Federal Realty Investment Trust Q3 FY2024 earnings call

• Leasing productivity was exceptional with 126 leases for 581,000 sq ft in Q3, 11 of 15 quarters since 2021 above half a million sq ft.
• Comparable leases had first-year rent at $35/ft, 14% better than old lease rent, 26% higher straight-line. Net effective straight-line rollover after capital was 16%.
• Portfolio occupancy at 95.9% leased and 94% occupied, up from prior quarter. Anchor and small shop sides had room to grow.
• Open air retail market supply constrained, consumer spending strong with affluent households driving it.
• Apartment business strong with 3,000 units at mixed-use properties and Darien; residential operating income up 5.5% YTD.
• Acquisitions: $60M acquisition of Pinole Vista Crossing, negotiations for other market-dominant centers. Virginia Gateway acquisition with going-in cap rate 7.25%, leasing underwriting conservative with higher rents than projected.
• Lease-up progress at Santana West and 915 Meeting Street; construction on Ballet-Kenwood Shopping Center on track.

In the third quarter, Federal Realty had a solid performance. FFO per share was a record $1.71. Leasing productivity was strong with 126 leases for 581,000 square feet, comparable leases written at an average $35 per foot in the first year (14% better than old lease rent, 26% higher straight-line). Net effective straight-line rollover after capital was 16%. Portfolio occupancy ended the quarter at 95.9% leased and 94% occupied, up 60 and 90 basis points from the prior quarter. The apartment business was strong with 3,000 units, and residential operating income on stabilized resi properties was up 5.5% year-to-date.

• Raised 2024 FFO guidance midpoint to $6.81, range $6.76 to $6.86. 2024 FFO per share for Q4 expected at $1.77 with range $1.72 to $1.82.
• 2025 outlook: prior period rents from COVID deferrals to zero, term fees light, capitalized interest to mid-teens, credit reserve normalized to ~100 basis points. Occupancy growth expected to continue upwards, rent growth from contractual bumps and acquisitions to fuel FFO per share growth.

• Forward-looking statements may differ from actual performance. - Risk factors in financial documents (earnings release, 10-K, etc.) can affect financial condition and results of operations.

Q: Don, I'm rooting with you for the Yanks, but things don't look great, by the way.

A: Don Wood thanked for the commentary.

Q: My question is on, you're essentially getting, I mean, you sold your forwards at $115 a share, or just over $115 a share, almost $116 a share, which is an excess of your NAV. So you're getting, you're essentially having a green light to grow externally. How, you did, you indicate you've got, two larger deals in the works, and hopefully we'll get some updates over the next month, month or two on that. But are you thinking about stepping up your pace, or is it difficult finding acquisitions? Maybe you can talk a little bit about the environment out there, and then also about your ability to do OPU transactions. What is the appetite from sellers to do those kinds? Because they tend to, particularly where your stock is today, that could make it be more accretive for you as well?

A: Don Wood turned to Jan Sweetnam and Jeff Berkus who discussed acquisition market picking up, capital good, acquisitions likely accretive, OP unit structure in place, sellers interested in tax protection.

Q: Don, you just said you don't believe you're trading near NAV. I know you've said that before. Where do you think your NAV should be? And I guess, what do you think we on this side are missing?

A: Don Wood said he wouldn't give a number but mentioned portfolio has development value, intensification potential in shopping centers has value not recognized today.

Q: This, I guess, is a similar question to what was just asked. But I mean, just thinking about retail driven redevelopment and new development, I mean, considering how robust your leasing has been, the rates you're getting in new leases, I'm just curious, like, how, I guess, how close are you to pivoting your bias from resi driven developments to the extent that you start to ramp them again back to retail?

A: Don Wood said it's not a pivot, residential and acquisition opportunities compete for capital, closer to making numbers work on residential side for reasons cited.

Q: How do you think about the contribution of development to earnings next year?

A: Dan Gee said several projects contributing, some drag from delivering spaces and reducing capitalized interest, but other systems will offset, expecting solid growth next year.

Q: Your cash releasing spreads were strong this quarter. Given the strength of retailer demand and your targeted consumer, should we expect releasing spreads to inch higher in 2025? And related to that, can you share your thoughts on OCR, where they are versus historical patterns, and the degree to which you can push rents even more aggressively going forward?

A: Don Wood said cash releasing spreads strong due to strong leasing, should stay strong, OCR around 9%, room to grow with strong leasing environment likely continuing.

Q: Yes, go Yanks. Don, I guess a question for you. I was curious on how you're thinking about dispositions versus new equity here as a source of capital. The IRRs and some of the opportunities you're probably looking at may very well exceed the future returns expected from some of your lower tier, lower growth assets. How do you balance the merits of a capital recycling strategy to improve the long-term growth profile versus tapping the equity market?

A: Don Wood said it's a great question, they evaluate balance between growth of portfolio assets and market for shopping centers, selling assets per year based on market allowances, same process for acquisitions and development.