Acadia Realty Trust (AKR) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Acadia Realty Trust First Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Sam Payette. Please begin.

Good afternoon, and thank you for joining us for the First Quarter 2018 Acadia Realty Trust Earnings Conference Call. My name is Sam Payette, and I'm an analyst in our acquisitions department.

Before we begin, please be aware that the 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, May 2, 2018, 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.

Now it is my pleasure to turn the call over to Ken Bernstein, President and Chief Executive Officer, who will begin today's management remarks.

Thank you, Sam. Great job. Good afternoon. While there's certainly plenty to talk about with respect to the capital markets and the transactional environment, as it relates to retail real estate, including here at Acadia, understandably, all eyes are focused on leasing trends and on operating fundamentals. So today, I'll focus the majority of my comments on the progress we're making with respect to important leasing in our core portfolio as well as relevant trends in retailer demand. Then John will drill further into operating metrics and balance sheet strength, and finally, Amy will discuss the progress we're making in our Fund platform.

Beginning first with our core portfolio leasing. As the year progresses, while challenges certainly remain in retailing, we're seeing continued improvement in tenant demand, and this has been translating through to increased leasing activity. As we discussed on our previous call, we have about 200 basis points of core occupancy that we got back over the past year that we're in the process of re-leasing.

As John will discuss in further detail, upon rent commencement, this lease-up is projected to contribute approximately $8 million of annualized net operating income, or NOI. Thankfully, our re-leasing is not just replacing lost occupancy or replacing lost NOI, but even in this volatile environment, we're adding incremental NOI such that this $8 million will be higher than prior comparable NOI.

On our last call, we said of this $8 million, roughly 1/3 was leased, another 1/3 was in lease negotiations and the final 1/3 was being marketed for lease. As of today and based on the same $8 million of annualized NOI, 60% is leased, 20% is in lease negotiations and then the balance is still on our to-do list.

Thus, as we look at our lease-up progress today, we have even more conviction that our projection of $8 million of NOI is on target. Of the 60% that is leased, that equates to just under $5 million of NOI, $2.5 million to $3 million is slated to show up in our 2018 NOI and then the balance in 2019. And while the progress is fairly broad, 75% of the leasing to date is coming from our urban and from our street locations.

This leasing momentum seems to be following on a few key themes: First is the emergence of new retailing leadership. And while there are many great retailers who have been around for decades and continue to thrive and continue to open new stores, there's no doubt that other legacy retailers are facing significant challenges. And that's why it's critical that we understand how all retailers are thinking about their future space needs.

An important piece of this is understanding how new retailers are thinking about bricks-and-mortar as part of their growth strategy. And on that front, we're seeing a group of new exciting retailers emerging with a vengeance, recognizing the critical role bricks-and-mortar real estate plays in their success. Some of them are simply high-quality brands ready for their own locations where they can connect directly with their customer.

For example, in March, Gabriela Hearst, an award-winning luxury womenswear and accessory brand, leased 2 of our 3 available spaces at the Carlyle House on Madison Avenue here in New York. She will be joining existing tenant Vera Wang, who renovated her own flagship store there. And with this lease complete, on Madison Avenue, as it relates to our core portfolio, we now have only one small space left to lease. There's no question that rents and occupancies on Madison Avenue have been quite a rollercoaster ride over the past few years. But thankfully, by being disciplined in our acquisitions and realistic in our assumptions, we've not been overexposed to this volatility.

The second component of new emerging leadership is what we call screens to stores. Many exciting retail concepts are starting online. Some of these digitally native retailers, they're going remain online only. But the best of them understand the value, understand the necessity of opening stores as a pathway to profitability and a pathway to long-term success. And we're seeing them thoughtfully clustering in the right locations and that has certainly benefited our portfolio.

For example, on Armitage Avenue in Lincoln Park, Chicago, our leases with early movers in this trend, Warby Parker and Bonobos, have now led to new leases for us this year with Serena & Lily, who will be opening shortly, and even more recently, the Outdoor Voices, a popular athleisure brand. We recognize that this screens-to-stores trend will speak to only a small fraction of the square footage in the United States, but for a differentiated portfolio like ours, it's certainly having a positive impact.

