Acadia Realty Trust (NYSE:AKR) Q2 2022 Results Earnings Conference Call August 8, 2022 12:00 PM ET
Company Participants
Jacob Bennett – Investor Relations Contact
Kenneth Bernstein – President and Chief Executive Officer
John Gottfried – Executive Vice President, Chief Financial Officer
Amy Racanello – Senior Vice President, Capital Markets and Head of Asset Management
Conference Call Participants
Todd Thomas – KeyBanc Capital Markets, Inc.
Ki Bin Kim – Truist Securities
Craig Mailman – Citigroup
Craig Schmidt – Bank of America Merrill Lynch
Linda Tsai – Jefferies
Michael Mueller – J.P. Morgan Securities, Inc.
Operator
Welcome to Acadia Realty Trust Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions].
I would now like to hand the call over to Jacob Bennett. Please go ahead.`
Jacob Bennett
Good afternoon and thank you for joining us for the second quarter 2022 Acadia Realty Trust Earnings Conference Call. My name is Jacob Bennett and I am a summer intern in our acquisitions 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, August 3, 2022, 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 Kenneth Bernstein, President and Chief Executive Officer, who will begin today’s management remarks.
Kenneth Bernstein
Thank you. Great job, Jacob. Thanks to you and the rest of our summer intern class for their hard work and the energy that they brought to our offices this summer and welcome everybody.
Notwithstanding the significant volatility in the capital markets and legitimate concerns around inflation and deceleration of economic growth, as you can see in our performance last quarter, the fundamentals of our business remain strong. The meaningful improvements in leasing activity, tenant performance, tenant demand that began several quarters ago are continuing.
This continuing momentum is showing up in a majority of our portfolio. It includes the continued stability we are seeing in our suburban portfolio, but then more significantly in the meaningful growth that we are seeing in many key corridors throughout our street retail portfolio.
Markets in our portfolio that are experiencing this strong rental growth include M Street in Georgetown, Soho and Williamsburg in New York, Rush Walton and Armitage Avenue in Chicago, Melrose Place in LA and Henderson Avenue in Dallas. And these markets I just mentioned are not an insignificant portion of our portfolio. In fact, they represent nearly two-thirds of our street portfolio NOI.
Then in addition to these markets, there are those streets in our portfolio that actually got a lift during COVID and are continuing to show that strength, including properties in Greenwich and Westport, Connecticut.
As you may have noticed, Cushman & Wakefield recently reported data supporting year-over-year market rent growth in Soho of 13%. And this is consistent with what we’re seeing in many of the streets throughout our portfolio. And in fact, the rate of growth seems to be accelerating further over the last few months.
Now, this does not mean that every corridor or every tenant is performing as well as we are seeing in these markets – and John will discuss – there are both tenants and locations that have not rebounded yet. These underperformers have and continue to be baked into our growth assumptions. But even after taking this into account, our internal growth for the next several years looks very solid with above-trend expectations of between 5% and 10% NOI growth.
And as John will discuss, these aren’t just projections for the distant future. This growth is showing up now, this year, as well as in our 2023 forecasts and beyond that. Now to be clear, we recognize that the economy is cooling down. The unsustainably hot housing market, job market, pent up and now shifting consumer demand, it needed to moderate and it appears to be doing so.
These shifts, coupled with the impact of supply chain disruption and other inflationary pressures, are impacting some retailers’ top lines as well as their bottom lines. And it’s certainly worth paying attention to, but in our conversations with our retailers, both in connection with their existing stores as well as new stores, they are thinking about their real estate on a multi-year basis. And what they’re telling us is that leases, especially for great locations at today’s rents, look to be more compelling, not less.
There are a few reasons for this that we should not lose sight of. First of all, online only single channel retailing is not the future for most retailers. As we discussed for a while, the store remains the critical channel for most retailers ranging from luxury to mass merchandise in an omnichannel world.
Second, sales performance for many of our tenants is significantly ahead of pre-COVID 2019 sales and the top line still growing. Understandably, this is being overshadowed by the compression of bottom line results for certain retailers, but that will likely shift.
