Acadia Realty Trust (NYSE:AKR) Q2 2023 Earnings Conference Call August 4, 2023 11:00 AM ET Company Participants Mackenzie Teper - IR Kenneth Bernstein - President and CEO Stuart Seeley - Senior Managing Director of Strategy and Public Markets John Gottfried - EVP and CFO Conference Call Participants Floris van Dijkum - Compass Point LLC Ki Bin Kim - Truist Todd Thomas - KeyBanc Capital Markets Lizzy Doykan - Bank of America Securities Craig Mailman - Citi Michael Mueller - JPMorgan Paulina Rojas-Schmidt - G ...

SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-12002 ACADIA REALTY TRUST (Exact name of registrant in its charter) MARYLAND (State or other jurisdiction of incorporation or organization) (I.R.S. Employ ...

Financial Data and Key Metrics Changes - The first quarter results showed a same-property NOI growth of 7%, exceeding expectations, and earnings were also above forecast [6][26] - FFO per share was reported at $0.40, with a full-year guidance increase to $1.19 to $1.26 from $1.17 to $1.20 [26][27] - Total NOI growth was approximately 6.5%, increasing to about $36.2 million in Q1 2023 compared to $34 million in Q1 2022 [32] Business Line Data and Key Metrics Changes - The Street portfolio, which comprises about half of the overall portfolio value, achieved an 8% same-store growth during the quarter, outperforming the initial projection of 6% to 7% [31] - The suburban portfolio maintained a stable occupancy rate of 94.5%, with average rents around $1,750 per square foot [20] Market Data and Key Metrics Changes - The recovery in key urban corridors is significant, with net effective market rents growing over 15% on average in specific areas like Soho, Williamsburg, and Melrose Place [10] - The company noted that tenant demand is outstripping supply, particularly in high-quality spaces, leading to a strong leasing pipeline [7][15] Company Strategy and Development Direction - The company aims for a multiyear internal growth goal of 5% to 10% annually, with a focus on high-quality, high-barrier-to-entry markets [6][21] - The strategy includes opportunistic asset sales and acquisitions, particularly in light of current market volatility [15][16] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism despite macroeconomic uncertainties, indicating that leasing fundamentals remain strong [17][27] - The company anticipates that leasing progress will compensate for any potential economic slowdown, projecting a net positive growth trajectory [7][17] Other Important Information - The company has successfully re-leased spaces previously occupied by Bed Bath & Beyond, with new tenants like Dick's Sporting Goods taking over [12][35] - The company has no significant core maturities over the next several years and can fund internal growth through cash flow generated from operations [38] Q&A Session Summary Question: Impact of Street portfolio occupancy on earnings - Management indicated that achieving 95% occupancy in the Street portfolio could contribute significantly to earnings growth, estimating over $30 million in total for the entire portfolio [41][42] Question: Opportunities in the market - Management discussed potential opportunities arising from regional bank issues and the fragmented ownership of street retail, suggesting a focus on both core and fund investments [45][46] Question: North Michigan Avenue mortgage maturity - Management confirmed that they have time to address the mortgage maturity and maintain a good relationship with the lender [50][51] Question: Chicago urban street retail forecast - Management expressed a balanced approach to Chicago exposure, acknowledging its challenges but also its potential [52][53] Question: Leasing activity in lagging submarkets - Management noted that some submarkets are beginning to show improvement, with new leases being signed and increased retailer interest [56][58]

SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-12002 ACADIA REALTY TRUST (Exact name of registrant in its charter) MARYLAND (State or other jurisdiction of incorporation or organization) (I.R.S. Emplo ...