Along with Chicago, we're seeing this trend play out on M Street in Georgetown, where last month, we executed a lease with Reformation, an up-and-coming sustainable clothing brand. But to be clear, our leasing momentum is not limited to startups. Established retailers are also gearing up to go back on offense or simply continue their decades of success. And as such, they're also reaffirming their focus on and their commitment to the best urban and the best street retail locations.

Last year, we saw that with our leases with T.J. Maxx and with lululemon in Chicago. And now more recently, it includes Ross Dress for Less, who is opening shortly in one of our urban shopping centers in D.C., and then Bluemercury, who recently executed a lease on Greenwich Avenue in Connecticut. And now with that lease done, our Greenwich Avenue properties are fully leased. Then on M Street in Georgetown last month, we executed a lease with Roots, which is a Canadian lifestyle brand that is reentering the United States.

So Gabriella Hearst, Serena & Lily, Outdoor Voices, Reformation, Roots, Bluemercury, Ross Dress for Less, they're all contributing to the 60% leased rate that I discussed earlier. And while achieving our 2018 leasing goals are critical, looking ahead to 2019 and beyond, we expect strong growth for several more years, driven by a combination of the lease-up I just discussed, solid contractual growth and then the 2 key redevelopments in our core portfolio: City Center in San Francisco and Clark and Diversey in Lincoln Park, Chicago, both of which we have discussed on prior calls and are well underway. In fact, we expect these 3 drivers of growth to enable us to grow our incremental core NOI by over $20 million between now and 2022.

We understand without question the retailing and retail real estate industries are going through a significant and, in many instances, a disruptive evolution. But it is becoming clearer every day that bricks-and-mortar real estate will remain a critical part of the retailing equation. And while it's easy to lump everything together, we continue to see further evidence of the separation between the haves and have-nots, both as it relates to retailers and the locations that they're choosing to occupy. In many instances, retailers are choosing fewer but more powerful locations. As always, rent matters but location matters more.

So in short, as it relates to our core portfolio, while no real estate will be immune to these changes, our retailers continue to tell us, through both their words and their actions, that the kinds of bricks-and-mortar real estate we own, especially in critical locations, will be key to their long-term growth strategies.

Turning now to our balance sheet. While I'll let John get into the specific metrics, balance sheet strength matters and we're well positioned on that front. Our leasing and redevelopment capital needs are minimal. Our $20 million of incremental NOI growth over the next 5 years from projected lease-up redevelopment contractual growth is projected to cost us less than $80 million. And our stock buyback program last quarter was funded primarily by recycling capital from our structured loans and fund sales.

Then in terms of our Fund platform, as Amy will discuss, along with having a solid balance sheet, we have plenty of dry powder on our Fund platform. And while the public markets were quick to correct and, I would argue, have overcorrected to shifts in retail real estate values, the private markets are moving more cautiously, especially for high-quality assets where private demand remains relatively strong.

As it relates to capital deployment, we've been patient and disciplined, and we believe our stakeholders will be rewarded for that. We don't yet see much distress in the selling markets for high-quality street and urban assets. If we do, we're going to jump on it. We are seeing some continued opportunity in our contrarian purchase of secondary market retail at higher yields. But there, we're having to be fairly selective.

So if the public markets are correct in their forecast of significant disruption in values, our dry powder and our buying power will be a good source of future value creation. And even if the public markets have overreacted and the private markets continue as priced today, the flexibility of our Fund mandate and our multi-decade history of profitable investing makes it likely that we'll find profitable places to allocate this capital.

In short, while this year is clearly another year of volatility, we're well positioned. Looking ahead, we remain focused on realizing the significant embedded value within our core portfolio. We'll maintain our balance sheet strength, and we'll use our Fund platform to opportunistically create incremental value.