Third, the impact of inflation on spending patterns is uneven. Inflation is certainly taking a toll on some consumer spending, especially for those lower wage earning consumers, but for many of our retailers, given the affluent demographic of their shopper, whether it’s in Soho, Rush & Walton, Greenwich Avenue or Melrose Place, for those retailers serving this more affluent consumer, pricing power remains strong and shopping demand remains solid. In fact, while the consumer sentiment index worsened in July in general, it actually improved for those earning more than $100,000 a year.
Finally, while tenant performance and rent to sales is obviously a critical metric, so is supply and demand. And in many of our markets, that pendulum is swinging quickly, and also supporting rental growth. The bottom line is that new supply is both scarce and expensive.
While we have concerns around economic slowdown, there are also concerned that we will have longer term inflationary pressures. I get it. I have discussed on prior calls the headwinds over the last decade from deflationary pressures, and I’m not going to miss them. But inflation is also something that we have to be thoughtful about, both in how we operate our assets and then structure our leases.
And in terms of inflationary pressures, a few things to keep in mind. As John will touch on, our street leases generally have stronger contractual growth and faster opportunity to achieve fair market rent resets than in our suburban assets.
Second, tenant improvements and operating expenses are a much lower percentage of occupancy costs for our street-based retailers. Thus, they’re less impactful on net effective growth.
Third, rents at many of our streets are at cyclical lows, and retailers sales are growing. This means rents can grow substantially and profitably for our retailers and still be below prior peaks.
In short, our internal growth is strong right now. And the embedded growth looks even stronger for the foreseeable future. In fact, once we get past the shorter term challenges in the economy right now, the significant top line sales growth and corresponding solid rent growth probably translates through into meaningful value appreciation for assets, especially in that portion of our portfolio where we have strong annual contractual rent growth and more frequent mark-to-market opportunities.
In terms of the new investment side, we are certainly cognizant and responding to the shifts in the markets, both debt and equity. This has caused many sellers to move to the sidelines and some lenders to be skittish. Deal flow in general has slowed. This past quarter, we closed on our Dallas, Texas portfolio in Henderson Avenue, which we discussed in detail on our last call. So far, tenant activity there continues to exceed our expectations and this investment should provide strong multi-year growth.
Inclusive of Dallas, year-to-date, we have added almost $250 million of acquisitions to our core, including a portfolio in Williamsburg, Brooklyn, assets in Soho, Washington, DC and LA.
And then on the fund side, we added over $130 million of acquisitions year-to-date. As Amy will discuss, we recently put a deal under contract in Fund V, we sold a deal in Fund IV. And since we have about 20% of the fund left to invest, we are likely to either extend Fund V’s investment period to invest those commitments or then roll them into a Fund VI, and we are in discussions with our investors right now and we will keep you posted there.
Elsewhere in our fund platform, as Amy and John will discuss in more detail, we made make strong progress in City Point, Brooklyn. Earlier this week, we successfully refinanced the property and then, more importantly, we doubled down on our ownership stake in the property. John will discuss the earnings accretion and financial metrics and Amy will give some more color on how the transaction came about and why City Point is poised for growth. But the bottom line is, this investment is both compelling and strategic. Adding City Point, an asset that we obviously know incredibly well as a long term hold to our core portfolio makes all the sense in the world.
So, in conclusion, we recognize that it is hard to look past the volatility and uncertainty in the marketplace. But our unique and high quality portfolio likely ends up on the other side of this disruption significantly more valuable than before.
Furthermore, it’s hard to imagine that the turbulence that we are currently going through will not create some compelling opportunities on the other side. But more importantly, while we all digest this volatility, we will be keenly focused on the critical and impactful growth embedded in our portfolio and the multiple ways we can create value, irrespective of this turbulence.
And with that, I’d like to thank the team for their hard work this last quarter, and I’ll turn the call to John.
John Gottfried
Thanks, John. Good afternoon. I will start off with some observations on our quarterly metrics, followed by an update on our multi-year core internal growth and then closing with our balance sheet.
Our portfolio continues to perform well above our expectations with expected year-over-year FFO growth of about 15% at the midpoint of our guidance. And this is being driven by the internal growth within our core portfolio, with same-store NOI growing in excess of 7% for the first half of the year.