Investment Strategy - Acadia Realty Trust focuses on acquiring and managing high-quality retail properties in densely populated metropolitan areas, with a strong emphasis on capital appreciation and cash distributions to shareholders [24]. - The company has launched five funds for opportunistic and value-add retail real estate investments, with the current fund being Acadia Strategic Opportunity Fund V LLC [28]. - The company’s growth strategy includes the acquisition and development of additional properties, which may face challenges in finding new properties and securing financing [114]. Financial Performance - In 2022, Acadia issued 5,525,419 Common Shares under its ATM Program, raising gross proceeds of $123.9 million, compared to 2,889,371 shares for $64.9 million in 2021 [33]. - The company maintains a share repurchase program with authorization to repurchase up to $200 million of outstanding Common Shares, with approximately $122.5 million remaining as of December 31, 2022 [32]. - The company reported a cumulative total shareholder return of $62.81 for its Common Shares from December 31, 2017, to December 31, 2022 [215]. Portfolio Overview - As of December 31, 2022, Acadia had two Fund and two Core Portfolio development projects and five Core Portfolio redevelopment projects underway [41]. - As of December 31, 2022, the Core Portfolio consisted of 143 operating properties totaling approximately 5.6 million square feet of gross leasable area (GLA), with an occupancy rate of 92.1% and a lease rate of 94.4% [185]. - The Funds owned and operated 49 properties totaling approximately 8.0 million square feet of GLA, with an occupancy rate of 88.9% and a lease rate of 92.5% as of December 31, 2022 [186]. Tenant and Revenue Concentration - The company has a concentration of 20 key tenants that collectively account for approximately 19.3% of its consolidated revenue, indicating a significant reliance on these tenants for income [85]. - The largest retail tenant, Target, accounted for 7.3% of total Core Portfolio GLA and 5.1% of total base rent as of December 31, 2022 [200]. - No individual property or tenant contributed more than 10% of total revenues for the years ended December 31, 2022, 2021, or 2020 [189]. Employee and Diversity Initiatives - Employee turnover rate for 2022 was approximately 23%, with a total of 115 employees as of December 31, 2022 [48]. - Diversity, equity, and inclusion are fundamental values for Acadia, with women representing 50% of employees and racially and ethnically diverse individuals making up 25% of the workforce [50]. - The company emphasizes diversity, equity, and inclusion (DEI) as fundamental values, with initiatives aimed at enhancing employee engagement and community involvement [69]. Environmental and Sustainability Efforts - The company is committed to reducing GHG emissions with a goal established for scope 1 and 2 emissions, aiming to mitigate the negative impacts of climate change [63]. - The company has implemented a comprehensive water management program that includes smart irrigation systems and technology to monitor water consumption, promoting sustainability [66]. - The company has achieved gold status as a 2022 Green Lease Leader, reflecting its commitment to sustainability through the use of "green" leases [67]. Risk Management - The company has established a robust Enterprise Risk Management plan to address critical risks, including those related to climate change and environmental impact [59]. - The company may face adverse effects on financial condition and cash flows due to the bankruptcy or downturn of major tenants, impacting rental revenues [87]. - The company is exposed to potential liability related to environmental matters, which could result in significant costs exceeding the value of the properties [119]. Debt and Interest Rate Exposure - As of December 31, 2022, the company's outstanding indebtedness was $1,805.4 million, with $364.6 million classified as variable-rate indebtedness [110]. - Approximately 79.8% of the company's outstanding debt has fixed or effectively fixed interest rates, exposing it to risks from potential increases in interest rates [112]. - A 100-basis-point increase in interest rates would raise interest expense on variable-rate debt by approximately $3.6 million annually [112]. Legal and Regulatory Compliance - The company is engaged in various legal proceedings but does not expect any material adverse effects on its consolidated financial position [208]. - The SEC proposed extensive rules for climate-related disclosures, which could impose new compliance costs and operational strains on the company [178]. - Compliance with REIT requirements may hinder the company's performance by forcing it to forego attractive investment opportunities [150]. Market Conditions and Economic Factors - Current economic conditions have resulted in high unemployment, rising inflation, and decreased consumer spending, negatively impacting retail tenants [158]. - Political and economic uncertainty may cause consumers to postpone discretionary spending, adversely affecting tenant business [160]. - Economic downturns may lead to tenant losses and impair the company's ability to borrow for property purchases or refinancing [156].