And with that, I'd like to thank our team for their hard work last quarter, and I'll turn the call over to John.

Thank you, Ken, and good afternoon. I'm going to start off by drilling into a few additional details on the lease-up that Ken discussed.

So to reiterate, this 200 basis points of occupancy is anticipated to generate $8 million of NOI on a run rate basis, of which $5 million of the $8 million has already been executed. Further, of the $5 million that has been executed, $2.5 million to $3 million is expected to show up in 2018 with the balance in 2019.

So now moving on to how we see this lease-up impacting our 2018 quarterly same-store NOI. Starting with the first half. We are reaffirming our expectation of negative 2% to 0%. As we have previously guided, the first 2 quarters continue to reflect the impact of the 2017 occupancy recapture and that -- and as I will discuss in a moment, rent commencement on our recent lease-up won't kick in until later in the year. So in terms of the second half of the year, we continue to see growth of 2% to 7%.

Now getting even more specific on quarterly timing, our current model has Q3 in the 2% to 3% range, with the fourth quarter trending towards the mid- to upper end of the range. Now keep in mind that the width of this range and where we ultimately land is driven almost exclusively by the timing of rent commencement on these new leases.

So now I want to spend a moment on the value creation from this lease up. Upon execution of the $8 million of run rate NOI, we see an incremental $1.5 million of NOI above what we are previously collecting on this space. I also want to highlight that a fair amount of this space that we have and anticipate leasing will be classified as nonconforming for purposes of reporting lease spreads, as we are either combining or splitting spaces. So consistent with our policy, we will only report lease spreads on same-size space. Therefore, our reported spreads won't reflect the full impact of the $1.5 million of incremental NOI growth that I just walked through.

So in terms of the first quarter, our reported cash spreads on new and renewed leases were in excess of 15%. Had we included nonconforming spaces, cash spreads on our executed street and urban leases were in excess of 50%.

Now I'm going to hit a few of our first quarter metrics. Our same-store NOI came in as projected. As I had mentioned, this was driven by the 2017 occupancy recapture and the back-end timing of our CDs on the executed leases. Our physical occupancy ended the quarter at 94.4% and at a leased rate of 95.3%, both of which are in line with our projections.

Now in terms of earnings, FFO was in line with our expectations at $0.33 a share. As we had guided, our first quarter reflected a profitable but earnings dilutive impact of capital recycling from our structured loan book. We continue to reaffirm our FFO guidance of $1.33 to $1.45 per share for the full year 2018, along with our continued expectation of transactional income projected towards the back half of the year.

I would now like to highlight a few items on our balance sheet. We maintain our core leverage at roughly 25% of gross asset value with over 70% of our NOI unencumbered. Our balance sheet provides us with a tremendous flexibility, with numerous avenues to access liquidity in both the secured and unsecured markets. During the first quarter, we completed the refinancing of our unsecured corporate facility, resulting in extension of maturities through 2023, reduced borrowing costs and an increase in our bank group.

Following the refinancing, over 90% of our core debt is fixed at an interest rate of approximately 3.6%, with no debt maturing for the next several years. Additionally, during the first quarter, we purchased approximately $32 million of our stock on a leverage-neutral basis. Given the flexibility of our balance sheet and the ability to efficiently recycle capital in our dual-platform business, we have and will continue to repurchase our shares as market conditions permit.

In fact, we have acquired another $20 million or so over the past few weeks. The roughly $50 million of share buybacks that we have done to date were acquired at an average cost of approximately $24 a share.

So as we think about our capital needs over the next several years, I want to walk through our expected investment to fund the $20 million of NOI growth that Ken and I have been discussing. We estimate that this growth will cost us in the $75 million to $80 million range, with approximately $50 million of this amount being spent on our 2 primary redevelopments: City Center in San Francisco and Clark and Diversey in Chicago, with the remaining balance funding recurring tenant and other capital costs that we expect to incur as we operate and lease our portfolio.

