue in Dallas. I'll let A.J. discuss this further in his comments. But we have patiently watched the demand for this corridor grow over the last few years and now is the right time to begin this expansion, which is penciling out to stabilize to north of an 8% yield on cost.

While we are doing this expansion in stages, assuming we do the full expansion as contemplated with an incremental cost of approximately a $100 million, this could contribute in excess of 2% incremental long term earnings upon stabilization.

So this accretion plus the estimated 3% accretion upon stabilization of the on-balance sheet investments I discussed sets us up very nicely over the next few years. Then complementing these on-balance sheet investments, we're continuing to see opportunities in our investment management platform, where we can leverage our institutional capital relationships for a broader variety of investments.

First, as we had previously announced in July, we completed a new acquisition in Tampa, Florida of an open air community center for approximately $31 million. Recently, we formed a partnership with Cohen & Steers where we retained an interest in the investment plus retain the management as well as upside potential.

Beyond this, we and a global alternative asset manager are very close to finalizing a potential investment for approximately $275 million that would fall into the opportunistic bucket. And we'll give more color on that as it progresses.

As for the accretion of the investment management platform investments, the metrics remain about the same as our on-balance sheet investments, meaning we expect roughly $0.01 per $200 million of gross acquisition volume.

But for now, we think it's probably more prudent to think about this buy-fix-sell platform as a capital recycling vehicle where our current goal is to maintain approximately $2 billion in AUM and maintaining a stable and profitable revenue stream equal to what we have today. We may see opportunities to grow this platform, but for now, just pencil instability.

So looking ahead, we remain very bullish on our ability to continue to add value by driving internal growth, by maintaining a strong and flexible balance sheet, and by adding additional growth through strategic new investments.

New investments, including on-balance sheet acquisitions that are consistent with our high-growth portfolio that we own today, accretion from redevelopment and expansions of existing assets such as what we have begun on Henderson Avenue and then also opportunistically adding assets to our investment management platform.

So before I turn the call over to A.J. for his remarks, I'd like to thank the Acadia team for their incredibly hard work as we have been waiting not so patiently for the stars to align. And this quarter, they finally did with strong internal growth and solid balance sheet metrics and now impactful external growth, we are hitting on all cylinders.

With that, I'll turn the call over to A.J.

A.J. Levine

Great. Thanks, Ken. Good morning, everyone.

So we have a lot to go over this morning. So I'll start with an update on internal growth and we'll finish things off with an exciting update on our Henderson portfolio down in Dallas. So jumping right into leasing and internal growth, in the third quarter, we signed a record $7 million in core leases, and we've already exceeded the total volume of leases signed in 2023 with another quarter of leasing ahead of us. We've increased the SNO pipeline to $10 million and with no signs of a slowdown, we have several more leases in advanced stages of negotiation.

In terms of fundamentals, our tenant sales continue to grow and remain well above where they were in 2019. And when we speak with our tenants, they're telling us that positive performance in relation to 2019 continues to outweigh any concern around short term choppiness and they remain focused on long term growth.

Our direct-to-consumer or DTC brick-and-mortar strategy is priority number one for our retailers. That includes categories that may have historically relied more on wholesale and department stores like luxury, advanced contemporary and aspirational. And that sentiment is reflected clearly on our high-growth streets, including SoHo, Williamsburg, M Street in Georgetown, and at our newly acquired Bleecker Street portfolio.

DTC allows our tenants to better control the brand narrative and how they interact with the consumer. It allows them to better control pricing and have better control over which other retailers to cluster with to create the most productive ecosystem to drive sales.

And with the data that's available to today's tenants, they are making informed, disciplined decisions around where to open stores and the rents that they can afford to pay. More than any time in the past, tenants know very clearly where their customers are and where they can operate a profitable store.

A healthy tenant, along with a very favorable supply-demand dynamic allows our leasing team to continue to improve the merchandising on our streets with more dynamic higher volume tenants, which will in turn drive sales and over time increase rents. We've continued to watch this dynamic play out on streets like Armitage Avenue, where rents have increased 20% over the last year and 50% since 2019.

In the third quarter on Armitage, we signed new leases with Levain Bakery and the contemporary fashion tenant Rails, both at healthy double-digit spreads. In terms of merchandising, Rails is just one of the many contemporary tenants that have shown up in our markets like SoHo and M Street as they shift away from wholesale and towards a direct-to-consumer strategy. And Levain who has been a long term tenant of ours in Williamsburg and has a presence on a number of our streets, will add a new F&B component to Armitage and drive a new layer of traffic that will benefit the entire street.

We've already seen it happen firsthand in Williamsburg, on M Street in Georgetown, on Newbury Street in Boston and elsewhere and it's that depth of experience and insight that tells us who we can add to our streets to drive overall market performance. In other words, curation.