Financial Data and Key Metrics Changes - The company reported earnings of $0.28 per share, exceeding expectations, with same-store NOI growth of 5.4% for the quarter and 6.6% year-to-date, on track to exceed the initial guidance of 4% to 6% for the full year [18][19][26] - Cash collections remained strong at 98%, aligning with pre-pandemic levels, despite one Regal location's temporary rent payment issues due to Chapter 11 filing [24][25] Business Line Data and Key Metrics Changes - The street retail portfolio outperformed, with cash leasing spreads exceeding 20%, and specific locations like SoHo achieving cash spreads of 40% [6][21] - Sequential physical occupancy grew by 70 basis points, with leased occupancy increasing to 94.3% as of September 30, up from 94.1% in the previous quarter [20] Market Data and Key Metrics Changes - Strong demand was noted in key markets such as SoHo, Gold Coast of Chicago, and Melrose Place in LA, with luxury retailers showing increased commitment [8][9] - Retailer sales in certain corridors exceeded pre-COVID levels, with M Street in Georgetown reporting sales over 20% higher than before the pandemic [11] Company Strategy and Development Direction - The company plans to add $30 million to $40 million of NOI to its core portfolio over the next three to five years, focusing on aggressive leasing and internal growth [14][26] - The strategy includes self-funding capital needs and minimizing exposure to rising interest rates, with a focus on opportunistic asset sales to close the gap between private real estate values and stock price [15][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued strong leasing momentum despite macroeconomic headwinds, citing robust demand for space and the quality of locations [7][8] - The company anticipates 5% to 10% pro rata core NOI growth for 2023, excluding nonrecurring impacts from 2022 cash recoveries [27][28] Other Important Information - The company increased its 2022 guidance for FFO before special items to $1.28 to $1.30, reflecting a year-over-year growth of about 17% [26] - The company took a noncash GAAP impairment charge on three investments, primarily due to longer recovery times in specific submarkets [29][30] Q&A Session Summary Question: About the $30 million to $40 million of core NOI expected over the next three to five years - Management clarified that this figure does not include recent acquisitions or growth from City Point, with leasing expected to contribute significantly to this growth [43][44][47] Question: Conversations around long-term leases with retailers - Management noted that retailers are more inclined to lock in long-term leases now, especially in mission-critical locations, as they anticipate higher inflation and rent growth [50][51] Question: Financing fund investments and variable rate debt - Management indicated that financing strategies may change due to current market conditions, emphasizing flexibility in the fund business [54][55] Question: Update on Bed Bath & Beyond negotiations - Management described the situation as fluid, with ongoing negotiations to potentially rightsize the store, expressing cautious optimism about reaching a profitable conclusion [60][62] Question: Disconnect between asset values and stock price - Management acknowledged the disconnect, attributing it to market conditions and emphasizing the strength of their portfolio outside of underperforming areas [63][64][66]

Financial Data and Key Metrics Changes - The company reported second quarter earnings of $0.32 per share, exceeding expectations, with expected year-over-year FFO growth of about 15% at the midpoint of guidance [19][20] - Same-store NOI grew by 4.8% for the quarter and 7.1% year-to-date, driven primarily by the street portfolio, which grew nearly 7% in the second quarter [23][24] - Quarterly cash collections remained strong at 98% [19] Business Line Data and Key Metrics Changes - The street portfolio is experiencing significant growth, with anticipated 15% growth over the next two years, particularly in high-growth markets like Soho, which is expected to double its NOI [27][28] - The suburban portfolio remains stable, but the street portfolio is outperforming, contributing to the overall positive growth outlook [8][10] Market Data and Key Metrics Changes - Key markets showing strong rental growth include Soho (13% year-over-year), M Street in Georgetown, and various locations in Chicago, LA, and Dallas [9][10] - The company noted that affluent demographics in certain markets are maintaining strong pricing power despite inflationary pressures [12] Company Strategy and Development Direction - The company is focused on internal growth with expectations of 5% to 10% multi-year core internal growth, supported by strong leasing