As we have discussed today, the key drivers of this growth, consisting of lease-up, redevelopment and contractual increases, are falling in place at an estimated cost that is in line with our expectations. So in closing, we went into the year knowing the importance of hitting our leasing goals on both lease execution and at rents consistent with our expectations. We are on track for both of these objectives.

With that, I will turn the call over to Amy to discuss our Fund business.

Thank you, John. Today, I'll review the steady and important progress that we continue to make on our Fund platform's buy-fix-sell mandate.

Beginning with acquisitions. As discussed on several calls, our funds have been pursuing a barbell strategy, acquiring both high-quality value-add properties and high-yield or other opportunistic investments. Our 2018 fund acquisition guidance is $200 million to $700 million. As previously discussed in the first quarter, Fund V acquired another high-yield property for $45 million. In general for these types of assets, acquisition cap rates are still between 7.5% to 8.5%.

We recognize and appreciate the inherent risks of these higher-yielding shopping centers, but at today's pricing and by remaining selective, we are generally able to buy these assets at a discount to replacement cost and, in some instances, at a price per foot that would indicate that we are getting the land for free. As we contemplate further construction cost increases, we feel good about this cushion, which creates barriers to entry.

To date, we have allocated approximately 20% of Fund V's capital commitments. This leaves us with $1.2 billion of dry powder available to deploy through the summer of 2021. This is a slower pace than we originally anticipated, but with the private markets still in transition, we feel like the best buying opportunities for our fund platform could still be in front of us, especially considering the disruption we are seeing in the retailing and REIT industries. So we are remaining disciplined.

At the same time as we evaluate potential value-add opportunities, we are carefully listening to our retailers to learn what their future needs might be and thoughtfully watching, particularly as certain retailers liquidate their owned real estate. Historically, we've been very active and successful on the value-add side of the barbell, and we expect Fund V will pursue these types of investments too.

As previously discussed, one of the many benefits of the Fund business is our ability to pursue a broad range of profitable investment activities. We can be contrarian as we are with our high-yield strategy. We can pursue highly profitable but nonconforming transactions, such as Mervyn's and Albertson's. And we can complete ground-up developments or use these important skills to re-lease and redevelop urban, street retail and suburban properties.

Since the beginning of the year, we have seen material improvement and retailer interest in higher-quality real estate. For example, Fund III recently executed a lease at Patagonia for an M Street property in Georgetown. Fund III also executed a lease with HomeSense, a TJX home furnishing brand, at Cortland Crossing in Westchester County, New York. That brand is still in the early stages of its U.S. rollout. The overall theme is that location still rules.

Moreover, in certain under-retailed urban markets, like downtown Brooklyn, retailers are proving that they can really hit it out of the park such as at our City Point project, where our retailers are already delivering strong sales per square foot less than a year into their operations.

Turning now to dispositions. Last year, we were net sellers. As previously discussed, in the first quarter, we completed another $8 million sale in Fund IV's Broughton Street portfolio. Then in April, we sold our penultimate real estate asset in Fund II for $26 million.

Looking ahead, we will continue to selectively sell our stabilized properties where we have achieved our target returns and liquidate at fair pricing properties in our older vintage funds. Over the past 3 years, we've sold $900 million of assets, so our 2018 disposition pipeline is manageable, and we continue to be encouraged by interest for our types of assets.

So in conclusion, we had another productive quarter in our Fund platform. We continued to execute on our barbell investment strategy, create value within our existing Fund portfolio and sell our stabilized assets.

Now we are happy to answer your questions.

(Operator Instructions) The first question is from Christy McElroy of Citi.

Just to follow up on the second half trajectory and the $2.5 million to $3 million of NOI commencing, that's obviously an annualized number. So maybe you can give us a better sense for sort of your expectations for commencement timing. How much NOI will actually -- do you actually expect to flow through in 2018? And what are your expectations for move-outs that could potentially offset the new lease commencement? So we talked a lot about the new NOI coming online, but then there's the move-out side of it.