Starting with the quarter, our second quarter earnings of $0.32 a share came in ahead of our plan. And consistent with the positive trends we saw in the first quarter, 100 basis points of profitable occupancy commenced during the quarter, generating approximately $1.5 million of ABR, with the majority coming from our street portfolio. And our collections remain strong with quarterly cash collections at 98%.
In terms of tenant credit, I want to touch on our core portfolio’s exposure to Bed Bath & Beyond. We have two Bed Bath locations within our core and the vast majority of the ABR coming from the store in San Francisco. The San Francisco lease has term through 2028 and historically was a high productivity store.
Over the last several years, we have attempted to recapture all or a portion of their space as in-place rents are well below market and the store is oversized for its existing needs. And we’re going to continue those discussions and, if successful, we think we can nearly double our current rents.
Now moving on to our 2022 guidance. In terms of full-year earnings expectations, we once again increased our 2022 guidance, which at the midpoint represents year-over-year FFO growth of about 15%. In terms of the drivers, the increase in our guidance is primarily being driven by the anticipated core NOI growth, accelerating in the second half of the year.
Now in terms of guidance assumptions and model updates, we are reaffirming the full-year ranges that we provide in our initial guidance for cash recoveries of prior-period rents and lease terminations of $3 million to $7 million, of which approximately $5 million has been recognized to date, as well as for straight line rent and below market lease amortization.
Now moving on to City Point. Amy will discuss and provide more color as to how this opportunity arose, as well as the significant leasing progress we are making. As Ken discussed, I’ll walk through the balance sheet impacts of the transaction and the immediate and future earnings expectations.
Starting with the purchase price. We acquired an additional 33% interest in City Point for approximately $120 million inclusive of assumed debt, of which 12% closed during the second quarter and about 21% closed in the last few days, with an opportunity to expand further in the future.
In terms of pricing on our incremental investment, we expect to achieve in the 6s on an unlevered basis as the asset achieves stabilization within the next 18 to 24 months with strong growth thereafter. Amy will walk through the details of the exciting new tenants that will be coming to the center, but with a signed, but not yet opened, pipeline of 2400 basis points of near term rent commencements, we are very optimistic about its near term stabilization.
In terms of refinancing, we chose to deliver the asset from nearly $300 million of debt that was spread across four separate facilities into a single facility of approximately $200 million with a strong support from two of our key relationship banks. And reduced our all-in borrowing costs in excess of 150 basis points. Lastly, as outlined in our release, we provided a $65 million loan to our partners at a rate in the low double digits.
So in putting all these pieces together, we anticipate nominal accretion initially with more meaningful accretion in 2023 and beyond as the property achieves stabilization.
Now moving on to our second quarter same store NOI, with growth of 4.8% for the quarter and 7.1% year-to-date. As outlined in our release, the strength in our quarterly results came from our street portfolio, which grew nearly 7% in the second quarter. We are currently trending towards the upper end of our 4% to 6% full-year same store guidance. And this has been driven by our leasing team not only achieving its leasing goals for the year, but we are seeing rents coming in stronger than we had initially anticipated.
And now while it’s a little early to provide 2023 guidance, I did want to provide an update on our continued expectation of 5% to 10% multi-year core internal growth. First off, we remain on track with our 5% to 10% growth expectation. And it is also worth pointing out that this growth is prior to the accretive impact of including City Point, which given the extraordinary growth that Amy will discuss will be meaningfully additive to our 5% to 10%.
Before diving in, I want to also point out that our 5% to 10% growth has always and continues to reflect the anticipated rollover within our portfolio, including our assets on North Michigan Avenue in Chicago. Our growth forecast has assumed this rollover will begin to occur in the second half of 2023 upon expiration of H&M’s lease.
So, notwithstanding our expectations of multi-year growth, I wanted to follow up on Ken’s comment that these are not just projections of the distant future. Rather, it’s showing up now. And given the leasing progress our team has made to date, we have strong conviction as we look forward, particularly over the next 12 to 18 months.