On Michigan Avenue, we are increasingly encouraged by the interest and activity we're seeing on the street. And this past quarter at 664 North Michigan, we successfully signed a lease with the fashion brand Mango for the entire building, which includes approximately 8,000 square feet of ground floor space.

And just a few blocks north on the Gold Coast, we completed a new lease again for the entire building, including approximately 4,500 feet at grade with an exciting New York based fashion and lifestyle brand. And we are actively negotiating a lease with another leading fashion retailer for our final vacancy on Walton Street, which we expect to have signed in the coming days.

Elsewhere in the portfolio, we're seeing continued growth in both sales and rents. And we're especially encouraged by the recent additions to our existing high-growth streets, doubling down in markets like SoHo, Williamsburg and M Street. And expanding into new markets like Bleecker Street will continue to provide fuel for future internal growth.

In SoHo, for example, rents are up double digits year-over-year and 30% to 40% since 2019. Over the last year in our portfolio alone, we've added great luxury and advanced contemporary brands like Zimmermann, STAUD and Madewell and the market continues to see a steady influx of today's most relevant brands like Kate, Valentino, Jacquemus and Toteme.

Now with the recent acquisition of two more storefronts on Green Street between Prince and Spring, along with the Bang & Olufsen we already owned on the block, we can control a meaningful portion of the most coveted luxury block in SoHo with neighbors including Louis Vuitton, Dior, Stella McCartney and Cartier.

This will give us 17 storefronts in SoHo. Which is an essential market for our retailers. And the team is excited to get to work, prying loose those undermarket leases and taking advantage of the incredible growth we've seen over the last several years.

Williamsburg is another market that has seen rents grow 40% to 50% since 2019% and 10% to 15% over the last year alone. Williamsburg has firmly established itself as a must have location for brands like Lululemon, Alo Yoga, Sephora, On Running Kith and now Hermes.

By purchasing older vintage leases with short term expirations, we can get to work extracting that embedded rent growth. And again, because of our history in the market, we can see firsthand how demand continues to outpace supply and drive rents.

Turning to Bleecker Street. As Ken mentioned, over the last several years, Bleecker Street has emerged as a highly coveted landing spot for many of the same advanced contemporary and luxury brands that we've seen in markets like Madison Avenue, M Street, Melrose Place and the Gold Coast.

And while we're entering Bleecker Street in the relatively early innings, it already shares many of the same attributes as our other high growth markets. High demand and extremely tight supply, a noticeable improvement in sales performance, resulting in healthy tenants, and has recently emerged as one of New York's premier shopping destinations. With where we see sales and rents today on Bleecker, it's clear that we're entering the market at the opportune time to capture significant rent growth moving forward.

And to M Street, we're in the third quarter, we successfully signed two new leases, including a new 5,000 square foot Tesla flagship. The story in Georgetown continues to be a pivot away from older mall brands and towards more dynamic higher-volume retailers. We know from our portfolio that year-over-year sales growth is north of 10% and several of our tenants have experienced over 40% sales growth since 2019.

Demand on M Street has never been stronger and with the addition of several great brands like Alo Yoga, Vuori, SKIMS, Sezane, Veronica Beard, we expect demand to only accelerate as we continue to curate the street.

And last but certainly not least, we are excited to announce that in partnership with Mark Masinter, Tristan Simon and their team at Ignite-Rebees, we have kicked off the next phase of our Henderson portfolio in Dallas. We first entered Dallas in 2022 by purchasing 15 retail buildings on Henderson Avenue with younger tenants in place like Tecovas and Warby Parker, a Sprouts Market as well as a fully entitled land parcel.

At the time, it was clear that the center of gravity in Dallas had for years been shifting towards the Knox / Henderson corridor. Additionally, there was a noticeable void in the market for a walkable, open air shopping district where today's most relevant and contemporary tenants could cluster and thrive.

Henderson Avenue was clearly a diamond in the rough. Since that time, we've seen firsthand rents grow between 40% and 50%. Sales today on Henderson are on par with markets like Armitage Avenue, but rents are half as high. Now after years of patience and planning, we are adding the next phase of retail on Henderson.

The project will consist of 10 architecturally distinct buildings and will be completed in several phases with an incremental project cost of approximately $100 million. This highly curated retail is designed to appeal to the same tenants you'll find on our other high growth streets like SoHo, M Street and Armitage. Those tenants have been eagerly awaiting the next phase on Henderson and just two weeks after breaking ground, we are already in negotiations with over a dozen retail brands.

Upon completion in 2027, Henderson will emerge as one of the most vibrant stretches of walkable street retail in the country and we expect rents on the street to stabilize at levels on par with our other more established high growth streets. In the meantime, we will continue to keep you updated as we make progress towards stabilization. So all in all, another exciting eventful quarter.

And now I will turn things over to John.

John Gottfried

Thanks, A.J., and good morning.