activity and tenant demand [10][24] - The strategy includes responding to market shifts by increasing ownership in high-potential assets like City Point, which is expected to provide significant long-term value [17][36] Management's Comments on Operating Environment and Future Outlook - Management acknowledged concerns about economic slowdown and inflation but emphasized the strength of their portfolio and the ongoing demand for retail space [10][13] - The company is optimistic about future growth, particularly in high-demand areas, and believes that the current market volatility may create compelling opportunities [17][18] Other Important Information - The company has added nearly $250 million in acquisitions year-to-date, including properties in Williamsburg, Brooklyn, and Dallas [15][16] - The refinancing of City Point has reduced borrowing costs and positioned the asset for future growth [22][30] Q&A Session Summary Question: Details on City Point's expected yield - The expected unlevered yield on the initial cost for City Point is 6%, anticipated to kick in within the next 12 to 24 months [39][40] Question: Potential for additional interest in City Point - Additional opportunities to increase interest in City Point are expected within the next 12 to 24 months [40][41] Question: Current market value of City Point - The current pricing is not indicative of the asset's high-quality value, with expectations for long-term value creation remaining strong [43][45] Question: H&M lease situation - The company anticipates regaining the H&M space in the second half of the year, which is factored into growth projections [49][50] Question: Pro forma leverage ratio expectations - The company is targeting a pro forma leverage ratio in the mid-6s by the end of the year [51][52] Question: Opening date for Primark at City Point - Primark is on track to open in the second half of the year, likely in time for the holiday season [62][63] Question: Additional leasing at City Point - The remaining leasing needed for stabilization is being actively pursued, with strong interest expected as surrounding developments complete [69][70]

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Acadia Realty Trust's unaudited consolidated financial statements for Q1 2022, showing significant growth in net income and assets [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2022, total assets increased to **$4.50 billion**, driven by real estate investments, while total equity rose to **$2.41 billion** Consolidated Balance Sheet Highlights (in thousands of dollars) | Balance Sheet Item | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$4,496,181** | **$4,261,746** | | Net investments in real estate | $3,598,692 | $3,423,146 | | Cash and cash equivalents | $36,151 | $17,746 | | **Total Liabilities** | **$2,087,975** | **$2,111,811** | | Mortgage and other notes payable, net | $1,095,445 | $1,140,293 | | Unsecured line of credit | $194,405 | $112,905 | | **Total Equity** | **$2,408,206** | **$2,149,935** | [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) Total revenues increased to **$81.5 million** in Q1 2022, with a **$28.8 million** gain on property dispositions driving net income to **$16.8 million** Consolidated Income Statement Highlights (in thousands of dollars, except per share amounts) | Income Statement Item | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 (As Restated) | | :--- | :--- | :--- | | Total Revenues | $81,507 | $68,187 | | Operating Income | $40,042 | $8,752 | | Gain on disposition of properties | $28,815 | $4,612 | | Net Income Attributable to Acadia | $16,838 | $4,817 | | Basic and Diluted EPS | $0.18 | $0.05 | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations decreased to **$26.5 million**, while investing activities used **$150.1 million**, and financing activities provided **$144.0 million**, leading to a **$20.5 million** cash increase Consolidated Cash Flow Summary (in thousands of dollars) | Cash Flow Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 (As Restated) | | :--- | :--- | :--- | | Net cash provided by operating activities | $26,543 | $30,974 | | Net cash (used in) provided by investing activities | $(150,056) | $12,612 | | Net cash provided by (used in) financing activities | $143,980 | $(47,193) | | **Increase (decrease) in cash and restricted cash** | **$20,467** | **$(3,607)** | [Notes to Consolidated Financial Statements (Unaudited)](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) These notes detail the company's REIT structure, significant Q1 2022 real estate acquisitions and dispositions, total debt of **$1.82 billion**, and subsequent strategic acquisitions - The company operates through three reportable segments: **Core Portfolio**, **Funds**, and **Structured