We have already signed or in the final stages of lease negotiations on about 60% of the core ABR necessary to achieve our 2023 targeted growth. And this is partially reflected in our quarterly metrics, with a 360 basis points spread between our physical occupancy and our sign but not yet commenced rents. And the 360 basis points equates to about $6.7 million of ABR and $8.3 million of NOI, representing about 5% of embedded growth, with over 85% of these leases expected to commence in the second half of the year, with the majority in the fourth quarter, which results in about 15% of the $8.3 million of NOI showing up in 2022 and the balance in 2023.
Now keep in mind that for FFO and GAAP purposes, as we typically start accrual accounting upon tenant possession of the space, we have been recognizing straight line rent on about 60% of our signed but not yet open spaces.
Over the next two years, we are expecting about 15% growth from our street portfolio. And as I mentioned, this is inclusive of the anticipated rollover on North Michigan Avenue. And this two-year growth is being driven by both lease up along with positive mark to markets, with Soho leading the way.
We expect that our NOI and Soho will double over the next two years. And in fact, we feel pretty good about this growth as over 90% of the leases, as well as the fair market value reset renewals have already been executed or in the final stages of completion necessary to achieve this growth.
And we are seeing similar strength across the high growth markets that Ken discussed, which compromise (sic) [comprise], as he mentioned, the majority of our street portfolio with growth in Washington DC of about 40% along with double-digit growth in LA, Armitage Avenue and Rush & Walton in Chicago, along with Greenwich and Westport, Connecticut, as well as our most recent acquisitions in Williamsburg, Dallas and City Point which are further complementing this growth.
Lastly, as we think about our core portfolio and the potential for ongoing inflation, as Ken discussed, we think our street portfolio maybe uniquely benefit – benefit should this persist, with two key advantages.
First are the common area charges that are passed through to our tenants and part of its overall occupancy cost. Common area costs as a percentage of ABR on our streets is about a third of a suburban lease. Thus, in an inflationary environment, operating costs are much less of a factor in our streets, which provides us with an advantage to further drive rents.
Second involves the street lease up structure itself. In addition to the 3% contractual growth, our street leases have a shorter duration along with fair market value resets, where on average we have an opportunity to mark-to-market our leases in under five years as compared to nearly 15 years in our suburban portfolio.
And using today’s rents, we see low double-digit mark-to-markets across many of our streets, whether it’s Green Street in Soho, Armitage Avenue or Rush Street in Chicago or Melrose Place in LA.
Lastly, I want to touch on a few items on our balance sheet. We have ample liquidity with no meaningful core maturities over the next few years. And we are well hedged against rising interest rates with about 90% of our core debt either fixed or fixed with interest rate swap contracts.
And following the refinancing and recapitalization of City Point at a lower all-in borrowing cost, we anticipate that our pro rata variable rate debt exposure, inclusive of both our corporate bond, to be in the 15% to 20% range.
In summary, we had a very strong quarter with a strong outlook. We are well poised for multi-year internal growth. And I will now turn the call over to over to Amy to discuss our funding.
Amy Racanello
Thanks, John. Today, I’ll provide a brief update on our fund platform beginning with Fund V. First, over the past few years, we’ve thoughtfully assembled a 6 million square foot high yield shopping center portfolio. Today, the cost basis is approximately $1 billion and the value is significantly above that.
Remember, when we started acquiring these properties at 8 caps back in 2016 when suburban shopping centers were out of favor. Fast forward six years and we’ve now allocated about 80% of our $520 million of Fund V capital commitments to this strategy. This includes Fund V’s 20th property, which is currently under contract for about $50 million.
We still have approximately $100 million of unallocated equity, which translates into about $300 million of buying power with leverage. And as Ken said, we’ll finish up investing these dollars via Fund V extension or a roll forward into a Fund VI.
At the same time, we’ve now owned several of these Fund V properties for more than three years. And we’re getting closer to the point where portfolio monetization and a recognition of our embedded profits might make sense.
Fund V’s existing 19 property portfolio is located across 15 states, with one-third concentrated in the northeast, another third in the southeast, and about 15% in the southwest. These properties ranked in the top 6% among shopping centers within the respective 10 mile radii based on number of visits, which is consistent with our best game in town and only game in town investment strategies.