We have had another busy and productive quarter. And as Ken mentioned, three key things are becoming increasingly clear to us. First, our balance sheet is right where we want it. As the capital markets opened up, we moved quickly securing over $1 billion of debt and equity capital. And not only did this allow us to achieve our targeted ratios and liquidity? We were able to do it on a non-dilutive basis.

Secondly, our multiyear core internal growth remains intact. As our team continues to beat our leasing goals, both in terms of deal volume, along with the rents we are achieving, we have increased confidence and visibility on not only meeting but exceeding our multi-year internal growth goal in excess of 5%.

And just to highlight, this 5% plus growth is even before we layer-in the accretive impact of the external growth that Ken just discussed. And finally, external growth. As Ken mentioned, as the bid-ask spread narrowed, our team moved quickly to lock-up over $0.5 billion of accretive investments that were in our pipeline.

So when we put these three pieces together, our business is poised to achieve a powerful combination of internal and external growth, which is fueled by a strong balance sheet that has both the liquidity and flexibility to fund it. I'm not going to spend the next few minutes highlighting on some of these key highlights, starting with our balance sheet.

In a short period of time and on a non-dilutive basis, we completed approximately $1.5 billion of debt and equity transactions, resulting in a reduction of our debt to GAV to about 30%, along with reducing our debt-to-EBITDA ratio in excess of a full turn to 5.6 times.

And to be clear, the 5.6 times is our total debt-to-EBITDA ratio, inclusive of our share of debt from the investment management business, which means that on a standalone basis, our core debt-to-EBITDA is about 0.5 turn lower.

Additionally, with the strong support of our banking partners, we increased our revolver capacity again during the quarter, doubling it over the course of the year to $525 million with virtually no amounts currently drawn on the facility. And we have no meaningful core debt maturities until 2028, along with a fully hedged balance sheet for the next several years, which means that our internal growth of 5% plus will drop to our bottom line.

And a final point on the balance sheet, we have secured the capital that we need to close our pipeline. Thus, our balance sheet has the flexibility and liquidity to continue to transact on the accretive external growth opportunities that we are seeing.

And as evidenced by the equity issuance that we completed a few weeks ago, we will continue to match fund our external growth on a leverage-neutral basis to ensure that not only do we retain our balance sheet strength and liquidity, but that we proactively lock-in our cost-of-capital to achieve the day one earnings and NAV accretion that we target on each transaction.

Moving to our quarter results, along with an update on internal growth. Consistent with the quarterly run rate that we laid out a few calls ago, we reported FFO of $0.32 a share, which reflects sequential growth of $0.01, along with year-over-year earnings growth of $0.05 a share or 20% when excluding the realized gains on our Albertson shares.

We have also successfully maintained our full-year guidance and this is even in after taking into account the $320 million of equity representing over 10% of our market cap that we issued over the past few months to prefund our acquisition pipeline. Thus, we continue to reaffirm our projected range of $0.32 to $0.34 for the fourth quarter.

Moving to same-store NOI. We reported core same-store NOI growth of 5.9% for the quarter and 5.7% for the year, which has us trending towards the upper end of our 5% to 6% annual same-store guidance. Additionally, during the quarter, our Street portfolio outperformed our suburban assets by approximately 250 basis points.

Moving on to leasing. We increased our signed not yet opened pipeline by over 20%, bringing it to approximately $10 million at September 30. As a reminder, the $10 million is at our pro-rata share and represents core same-store only, meaning it excludes any leases that were signed in our core redevelopment pipeline as well as within our investment management platform, including City Point. Additionally, the entire $10 million of signed not yet opened pipeline represents incremental ABR as it excludes any leases that we have not executed on space that is currently occupied.

As A.J. discussed and is outlined in our release, we had a strong leasing quarter. Signing $7 million of new core leases, representing about 5% of our ABR. The $7 million is comprised of $3 million on vacant space, and $4 million on space that is currently occupied. In regards to the $4 million of occupied space, our team was able to successfully pry loose several below market spaces across our portfolio, and we were able to recapture these spaces at a nominal cost of under $500,000.

Further, as outlined in our release, the capture of these spaces will result in incremental ABR of $1.6 million upon commencement of the new leases. So when we combine the $10 million in our signed not yet open pipeline, with this $1.6 million, we have approximately $11.6 million of incremental core ABR, representing core growth of approximately 8%.

For those modeling, given the magnitude of growth, I thought it would be helpful to walk through a bit of granularity on the timing of this incremental $11.6 million. We anticipate approximately 25% of the ABR will commence in the fourth quarter of 2024 and will contribute an incremental $200,000 to $400,000 during the quarter. With the remaining 70% expected to commence in 2025, contributing an incremental $3 million to $5 million throughout the year skewed towards the second half.

Now keep in mind that this incremental amounts in 2024 and '25 are net of the downtime associated with the profitable recapture of $2.4 million of occupied ABR that we highlighted in our release, thus, the full impact of the incremental $11.6 million will show up in our 2026 results.