Financing**[28](index=28&type=chunk) - In Q1 2022, the company acquired properties valued at **$220.7 million**, including assets in New York and California[46](index=46&type=chunk) - Property dispositions in Q1 2022 totaled **$113.1 million** in sales price, resulting in a gain of **$28.8 million**[54](index=54&type=chunk) - Subsequent to quarter-end, the company acquired the Henderson Portfolio in Dallas, Texas for approximately **$85.4 million**[186](index=186&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's **188-property** portfolio, Q1 2022 investments, and financial performance, highlighting increased net income, **9.7%** Same-Property NOI growth, and improved FFO per share - As of March 31, 2022, the company owns or has an interest in **188 properties** with a total operating GLA of **13.8 million square feet** and an occupancy of **88.5%**[190](index=190&type=chunk)[191](index=191&type=chunk) - During Q1 2022, the company made three new consolidated investments and two unconsolidated acquisitions totaling **$292.2 million**[194](index=194&type=chunk) Q1 2022 vs Q1 2021 Performance (in millions of dollars, except percentages and per share amounts) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Income Attributable to Acadia | $16.8M | $4.8M | | Same-Property NOI Growth (Core) | 9.7% | N/A | | Diluted FFO per Share | $0.36 | $0.26 | - The company sold **5.15 million Common Shares** through its At-the-Market (ATM) Program during Q1 2022, generating net proceeds of **$111.5 million**[200](index=200&type=chunk)[232](index=232&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=52&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate exposure on its **$1.83 billion** debt, with **46.6%** being variable-rate, mitigated by swaps, and a **100 basis point** rate increase would raise annual interest expense by **$8.5 million** - The primary market risk exposure stems from changes in interest rates on the company's mortgage and other debt[246](index=246&type=chunk) Debt Composition as of March 31, 2022 (in millions of dollars) | Debt Type | Amount (in millions) | Percentage of Total | | :--- | :--- | :--- | | Fixed-Rate (incl. swaps) | $975.9 | 53.4% | | Variable-Rate | $850.3 | 46.6% | | **Total Debt** | **$1,826.3** | **100.0%** | - A **100 basis point** increase in interest rates would increase annual interest expense by approximately **$8.5 million** on the variable-rate debt portfolio[253](index=253&type=chunk) - The company's interest rate risk exposure increased, with variable-rate debt rising from **42.9%** of total debt at year-end 2021 to **46.6%** as of March 31, 2022[258](index=258&type=chunk) [Controls and Procedures](index=53&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were **not effective** as of March 31, 2022, due to a **material weakness** in internal control over financial reporting, for which remediation is underway - The CEO and CFO concluded that disclosure controls and procedures were **not effective** as of March 31, 2022[259](index=259&type=chunk) - The ineffectiveness stems from a previously reported **material weakness** related to an error in accounting for the consolidation of two Fund investments[260](index=260&type=chunk) - Management is actively remediating the material weakness by implementing additional controls and performing enhanced procedures[260](index=260&type=chunk)[261](index=261&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=55&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, which management does not expect to have a **material adverse effect** on its financial position - The company is party to various legal proceedings incidental to its ordinary course of business[264](index=264&type=chunk) - Management does not expect these proceedings to have a **material adverse effect** on the company's financial position[264](index=264&type=chunk) [Risk Factors](index=55&type=section&id=Item%201A.%20Risk%20Factors) No material changes were reported to the risk factors previously disclosed in the company's Annual Report on Form 10-K for 2021 - No material changes were reported to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[265](index=265&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=55&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item is not applicable for the current reporting period - Not applicable[265](index=265&type=chunk) [Exhibits](index=56&type=section&id=Item%206.%20Exhibits) This section indexes all exhibits filed with the Quarterly Report on Form 10-Q, including CEO and CFO certifications and XBRL data files - The report includes CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[267](index=267&type=chunk) - Interactive Data Files (XBRL documents) are also filed as exhibits[267](index=267&type=chunk)