Top tenants include the TJX brands, Ross, ShopRite, Ahold and Burlington. This is a portfolio that has been carefully curated. And while we evaluate different alternatives, we’re still clipping a mid-teens leverage return on equity and that feels pretty great.
Turning to dispositions. During the second quarter, we completed the $41 million sale of Lincoln Place, a 270,000 square foot power center in Fairview Heights, Illinois. During Fund IV’s ownership, we re-tenanted about 60,000 square feet of space. This includes replacing HH Gregg and Here Today with Aldi and Total Wine respectively. At exit, the property was 96% leased, and this investment delivered a 14% IRR and a 1.8 multiple on equity with a sub 7% exit cap rate.
Now on to City Point. As John mentioned, this week, we successfully refinanced our City Point debt. More importantly, we more than doubled our ownership which now stands at 62%. This opportunity arose when one of our fund investors sought liquidity in the secondary market for a larger basket of opportunity funds that included our Fund II. We were afforded the opportunity to carve out our Fund II at very attractive pricing.
We offer the same City Point pricing to our other investors. And when certain investors expressed an interest in selling a portion of their ownership, we jumped on the opportunity.
Our increased ownership of City Point is consistent with our long stated goal to own more of this well located asset, which has significant embedded growth that we plan to realize over the next few years.
Remember that this 550,000 square foot property, anchored by Target, Trader Joe’s and Alamo Drafthouse is located at the heart of downtown Brooklyn, which is still in the early stages of a significant development boom. If you go to City Point today, you will still see a fair amount of construction fencing, as our neighbor’s projects wrap up over the next couple of quarters.
Over the past decade, the population within a 10 minute walk of City Point has grown more than 50%. Approximately 18,000 new residential units have already been added since the neighborhood was rezoned with another 5,000 units under construction and another 6,000 units in the development pipeline. These steps include the units in Brooklyn’s tallest tower located immediately adjacent to our property. Construction is also underway on the new 1 acre park across the street from our shop space in phases two and three, with an expected completion next summer.
In the meantime, foot traffic is up 20% since earlier this year, and this was before Primark opens later this year, replacing 70% of the space formerly occupied by Century 21 and nearly 100% of Century 21’s rent.
The current leasing velocity at the property is also the strongest in the project’s history, with a 75% leased rate and a strong pipeline of leasing activity. Beyond that, our existing tenants continue to prove the power and productivity of this irreplaceable property with another small shop recently approaching sales of $2,000 a foot.
So in conclusion, our fund platform remains well positioned with a successful capital allocation strategy and a portfolio of existing investments that continue to march toward stabilization. We’ll now open the call to your questions.
Question-and-Answer Session
Operator
[Operator Instructions]. Our first question comes from the line of Todd Thomas of KeyBanc.
Todd Thomas
A couple of questions on City Point. First, I appreciate some of the detail there and the 6% unlevered IRR that you’re expecting a stabilization. Can you share what the initial NOI yield looks like on the $120 million acquisition?
Kenneth Bernstein
Todd, just to repeat, it’s a 6% unlevered IRR.
John Gottfried
Unlevered yield.
Kenneth Bernstein
Unlevered yield, sorry. Just to correct that, so it’s a 6% on our yield on our initial cost.
John Gottfried
And that should kick in in the next 12 to 24 months, Todd.
Todd Thomas
It sounds like that there could be some additional opportunities to further increase your interest at City Point. Any sense on the potential timing for some of those opportunities to maybe buy additional LP interest?
John Gottfried
Yes, probably within the next 12 to 24 months, Todd, I would say that would come up.
Kenneth Bernstein
Just to give a little color, further color. And Amy did a very good job of explaining. In that finite life fund, there were a couple investors who were fund of funds. And they were very much finite life and one of them went to the secondary market. That’s what set the pricing and then the rest of our finite life investors, some of them held, some of them said we’ll sell a portion. And we’ll see as we achieve stabilization, we want to be fair and transparent to everyone, whether they enable us to increase our liquidity, but our expectation is that would be the case because our investors have been very supportive of this becoming a long term hold asset. And that is more favorable for us to own more, not less.