Christy, so the $5 million that was what was executed, so we executed annualized $5 million. Of that $5 million, roughly half or $2.5 million to $3 million is showing up in 2018. So that is the 2018 impact of the $2.5 million to $3 million. Does that answer your question?

Oh yes, I got it. Okay.

Yes. So that is what's showing up. And in terms of move-outs, we have a handful of them, but nothing significant to the balance of the year, and that's been factored into our expectations.

So are there hard move-in dates written into the lease agreements in terms of rent commencement?

No, I mean, a lot of them are dependent upon getting permits and getting worked on and what we have, a good estimate when we think we can turn it over and start collecting rents. It is somewhat out of our control as to when we get various permits to allow our tenants to move in.

And then just how should we think about the CapEx spend associated with these higher-rent street retail deals, whether it's TIs and landlord work? You talked about them being non-comp from a spread perspective. So obviously, there's a lot of split-up work going on here as you get that space ready for commencement? And what impact might that have on your free cash flow after dividend, as we think about 2018, 2019?

Yes, absolutely. So I think in terms of total dollars, Christy, I think these are very traditional leases in terms of term and cost. On the suburban piece of it, I think as we mentioned, about 75% of what we've signed is on the street and urban, and the balance being suburban. So starting with the suburban piece, that is in the ballpark of $30 a foot, which is what we have seen historically. Street and urban, obviously, are much higher. ABR probably closer to the $65, $70 range on a blend. We're going to spend a bit more, probably pretty close to that in terms on a per-square-foot basis, given the higher rents. So I would say all in, my expectation is we're going to be around $7 million as we fully lease up this $8 million of NOI. And that is in the -- that number that I gave to generate the $20 million of incremental NOI is the spend that we take to get there. So overall, it's well in line with what we've seen historically.

And just to -- it's Ken, Christy. Just to clarify, the street and urban cost to get a tenant open as a ratio of rent is, in fact, lower than we experience on the suburban side because obviously, the rents are multiples. And the TI cost increase, it may be twice in some cases, but it's certainly not the same type of multiples.

The next question is from Todd Thomas of KeyBanc Capital Markets.

Just first question. Ken, in the release last night, you noted that you're being selective in the funds and expect the disruption in the industry to translate into actionable opportunities. And I was just wondering if you can expand on that a little bit. I know you've participated in RCP deals in the past. I didn't know if you're alluding to something along those lines or something else. Maybe you could just describe a little bit more about what you're anticipating to happen here.

Sure. So in the retail real estate world overall, there's plenty of disruption. Any of us in the public market certainly see it in stock prices. But then on the retailer side, there's certainly plenty there. Toys "R" Us, for instance, being owner of 300 of their locations, would be consistent with past deals we've done, such as our participation in Mervyn's and Albertson's. The critical piece there is obviously picking the right assets, making sure that the demand for those assets is there in terms of new retailers. And thankfully, we're starting to see that. As I've mentioned, 2018, from a retailer interest perspective, feels better than 2017. So one level of disruption could be retailers going out of business where they own a bunch of real estate, and we can acquire that real estate, re-tenant it, redevelop it, which is certainly within our wheelhouse of core competencies. Then there's the disruption in the capital markets. There's still plenty of cash out there for real estate, but we're seeing, I would argue, too many institutional investors on the sidelines as it relates to retail real estate. And so there are buying opportunities for that period of time that retail real estate remains in disfavor. And you're seeing, Amy touched on that. We're having to be selective, but there's decent to good deal flow on that side, and we'll see where that brings us. There are the potential for portfolio transactions. We're capitalized for that. And then there's the reality that they may be one-off transactions and we're certainly positioned where we can take advantage of those.

Okay, that's helpful. So far in Fund V, you've focused and allocated capital mostly toward some of the high-yielding deals. As you kind of think about that opportunity set that you just discussed, how should we think about what's either likely to materialize or how you're thinking about allocating the remaining capital for Fund V going forward.