In summary, our core portfolio continues to exceed our expectations. And given our highly differentiated street retail portfolio, we continue to see this playing out over the next several years. Driven by a powerful combination of 3% contractual growth, double-digit spreads on expiring leases and fair market value resets and ongoing lease-up.

Ken has already laid out the earnings accretion that we expect from our recent acquisitions. So I won't repeat his remarks, but when we layer in that accretion, along with our internal growth, we are well poised for several years of strong bottom-line earnings growth.

And with that, we will now open up the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Linda Tsai with Jefferies. Your line is open.

Linda Tsai

Hi, good morning. Exciting quarter. I know the acquisitions you've announced didn't happen overnight, but just given what you've accomplished year-to-date, is this indicative of the pace and level of opportunities you see going forward near-term?

Ken Bernstein

Short answer is yes. Obviously, the stars have to align and has to check the boxes that I've outlined frankly over the last year, Linda. And you're right, it may feel like it's overnight, but our team has been working all year to tee up these kind of deals. But provided we can find deals that are accretive to earnings, accretive to net asset value and that extend the strong growth that has come primarily from internal growth for the last few years. As long as we can extend that, we feel pretty good that we're in a position to establish Acadia as the highly differentiated street retail owners in the public markets. So that's the longer answer of yes, we can do this.

Linda Tsai

And then if street retail is back, how do you deal effectively with competition?

Ken Bernstein

Yes, perfect world, there wouldn't be any, but it's never a perfect world. And frankly, when there's no competition, sellers tend to go into hiding. So what's different this time than perhaps other cycles for street retail, we are seeing competition. But it's highly professional competition that are thoughtful and good landlords.

So if they're opening across the street from us, we like that. It's the less professional landlords that are more problematic. And given our cost of capital, given the fact that this is what we do. We have a high-level of confidence that we can move faster, we can identify the transactions. So even with competition, we certainly got our fair share this past quarter and we look forward to quarters in the future.

Linda Tsai

Thanks. And then a question for John. What percentage of NOI is NYC currently? And do you have an internal view of how high New York could become or any other urban MSA? Or is it all just a byproduct of individual opportunities?

John Gottfried

Yes. So Linda, I think it's right now, not I think it is about a third of our NOI, core NOI comes from New York with the concentration in SoHo and in Williamsburg. And then I'll let Ken expand on the how -- where we see that growing, but I think what I would say is that to the extent it checks is that checks those boxes, the day one earnings accretion, the long-term growth and NAV accretion, and we're seeing those trends across all of our key markets, whether it's in Georgetown, certainly in Dallas.

We're going to continue to do that and diversify. So I think it's -- I'll turn it over to Ken, but I think there's not a set target that we have, but just where can we knowing where our cost of capital is and what we need to do to achieve our long-term strategy. We think we can do that amongst our portfolio on a pretty diversified basis.

Ken Bernstein

Yes, so I totally agree with what John said and diversification, I think does benefit our shareholders. But I would say that as or more importantly is from A.J. and the leasing team's perspective, it also by being geographically diverse enables us to remain highly relevant for a broad group of our retailers throughout the United States because a lot of the decisions of where we're seeing outperformance comes from conversations with retailers of what's -- where are you doing best, where do you want to be next?

And by adding assets, as we've referenced in today's call, in Georgetown and DC or our expansions in Henderson and Dallas, all of those bode well from a perspective of making sure that we're capturing the right growth amongst our retailers.

Linda Tsai

Sorry, sneaking one last one in for A.J. Just when you look at the pipeline of deals being signed, is it more domestic brands or international?

A.J. Levine

Yes. It's a nice mix. Certainly, a market like SoHo has always been a preferred landing spot for international brands, right? Not just luxury, but even a lot of the younger brands. I think Zimmerman is a great example of that. That's a brand that started in Australia and decided to go international and their first landing spot was in SoHo.

Linda, what's more encouraging to me is when you start to see these brands notice and show up in markets like M Street. Right? You know, tenants like Sezane and Zadig & Voltaire, Lugano Diamonds, right? Those are traditionally SoHo tenants. That are starting to focus on perhaps some of those next entry markets. So that's when you really know you're turning the corner. Thanks, Linda.

Linda Tsai

Thank you.

Operator

Please standby for our next question. Our next question comes from the line of Floris van Dijkum with Compass Point. Your line is open.

Floris van Dijkum

Hi, thanks guys for taking my question. Good set of results, encouraging. Question I have is, I guess maybe for A.J. Or Ken, you might have planned on this as well. But I'm curious as to how you look at OCR and how does OCR compare across the various markets? And in particular, SoHo versus Bleecker versus Williamsburg? And maybe touch upon Chicago? And then you talked about the upside potential in Henderson and how does Henderson compare to all of those other markets as well. If you can give us some more details, that'd be great.