Todd Thomas
And just a question, I guess, around maybe the value or valuation around that asset. More broadly if we go back to 2015, maybe 2016, I think the total gross value, the full build out for City Point was in the sort of mid $400 million range. And I know you sold our rights, and there were some other transactions, but can you maybe provide some parameters around what you think the stabilized or current market value of that asset is, whether it’s sort of around replacement value or on a per square foot basis, maybe from comps in the market.
Kenneth Bernstein
Again, we don’t think this 6% yield is indicative of where the market is for that kind of a high quality asset, with Trader Joe’s and Target and everything else that Amy discussed in terms of the future growth, well beyond the 6s. So, I wouldn’t look at the current pricing of this secondary as indicative of that. And my sense is, given the population growth, given the sales performance, given everything that’s going on around this part of Downtown Brooklyn, the valuations that we looked at a year or two ago holds, and then some. So, we feel pretty darn bullish about the long term value creation of this asset.
Operator
Our next question comes from the Ki Bin Kim of Truist.
Ki Bin Kim
Just to follow-up on Todd’s question, when you say 6% yield on cost, is that assuming the property is stabilized or at 75% occupancy?
John Gottfried
That’s 6% yield on our incremental investment. So, that’s the $120 million, Ki Bin. And that would be our 6% we expect to get when we achieve near term occupancy, as Ken mentioned, in the next 18 to 24 months,
Kenneth Bernstein
It’s not just the 75%. There’s a bunch of other leases that you’ll be hearing about in the next quarter or two that are embedded into that as well. But even once we get those leases signed, there’s a lot of opportunity for future growth, just given just the vintage of some of the leases, the contractual growth in some of them. So it’s not a one and done getting it to 90% and then it’s fully stabilized. There’s growth over the next one, three, five and beyond years.
Ki Bin Kim
Just to go back to your comments about the H&M lease in Michigan Avenue, can you provide some more color around that? I think the ABR is around $6 million. Please correct me if I’m wrong. You talked about the most likely outcome, what the tenant prospects look like, what the mark-to-market might look like, as well.
Kenneth Bernstein
Ki Bin, I think just repeating what was in my remarks is that our assumption is we get that space back in in the second half of the year has always been part of our forecast in our 5% to 10% growth.
What else I’ll say is that North Michigan, and we’ve said this for a while, is one of our slower markets to recover. So in terms of price discovery, where rents are, it’s a bit early. And we’ll see what H&M ultimately does. We’ve talked about what our assumption is. And I’m not aware that they’ve found an additional location. But we’re assuming that we get that space back, and we’ll keep you posted as we see more transparency and price discovery on the street. It just hasn’t happened. We’ve seen signs of life. There was a big tenant that originally moved in in the street at a nice rent. So we’re seeing tenant interest in it, but not enough that I want to put a more bullish number in my model at this point.
Ki Bin Kim
Last one for me. What does your pro forma leverage [Technical Difficulty] EBITDA ratio look like at the end of the year? Because there’s a few moving pieces, especially with the acquisition of City Point?
Kenneth Bernstein
I think we’re on track to still be in the 6s. So I think as you think about the various levers we have between our fund business, recycling capital, et cetera, we’re still targeting to be in the mid-6s by the end of the year.
Ki Bin Kim
It’s unconsolidated or looked through.
Kenneth Bernstein
On the core, Ki Bin. The core.
Operator
Our next question comes from the line of Craig Mailman of Citi.
Craig Mailman
I want to just go back to City Point with a few follow-ups there. The first one, the decision to delever the asset and move some of that over to the corporate balance sheet, was that a function of the tightening lending market and you guys not being able to get the proceeds? Or was there a different kind of downturn over there?
Kenneth Bernstein
There, the strategy, and I think very consistent with our increased ownership, which we’ve looked at is that we wanted to bring that to core level leverage. Right? So I think that was part of it. And when we had the opportunity to increase our ownership, that’s where he wanted to put appropriate amount of debt at the asset. So I think we were able to get financing there. That was a tricky financing market for sure, as you’ve probably heard from others, but certainly was a financing market. But best execution and part of our long term strategy was to get the leverage at a level that we believe is appropriate, appropriate at the asset level.