Yes, I'd be surprised that we don't go back to our roots of value-add and redevelopments of some form or another. But we do need to be cognizant of -- we need tenant demand, whether it's retailer or others in our mixed use, you need to see the occupants there in order to make -- have that make sense, and that's just beginning. We don't want to wait too long because then we'll miss opportunities. And then the other side of it is, for the great locations, we have not seen sellers respond to the disruption that we're certainly seeing in REIT world. So you also need sellers ready to transact. It does feel like we're getting closer to that. But as I compare notes with fellow CEOs, other investors and just in general, everyone's amazed at the lack of capitulation in terms of some of the good-to-great locations where I would expect, over the next couple of years, for you to see us participate, but we need both of those stars to align.

Okay, got it. And then just a question for John, maybe. I just wanted to back up a bit. I realize you're focused on the $8 million of NOI here. But previously, there were 3 buckets that were expected to generate the $20 million that you're talking about here over the next few years. It was $5 million from re-tenanting, $5 million from redevelopment and $10 million from contractual rent increases. How should we think about the $8 million of NOI in the context of that $20 million NOI bridge that you've previously discussed? Well, I guess said another way, if the $8 million is for re-tenanting, I guess, can you break out the remaining $12 million of growth and help us kind of understand some of the moving pieces a bit better, I suppose?

Yes, absolutely. So if you think of the $20 million, start with 2018 NOI. So presume this year, we end at $133 million worth of core NOI, which as I mentioned on the call, $3 million of that $8 million shows up in 2018, right? So if we think of $20 million growing off the $133 million, which gets you to $153 million. An incremental $5 million shows up in 2019. So I think that's -- of that, $318 million and then $5 million counts towards of the $20 million. So think of 1/4 of it is going to be related, of the $20 million is going to show up related to the lease up. Redevelopments time, we think that's going to be in the $6 million to $7 million range in terms of redevelopment. And then the balance, $9 million or $10 million, which I guess is the roughly 2% contractual growth that portfolio produces, gets us to the balance of slightly over $20 million. So it's growing off of '18.

And, Todd, from my perspective, as long as the costs come in more or less as we predict -- project, and the $20 million shows up, exactly how we characterize it may shift based on changes in opportunities. Embedded into this portfolio, just to be clear, are other redevelopment opportunities down the road. If they show up and they become full-blown redevelopments -- we've talked about one of our suburban properties in Westchester, for instance -- if that shows up, it will shift the overall context. Hopefully, it increases the NOI. Hopefully, the costs are not so great but do expect this to move a little bit. But I do appreciate you wanting to see the clarity of show us the $20 million. And I think John has done a good job of outlining, at least in the first stages for 2018, '19, where it's going to be. Then watch City Center, watch Clark and Diversey, because those are the key drivers right now on the redevelopment front.

The next question is from Craig Schmidt of Bank of America.

I was wondering about the, some of the new retailers, particularly some of the screen-to-store concepts. Are they paying full rent relative to what you think their space is worth? Or do they feel they haven't leveraged, given they fit in that new and growing category? And how do they view the entire spectrum of returns happening in those stores and how that affects the overall sales?

So let's start with rent. These are generally traditional leases. If any of those retailers are listening, let me be crystal clear, you are not paying us enough rent. That being said, they are paying market rent and they're smart enough to figure that out. So these are not percentage rent deals. In the vast majority, these are traditional leases, where retailers are now, these new up-and-coming brands are recognizing the importance and the power of having a store. Early movers, and we talked about Warby Parker, they were able to look at their data, understand their sales, understand the benefits of a store, vis-à-vis the cost per acquisition of a customer online, understand the benefits of retaining that customer, converting that customer, upselling, brand loyalty, all those things, and they could measure how important, how profitable a location could be for them. As best I understand, when I'm talking to these retailers and in conversations and many of you have been to conferences where you've heard them speak, these stores are very powerful, very profitable. They could afford to pay us a lot more in rent. But these are smart business people, and they would say, "If the market rent is $60 a foot, we'll pay $60 a foot." That being said, where we are seeing a real benefit in Lincoln Park, for instance, Craig, which you're familiar with, as one of them shows up and then another and then we see 3 or 4 others and that clustering occurs, there then, I think there is a real benefit to all of them, and we'll start to see that improve our rent that we're getting, plus the growth going forward.