Ken Bernstein

So let me set the table and I again, I assume, Floris, you're referring to just the rent-to-sales ratio, tenant occupancy cost relative to right. So the very encouraging news more or less across the board. Is as opposed to prior cycles two important areas of distinction.

One is, in fact, the top-line sales growth has improved over the last several years. A.J. touched on it relative to 2019 and has improved well in excess of the rental growth so far. So that means that tenants have room to run, that means that rent-to-sales ratios are substantially healthier than certainly at prior peak. And that room to run gives us a fair amount of comfort as we think about going forward. And that's confirmed by our retailers who are saying they're very comfortable at rents where they are right now and their ability to grow it.

The other piece that I'd say is equally encouraging is we are now absolutely in an omnichannel environment, whereas tenants in the past were kind of guessing as to whether or not there would be a halo effect from online sales. Now they know for certainty that there is a benefit of having a great store and it's driving online sales.

They are also much better, much more sophisticated in the use of technology, the use of AI in terms of site selection that it's less guesswork, more science and in an omnichannel world, OCR of an individual store is still critically important, but for the kind of locations we're talking about that are mission-critical, they can look beyond just simply the sales out of that store and look at the overall sales that are generated from when they open the store.

A.J., why don't you touch on the different markets and the distinctions that we're seeing in the Henderson versus SoHo the and the Williamsburg?

A.J. Levine

Yes. Look, I think generally speaking in the more established markets like the Gold Coast, like SoHo, Madison Avenue, you're seeing mid-teens occupancy cost, which is, as Ken mentioned, gives you a good amount of room to run these tenants could push comfortably up towards 20% into the low 20%.

Markets like Bleecker and perhaps some of the younger markets, the markets that are in earlier innings. We're seeing occupancy costs that are closer to that 10% range, which just gives us confidence along with seeing market rent growth, right, deals getting signed at higher rents than what we're purchasing, room to run in terms of pushing those occupancy costs pretty considerably higher, right? So it really varies from market to market.

Floris van Dijkum

And is that -- is that the same in Williamsburg or how does Williamsburg compare to Bleecker versus SoHo? Is it in between or is it more like SoHo in terms of the mid-teens occupancy costs?

A.J. Levine

I'd say it's pretty comparable to SoHo.

Floris van Dijkum

Okay. And then Dallas is like -- is Dallas even sub 10?

A.J. Levine

Yes, there are a number of tenants in Dallas just because the vintage of those leases and the improvement that we've seen, yes, it's -- several of those tenants are sub 10%.

Floris van Dijkum

Great. And thanks, AJ. My follow up question, if I may. Obviously, you've got $270 million of acquisition sort of earmarks, you've got $120 million closed, $150 million in for the core, I think in the in the final stages. How big of a pipeline do you have behind that? I mean, I guess because part of this is stems from the fact you've done very little over the last years, partly because the market wasn't giving you the cost of capital. But some people also questioned, well, how deep is the street retail market and how much capital can be put to work in this -- in this segment?

And again, maybe if you can expand about upon the total size of the market, how much -- I understand it to be pretty big, but if you could maybe expand on that, Ken, and the potential here to -- is I suspect several billion dollars can be invested comfortably, but I'd love to hear your thoughts on that.

A.J. Levine

Yes. So for a bunch of different reasons, we remain very bullish on what the pipeline could look like. And you're right, the way we think about it is both in terms of what is our internal capacity to digest in the normal course of business and this $0.5 billion of acquisitions that John referred to because whether it's the investment management platform or core portfolio, the team needs to be able to digest a certain amount. And I think we are proving that that is a rate we can live with.

So then the question is the opportunity set. And you're spot-on, cost of capital is one of the metrics because we do have to check those boxes. The stars have to align. To the extent we have a competitive cost of capital and to the extent that sellers are beginning to emerge and they are only beginning just now, we think we can continue at this growth rate for several years for as long as the stars aligned.

There are enough deals both in the markets that we are currently active in and I'd say most importantly in those markets because I think that's where you will see the majority of our growth. But there are also additional markets, a handful of them that either we've been active in the past or our retailers are saying these are now established must have markets that you can also see us get involved with.

So I don't doubt that there are several billions of dollars of potential scalable assets for us. I don't doubt the team's ability proven now to digest them. And so then it's just a matter of the negotiations, the pricing, it has to be attractive because here's the final good news for us. On one hand, it was quiet for a couple of years for all the obvious reasons.

But our growth was pretty darn good. We had very strong internal growth for many years in front of us. So if the deals are not accretive, if they're not additive, if they don't make sense, we will have really powerful top line and bottom line growth just based on what we have right now.

Floris van Dijkum

Thanks, Ken.

Ken Bernstein

Sure.

Operator

Thank you. Please standby for our next question. Our next question comes from the line of Jeffrey Spector with Bank of America Securities. Your line is open.