Craig Mailman
The $65 million that you gave to your partner to cover their share of the develeraging, what’s the rate on that? And is that interest income kind of embedded in the 6% return on your new equity stake? Or is that…?
Kenneth Bernstein
I think we don’t give specific rates on any individual loans, but want to put enough out there. It was determined by a third party as the first part. So, it was third party, and it’s in the low double digits and is absolutely not part of the 6%.
Craig Mailman
One last follow-up here. As you kind of look at your new blended basis, which we estimated in the kind of $430 million range on the full 62%, what the long term IRR that you guys are expecting now with the anticipated lease up on that kind of fully loaded number?
Kenneth Bernstein
I want to be very careful that there’s a few ways we think about IRR. One is on a levered basis in our funds business using more traditional fund leverage. And there, this investment should provide high teens, low 20s, if you looked at it on that apples to apples basis, which is how we discussed it with our investors, whether they were exiting, staying in or increasing their investment.
Then, as you are delevering the asset and having it for a longer term hold, it’s more about the annual growth rate and less about trying to figure out the terminal exit cap rate, but also, again, should be – the very recent investment especially should be a very attractive IRR relative to other investments we see in the marketplace.
John, I don’t know if you had anything.
John Gottfried
That’s about right. And I think if we go in at blended, without blending it, we do this at a 6, and I’m optimistic, Craig, we get above 4% growth. You could do the math on that, that we’re hopefully in the 8% to 10% unlevered pretty conservatively.
Craig Mailman
One last quick one. Is there any additional promote opportunity in the fund that could lower the basis further? Or does that promote opportunity [indiscernible]?
Kenneth Bernstein
The Albertsons piece is separate and we talked about that and the potential monetization of that, but they’re not intertwined. And we’ve given our forecasts around Albertsons.
Operator
Our next question comes from the line of Craig Schmidt of Bank of America.
Craig Schmidt
I was just wondering, do you have an opening date for Primark at City Point?
Kenneth Bernstein
Amy?
Amy Racanello
Yeah, they are on track for their opening. It should be second half of this year. We haven’t provided a specific date. But the good news is that – all signs are that they’re on track to open when they said they would.
Kenneth Bernstein
Just a little color on that, tenants like to control those announcements more so…
Craig Schmidt
They’ll be there for holiday?
Kenneth Bernstein
Yes, full speed ahead. And we’re excited to see that addition.
Craig Schmidt
And is your expectation Primark will be a better draw than Century 21 or comparable?
Kenneth Bernstein
Yeah, we think it will. And it’s not like we had a choice on Century 21’s exit. They went Chapter 7. They were a good local retailer. But Primark is very excited about this location. And I think it’s just, first of all, imagine right now, if you were there, across the street, the tallest residential tower in Brooklyn is finishing up, but it’s still under construction. The Primark location is under construction, the park across the street is under construction and finishing up. And now think about when all three of those open up. Primark will be a critical anchor, but so will the new residential tower, so will the park. So, Craig, I think it’s a consequence of all those things. And I don’t have to pick which of our tenants’ past or future is going to be better. I think they’ll all be additive.
Craig Schmidt
It sounds like your signed, but not open will drive the occupancy. So are we expecting a higher occupancy number than the 90.5 by the end of the year?
John Gottfried
Just to be clear, we’re also City Point.
Kenneth Bernstein
Right. Yeah, exactly. So you’re talking to core now. Not City Point, right?
Craig Schmidt
Yes, just the core. Sorry.
Kenneth Bernstein
I should put the caveat for the new listeners that I think while occupancy is an important metric, for us, it’s very imperfect, given just the wide range of rents within our portfolio. And I think it was masked this quarter where we saw occupancy remained flat. But when we brought online, it was at a higher rent, so it offset that. I want to put that out that, for us, occupancy in and of itself is a very imperfect metric. And to answer your question, Craig, the 360 basis points of growth and the $8.3 million of NOI that we have rolling into next year will certainly increase our occupancy as that that translates into physical occupancy. So that will offset and we do expect increase occupancy as we work through the year.
Operator
Our next question comes from the line Linda Tsai of Jefferies.