And generally, we've seen better sales coming from the first quarter earnings. Are you seeing better sales in your urban and high street environment? And is your expectation that the remainder of the year will remain strong?

We don't get the same quarterly sales per location in our suburban or urban street that you would see, let's say, in an enclosed mall. So I'm really not in a position to, other than anecdotally say that. in general, our retailers in 2018, from what they're seeing so far, feel pretty darn good.

The next question is from Michael Mueller of JPMorgan.

I guess, first, I have a housekeeping question. In the supp, on Page 18, the guidance page, there's nothing on there other than just the FFO amount. Is that something new that you're doing or a glitch or -- and did any of the numbers change?

Yes. So, Mike, I think what we just did was reiterate that we kept the range of $1.33 to $1.45. No updates from when we did it last time, so there's no -- nothing that changed. We just made that very simple.

Got it, okay. And then, I guess in terms of buybacks, I'm curious at how you're thinking about what's the right level of buyback activity that you can accommodate in a year or a quarter. Just how do you arrive at that number?

There are a host of limitations on a normal buyback separate from -- decades ago, we did a Dutch auction and bought back 1/3 of our flow. But putting aside any of that, there are general limitations such that we're only able to get a certain amount of the volume. I think what you've seen in terms of what we reported to date is kind of consistent with that. We have authorization for a $200 million buyback. To date, we've done...

Just over $50 million.

$50 million. That's kind of the pace other than I recognize its implications to our float. I recognize the implications, pros and cons, of buybacks in general. But when we see a disconnect like this, we felt that was important to do.

The next question is from Vince Tibone of Green Street Advisors.

You touched on this a bit in your prepared remarks, but can you provide a little bit more color on what you're seeing in terms of cap rate, buyer pools, financing for the higher-yielding fund assets? And do you think higher debt costs have had any direct impact on pricing as of yet?

So let's start with debt cost. I would think it would because the buyer pool sin general for this are levered buyers. In our case, we use 2:1 leverage, so it has some impact on how we think about it. The debt markets have been fairly available, with the CMBS markets re-entering in many instances. We're not using that, but they're there providing competitive capital. So the proceeds are available, cost of debt's a bit higher and I think that probably translates through in terms of pricing. Cap rates, as Amy mentioned, are in the 7.5% to 8.5% range in general, depending on the growth, depending on the stability, depending on the quality of the asset. We still are not seeing any significant reentry by the kind of opportunity funds or other institutions that we'd expect to see playing in these kind of opportunities. I can't predict when they do. Anecdotally, I'm seeing a few folks showing up at bidding, but it's not meaningful. What we're also obviously not seeing are the public markets, the REITs, participating in acquiring this. They are net sellers of these assets. And we're not seeing the nontraded REITs, which have historically been an important source of bidding and a great place to sell assets into. So there is still a mismatch of equity versus opportunities. And we're seeing enough assets trade that we feel comfortable that there's at least a market here. So if you're trying to sell assets, I do think it's a good time to sell, please call us. And from a buying perspective, we're seeing just enough, and we'll continue to be selective unless there's some significant changes.

Well, that's very helpful color. Just switching gears a bit. Can you provide an update on the current leasing environment in SoHo? Have market rents found a clearing price yet? Or is there still a wide bid-ask spread between landlords versus the ones who maybe purchased a few years ago and retailers?