Jeff Spector

Great. Good morning and congratulations on the quarter. Maybe, Ken, the first question I have, I don't know if it's for you or A.J. On the strengthened leasing and demand for space, would you say it's the result of strong luxury fashion retail sales the last couple of years? Is it, these retailers are -- continue to move away from wholesale, is it a combination? What are your thoughts?

Ken Bernstein

Yes. It is a combination and AJ, feel free to chime in as well. First of all, let's acknowledge the headwinds that we experienced for several years. First was fears around confusion around this hotel -- so called retail Armageddon. And then there was certainly COVID and lockdown and all of the issues around and concerns around where would people settle, would they ever come back to places like SoHo and now going forward, those headwinds are tailwinds. Tailwinds, I mean as follows: one, asked and answered, retailers recognize the critical nature of the store.

Second was the so called concern about e-commerce has become a halo. And in fact, where you can have stores that benefit from omnichannel, it's a net benefit. And then as you pointed out, there has been a notable shift into what we refer to as direct-to-consumer DTC, a shift out of wholesale and retailers saying they need to connect directly with their customers and the store, especially these key stores is critical to that.

And then notwithstanding a lot of noise around the economy, the fact that the job market is still pretty darn strong. The economy is still pretty strong. Inflation, which as long as it's not out of control continues to drive top line sales, all bode well for our portfolio and the ability to continue to drive rents. A.J. I said a lot, but anything you want to add to that?

A.J. Levine

Yes. The only thing I would say is, again, don't discount the data, right? You kind of know exactly where their consumers want to be and they want to be open air and that's where they're choosing to plant their flare.

Jeff Spector

Thank you. And then my follow up for John, and I'm sorry if I missed this. Did you discuss the renewal rental spread from the quarter, and was this skewed by one deal or were a combination.

John Gottfried

Yes, it's really a suburban quick service restaurant, that small space that our leasing team just renewed. So really just down to a single, single small space.

Jeff Spector

Thank you.

Operator

Thank you. Please standby for our next question. Our next question comes from the line of Seth Bergey with Citi. Your line is open.

Unidentified Analyst

Hi, it's Craig Nolan here. Just a question for you, Ken. It sounds like you think it's replicable to maybe do $300 million, maybe $400 million of acquisitions a year in the near term, assuming stars align. You guys were able to kind of issue a lot of equity this quarter and the market seems to be giving you the green light. But as you move forward, if you want to continue to deploy this level of capital annually, maybe for the next year or two and keep leverage kind of in check, what should we think about the right mix or how to think about kind of debt equity and maybe asset sales to fund the growth on the accretive earnings and NAV basis?

Ken Bernstein

John, you want to touch on that?

John Gottfried

Absolutely. So I think, Craig, as I put in my -- put in our remarks that our balance sheet is right where we want it and we're going to keep it there, right? So I think let's just start at that starting point. So anything we do is going to be leverage neutral and whatever we do, we're going to be very well aware of our cost of capital is where we know what it needs to be FFO accretive day one.

But I think more importantly, we know what the growth we have is. So I think where we look at our acquisition meetings, that's why it's critical that we look at -- and we check all those boxes. So day one earnings growth, NAV accretive and that we do have the growth that we have as we have today.

So I think those are the ways that we're going to approach it, leverage neutral and what we're buying is accretive to what we already.

Ken Bernstein

And then just to add to that, Craig, in terms of asset sales, do keep in mind, as we monetize assets in our investment management platform, we get a fair amount of capital coming back from that as well, whether that is redeployed into future investment management deals or otherwise, cash is relatively agnostic. So we do have several hours in our quiver without having to lever up and that's what you should expect to see.

Unidentified Analyst

And then on Henderson, as you guys move forward, it sounds like the yields there are pretty attractive. But from a risk mitigation standpoint, is there a targeted level of pre-leasing or at least deals in maybe an LOI stage that aren't signed yet, but just to give you the confidence to go forward with additional build out there to hit those returns without higher level of risk to the extent they're not pre-leased?

Ken Bernstein

Yes. And thankfully, and it just happens to be the situation there we can proceed in phases. So we expect to have a pretty high level of leasing as we do each phase of this, which will provide some level of mitigation. But again, thankfully, the tenant demands feel strong. So I'd have to see a major shift for us to lose the enthusiasm that we have right now.

Unidentified Analyst

Okay. Then maybe just one last one. It sounds like North Michigan is picking up a bit. Any update on potentially selling part of the building next to waterside. I know you guys have talked about maybe monetizing a piece of that as an option to the developer next door or is it getting to a point where you would think you can re-lease to existing retail?

Ken Bernstein

So first of all, leasing demand is improving and that's positive. We remain open minded and have variety of conversations around monetization opportunities there. I don't think anyone should expect any significant earnings dilution if we're to go that route. So we think what we have on North Mich thankfully is rebounding and should be accretive. John, anything?

John Gottfried

No, I think that that sums it up. Nothing to add there.