Linda Tsai
Just on City Point again. In terms of the 6% pricing, acquiring your partner’s interest, not being really reflective of the real estate value in terms of getting a bargain, is the fund structured in any kind of special manner that would allow you to get this favorable pricing?
Kenneth Bernstein
Let me be very clear. This requires the cooperation of our investors, which we’re very appreciative of, the recognition over the years. We don’t do this often. Right? Over the years, we buy, fix and sell. But this was a unique asset. And those who want to stay in long term, we’ve encouraged them, and hopefully they will. So that’s why I have no promise that we’re going to acquire more. But within the fund, there was one investor group during the global financial crisis that acquired interest from an endowment. So, it was a finite life fund, very cooperative, very supportive. And they were liquidating or going to the secondary market on all of their investments, separate of Acadia having nothing to do with that. And that afforded an opportunity at an attractive price and that’s how we got to where we are today. But there is no – we’re fiduciaries. We don’t look to buy out our investors opportunistically as a matter of right. This was as a matter of cooperation.
Operator
Our next question comes from the line of Michael Mueller of J.P. Morgan.
Michael Mueller
I’m curious. For City Point, for the remaining 25% of leasing that you need to do to stabilize the asset, how would you categorize what portion of that is still pretty speculative at this point versus you have a pretty good idea of who’s going in there even though it’s not far enough along to consider it leased?
Kenneth Bernstein
In vertical retail, it is best to lease from the top down and that we are successfully doing, meaning you may recall, when we got back Century 21, we were able to re-tenant about 70% of the space with Primark. It left us some fourth floor space. And stay tuned. But I think you’re going to see some good news there. And as we pointed out, we are making money on the rent that we are collecting, the re-tenanting of all that will be very profitable for us.
So that’s where I think you’ll see the next big step, then the retail facing the park, the future park, is kind of a next big step. We certainly didn’t want to lease it when it was just a construction zone. But now that that’s nearing completion, tenants are beginning to step up at real rents. That’s the next step.
The final big piece of this will be the lease up and stabilization of the most valuable spaces, which is Prince Street. And, Amy, you want to guess 12, 24 months. That’s where most of that happens.
Amy Racanello
That sounds right.
Kenneth Bernstein
And then there will be raw, Michael, as we continue to see growth that will be rental – contractual rental growth plus the opportunity to mark-to-market some of the leases that we did either during COVID or earlier.
Operator
We have a follow-up question from Ki Bin Kim of Truist.
Ki Bin Kim
Just a couple quick follow-ups. On the signed, but not open pipeline, did I hear you correctly that 60% of that is currently being accrued in the run rate in the income statement?
John Gottfried
Exactly. So there’s – that we have been recording straight line rent on that. That’s right.
Ki Bin Kim
And just to go back to your comments about the 5% to 10% multi-year growth trajectory for your company, I’m curious if 2023 – if the growth in 2023 would also mean that 5% to 10%? Should we expect some type of like J curve into that growth rate because perhaps some of the vacancies in H&M or whatever other leases?
John Gottfried
Yeah. Again, I don’t want to give our 2023 same store today, Ki Bin. But I think we have targets. Our leasing team is at, if not exceeding them. And we have 60% of the leases signed today that we need to do to get to above this year’s same store growth. So again, we’ve made great progress early in the year. But I think our model right now would suggest 2023 is better than 2022.
Kenneth Bernstein
And just to add some additional color on top of that, just so that none of this is lost in translation. Between occupancy versus NOI, not only are we stacking up better for 2023 than this year, but we’re doing it with less square footage, meaning the rents are coming in higher than John and I forecasted or then our leasing team forecasted 6, 12 months ago. So, we will occupancy gains. And as John pointed out, it’s a very imprecise blunt instrument for us because obviously Soho NOI on small square footage is substantially different than a TJ Maxx. They have a great end of summer, but the rents per foot are coming in higher and better than we forecasted a year ago.
Operator
And at this time, I’d like to turn the call back over to CEO, Ken Bernstein, for closing remarks. Sir?
Kenneth Bernstein
Great. Thank you all for joining us this summer. We will see you in very short order post Labor Day, but until then, everybody have a great end of summer.
Operator
This concludes today’s conference call. Thank you for participating. You may now disconnect.
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