It's a fascinating market. I wouldn't limit it to just SoHo. We're seeing -- and New York City was, by far, the most volatile, had the highest level of growth where rents doubled in the course of 4 or 5 years, which at the time we were saying, "Rents are growing too fast," and then they have fallen. For some landlords, they are so unrealistic that the bid-ask spread will remain wide for a very long period of time. We are starting to see a few good signs. There's -- other landlords are being realistic. Some retailers are subletting and they're certainly being realistic because they have recognized that, that story's not consistent with their growth, so we're seeing some retailers show up. The most important thing, I'd say, comparing 2018 to 2017 is we're seeing real retailers showing up, recognizing that rents are cheap relative to a few years ago and, importantly, recognizing these are rents that, based on our rent to sales basis, based on what it does for the brand, based on all the other metrics we're thinking about, they're now saying it's time to show up. So I would expect to see in SoHo what we've seen in Madison Avenue, which is real retailers saying, "We're ready to play -- pay rent. We're ready to show up. And we're ready to be here for the long run, put the money into our stores, put the money into our sales staff, put the money into our products." And that's what I would predict for the right locations in SoHo, including ours.

The next question will come from Floris van Dijkum of Boenning.

Ken, I just wanted to follow up on a comment you made earlier about your view on the private market and why you're very slow in buying and you think that the private market needs to correct. Yet at the same time, you think the public markets are mispricing REIT shares and particularly your shares, so you're buying back the stock. Do you think that the consensus NAV for you is too high and could go lower? Or do you think that the -- or do you think, conversely, that -- how much more -- where will be public markets and private markets intersect in your view, and when do you think that timing occurs?

So let's start with the first piece of this, which is, it is very possible to hold these 2 thoughts at the same time and be correct, which is that the public markets have overreacted. They were directionally correct in predicting either the impact of interest rates or the impact of some of the retailer issues. So they were correct directionally but overreacted. At the same time, the private markets have been slow to adjust downward. And there will be, to your question, some point of intersection. I can't tell you exactly when. It will be different for different sellers. It will be different for different buyers because we still see capital, sovereign capital institutions coming in, willing to have different returns than I would think my shareholders or our investors deserve. So it won't be a one-size-fits-all answer. That being said, for the highest-quality assets, I have been surprised at the lack of motivation of sellers. Some of that is because compared to other corrections that we've gone through, we're not seeing traditional first mortgage lenders having been too far over their skis. So you're not seeing a foreclosure-driven disposition process. What we are seeing are public companies shedding assets on the high-yielding side and sellers on the private side selectively deciding that it's time to test the market. If I were to predict, I'd say we are getting much closer to that convergence point, defined as not REITs being able to buy. I don't want to get into consensus NAV. REITs could be at a discount to NAV and will until they're not. But we are seeing on the private side, now that there's better clarity as to where net operating income could stabilize and where growth could occur, sellers are saying, "Fine, I don't have to debate where rents are. Now, I just have to debate where cap rates are." And we're starting to see that dialogue bear fruit. So if I were to predict, I'd say over the next 12 months, you will see transaction activity kick in, in ways that, in my prepared remarks I said, we have not yet seen.

Great. And maybe a follow-up question, which I guess, is related. But clearly, there's been a lot of disruption and some could argue that much of that disruption has clearly impacted REIT shares. But have higher rates -- I mean, we're talking about a 10-year at 3% or right around that level. But if rates, because of stronger economic growth, were to go up even more, what do you think that does to values?

I don't know. What I would tell you is in your construct, if we are seeing increases in interest rates as a result of an improvement in the economy, given that the consumer is a big chunk of that, plus or minus 2/3, I think that's probably okay. And for those of us with assets already built and open and cash flowing, then that's probably okay. What I worry more about is stagflation in some form or another. What I worry about is if we had a lot of shovels in the ground on new development, the cost inflation of construction, which has been meaningful. But if under your scenario, the economy is getting better, then I think for the right locations, we're going to actually enjoy reinflation. I know our retailers will, because deflation stinks. And so while we might have to bear with it in terms of where the 10-year treasury goes, if we can grow our rents, and I believe we can, in excess of inflation, and for our best locations, I believe we can, because our retailers can grow their sales, we feel pretty good.

And at this time, there are no further questions. I'll turn the call back over to Ken Bernstein for closing remarks.

Thank you all for taking the time to join us today. We look forward to speaking to you next quarter.

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day, everyone.