Unidentified Analyst

Great. Thanks.

Ken Bernstein

Thanks, Craig.

Operator

Thank you. Please standby for our next question. Our next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Your line is open.

Todd Thomas

Hi, thanks. Good morning. Ken. First, I wanted to go back to the investment management platform. And while you're acquiring assets with partners, you did sell a Fund V asset in the quarter and you mentioned you have potential to raise capital there. You have over $100 million of annualized rent being generated in Fund V alone. Should we assume fund dispositions accelerate as off balance sheet acquisition activity picks up? Is it more of a capital recycling exercise within the investment management platform or should we think about growth in the size of that platform? And then what's the impact to the model that we should be thinking about from transaction activity in the investment management platform?

Ken Bernstein

So let me start, but John, I want you to chime in. What we think is prudent for now is to assume stability. Yes, it could ramp up and grow, Todd. But we also we want to continue to monetize. As you pointed out, this last deal we sold-in Fund V was north of a 2 times equity multiple north of a 20 IRR. If we can achieve those for Fund V, there's a lot of economic benefit to our shareholders and to our investors. And that's what the buy fix, sell platform does. It could ramp up. But for now for modeling purposes, assume stability, John?

John Gottfried

Yes, that's what I was just going to just to expand to that, Todd. It's assume stability and for now a capital recycling. And what I would say that we really like about this model is that we are putting deals in separate vehicles that do not have cross-promotes. So I think this will enable us to get to promotes earlier and more visibility into those. So I think that's where what we like about it is the stability and the ability to get to a promote in a faster pace. But I would say for a model, I would assume it remains stable.

Todd Thomas

Okay. And then, John, just a question on the math around the 1% accretion on every $200 million of acquisitions. I think you've been discussing that level of accretion for some time, but the company's cost of capital has improved meaningfully here over the last year. I'm just curious about the way -- the formula there why it has not improved relative to the spread that you're able to invest at? Or are you just being conservative as you think about the accretion from external growth with some of the other moving pieces?

Ken Bernstein

I'll let John think about that for a second, but yes, he's being conservative, but also, Todd, going in accretion is just one of the box to check. The growth rate of what we teed up here is higher than perhaps we theoretically thought about.

John Gottfried

And we're allowed to beat our 1% every $200 million. So I think it's -- acknowledge all your points, but yes, we're allowed to be the done.

Ken Bernstein

7% growth Todd, feels pretty darn good.

Todd Thomas

Okay. Thank you.

Ken Bernstein

Thanks.

Operator

Please standby for our next question. Our next question comes from the line of Ki Bin Kim with Truist. Your line is open.

Ki Bin Kim

Thank you. Good morning. Just wanted to go back to the topic about occupancy costs in your more established markets being in the mid-teens and maybe can go to low to mid '20s. Can you remind us where that was for the prior healthy peak for that occupancy cost ratio? And ultimately, do you think you can get there through renewals or do you need a different slate of retailers to get to the higher occupancy cost ratio? Thank you.

Ken Bernstein

AJ, why don't you take that?

A.J. Levine

Yes. Say the last go around occupancy costs were probably closer to that 20% range. And again, one of the quivers that we or one of the arrows that we have is fair market value resets, right? So that's really how we're going to loose a lot of that value. And so the tenants that can afford to stay at market will. Those that can't, we will pry that space loose and mark-to-market at a pretty positive spread.

Ki Bin Kim

And how prevalent are the fair market value resets in your street retail portfolio?

A.J. Levine

More often than not. We have a fair market value reset. I can't think of a recent example of a deal we've done in our streets over the last, however many years, several years that doesn't have some form of a reset.

Ki Bin Kim

Okay, great. And in terms of watchlist, as we look forward, any particular reason to think of it up or down from what we've seen from the past couple of years?

A.J. Levine

Ken, you want to take that?

Ken Bernstein

Yes. So Ki, I think we've been as an industry, really fortunate in terms of watchlist and retailers. So I would say that we're prepared that there will be retailers that will struggle. Fortunately, we have a lot of confidence where we're at as we sit today.

So long winded way of saying, I think we are aware that there will be and all the well-known names that are out there and that we are certainly watching. I think the difference now is that the retailer -- the demand that's behind it and our ability to quickly on spaces, having multiple tenants that are interested that there's just not supply of high quality space.

So I think we should be very aware and we are of retailers and AJ and his team are proactively pulling that space back. I mean if we -- and we're very comfortable we get at least.

Ki Bin Kim

Okay. Thank you.

Operator

Thank you. Please standby for our next question. Our next question comes from the line of Paulina Rojas Schmidt with Green Street. Your line is open.

Paulina Rojas Schmidt

Good morning. And do you think it's fair to say that today going-in yields for street retail are inside those you can find for grocery anchored neighborhood centers? And then having IRRs in mind, can you comment on how you think market rent growth for these two subtypes and looks like over the next five years? And what do you think are the drivers behind that growth differential from a fundamental perspective?

Ken Bernstein

Yes. And obviously, it is to some degree comparing apples and oranges in terms of going in cap rates going in yield. But the best I can tell because supermarket anchored still is where most of the initial investment activity was and thus is probably the most crowded of the areas. In comparing going-in yields for high demand, best in class supermarket anchored shopping centers versus high demand best in class street retail.

I'd say the going-in yields are pretty similar. Now historically, street retail had lower going-in yields because of the growth. But as it sets up today, it feels like going-in yields are about the same and then the growth rate is about twice for street retail as it is for our supermarket anchor component of our portfolio. And we own both and we like both. Now there is certainly the possibility that growth for one area versus the other is higher or lower than I just said.

But in general, when I compare notes with my peers, that's how it's stacking up. That growth on the street being higher is one, because of stronger contractual growth; two, the fair market value resets that AJ mentioned that we tend not to see in the supermarket side. So we think that the long-term growth defined as the next five-plus years for the street portfolio, assuming those assumptions should be materially higher than what we get out of our supermarket anchored assets.

Some would argue, well, supermarket is more defensive and therefore deserves. But if you assume going-in yields in the 5% and 6% for either, and that's where it seems like they're settling. And growth rates of, call it, 4% to 5% may be higher for street retail and 2% to 3% for supermarket anchored and then you're getting to high single-digit unlevered returns. That feels pretty good for retail overall.

Paulina Rojas Schmidt

Okay. And then regarding Henderson, I think you mentioned it, but I didn't really understood the details. What's behind the wide range for the total development cost there? And it seems wide to me, and then related to the -- I think the original plan was to include some office space, if I remember well, is that still the case or this is entirely retail space you are thinking about?

Ken Bernstein

Yes. So the reason that there is a very wide range and it is because we can do this in phases depending on demand. It will have a mixed use component, but it pencils out just fine even if we were not to add, build and lease the office piece of this. So we're feeling pretty good about it. But we recognize that new development has risks and so we want to do this in phases.

Final point to keep in mind, we own a lot of Henderson right now. We're in fact going to add a few more existing buildings to this. And this expansion, if it happens in full phase, and I'm pretty confident it will. Is going to lift the whole Henderson Avenue. So then even separate of the unlevered 8% yield that I mentioned in the prepared remarks, there is the lift to the existing portfolio where we've had really strong same-store and market rent growth in the last few years that we've owned it. And the overall street and then thus gets a lift as well.

So give us some time to give you updates over the upcoming quarters, but we think we can do this in reasonable phases, but my goal would be to be at the upper end of that and to have AJ have at least so that that accretion hits the bottom-line sooner rather than later.

Paulina Rojas Schmidt

Thank you very much.

Ken Bernstein

Thank you.

Operator

Thank you. Please standby for our next question. Our next question comes from the line of Michael Mueller with JPMorgan. Your line is open.

Michael Mueller

Yes, hi. I guess first sticking with Henderson, where are the new locations going relative to the buildings you already own? Are they scattered throughout or is it an extension of what you have already?

Ken Bernstein

Yes. I mean, it's relatively an extension. They're all clustered in the same area. There's 10 architecturally distinct buildings, it really - across. It's right in the -- it's right in the mix. That's the 50-yard line of what we own.

A.J. Levine

So I'm not sure if you it, but we have the Sprouts Grocer on one end and we have the Tecovas and Warby Park -- Warby Parker in the middle. And what AJ is talking about is the middle is that make it land parcel that's going to connect the entire street. So think of some of our other locations that we curate, that's exactly what this is, is bringing -- connecting all of those and pushing rents from there.

Michael Mueller

Got it. Okay. And then maybe, I guess looking at the street portfolio for a second, occupancy dipped a little bit. I think it's around 84%, 84.2% in the quarter. Can you walk through where you see that settling, say, by year end '24, year-end '25 as the NOI ramp that you talked about takes hold?

Ken Bernstein

Yes. So Mike, and just as a reminder for anyone new in the call, the percentage is somewhat, not somewhat, is very irrelevant to the actual space we're leaving just given the variation of rents, whether it's first floor space, second floor space, et cetera.

So dollars is probably the better way to look at it. But what I'll talk about is two things. One, I think in terms of occupancy percentage where we think we land by, call it, year-end '25. When we just look at what's in our sign not yet open, I think that gets us to -- you can see with the lease rate of that, that should get us into around 90%. And I think we'll -- we will get there throughout 2025 by the end of the year. And then I would say full occupancy, both in terms of percentage and on economic occupancy. I would say by '26 is where we would get to full occupancy, which we design as 94% and 95%, both economic and actual percentage.

Michael Mueller

Got it. Okay. Thank you.

Operator

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Ken Bernstein for closing remarks.

Ken Bernstein

Thank you all for taking the time, and we look forward to speaking with you again next quarter.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.