Federal Realty Investment Trust Q4 FY2024 earnings call

• Leasing: Fourth quarter and full-year 2024 set all-time records for leasing volume.
• Financials: Total revenues and FFO per share hit all-time highs. Dividends per share raised for 57th consecutive year.
• Retail Market: Strong due to favorable supply-demand dynamics and consumer spending; portfolio resilient to struggling retailers.
• Office Component: Back-to-office movement driving interest in office spaces in San Jose, Boston, Bethesda; Santana West and 915 Meeting Street have significant lease activity.
• Development: $90M residential over retail project at Bala Cynwyd on track; approved two other developments in Hoboken (45 residential units atop retail) and Philadelphia (transformational redevelopment of Andorra Shopping Center).
• Acquisitions: Active on acquisition front, expect to close a $123.5M shopping center in Northern California.
• Promotions: Three newly promoted vice presidents and a senior vice president in IT.

In the fourth quarter, leasing saw 100 comparable deals for 649,000 square feet at 10% more cash rent and 21% more straight-line rent than the previous lease. Full-year 2024 had nearly 2.4 million square feet of comparable space at 11% more cash rent and 22% more straight-line rent. Total revenues surpassed $300 million in the quarter and $1.2 billion for the year, growing 7% and 6% respectively. FFO per share was $1.73 in the quarter and $6.77 for the year (excluding a one-time four-cent charge, FFO per share was $1.77 in the quarter and $6.81 for the year). Occupancy was 96.2% on a lease basis and 94.1% on an occupied basis at year-end, the strongest in nearly a decade. Revenue contribution from leasing was significant due to record-breaking volume and rent increases.

For 2025, FFO per share forecast is $7.10 to $7.22 per share (5.8% midpoint growth). Comparable POI growth expected 3% to 4%. Occupancy expected to grow from 94.1% to ~95% by year-end 2025, with first quarter step back due to seasonality. Timing impact from Santana West: $0.10-$0.11 drag in 2025, $0.12-$0.14 benefit in 2026. Tax credits: $0.14-$0.15 benefit from Freedom Plaza tax credits. Development and expansion spend forecast $175 to $225 million.

• Economic Uncertainty: Impact of new administration in Washington on broader economy.
• Construction and Tariff Risks: Uncertainty around construction costs and tariffs affecting development projects.
• Tenant Credit Risk: Potential impact of retail bankruptcies, though current exposure is limited.

Q: Talk a little bit about the tax credits mentioned and why include them in FFO?

A: The tax credits from projects like Freedom Plaza are monetized, and the revenues associated are recognized. It reflects the net number after offsetting expenses, as detailed in F-31 and 10-K.

Q: Are you seeing acceleration in transaction volume?

A: There are more assets available on the marketplace, with debt costs higher for longer leading to more transactions. Also looking at new markets, but some assets don't fit current criteria.

Q: How are leasing discussions changing with retailers?

A: For desirable spaces, there are multiple tenants, focusing on rent, bumps, and control. Leases are strong, with more success in securing control for redevelopment opportunities.

Q: Thoughts on the watch list and credit quality of the portfolio?

A: Limited exposure to major retail bankruptcies like Big Lots, Party City, Joanne's. Normalized 75 to 100 basis point credit reserve appropriate given economic volatility.

Q: Appetite and capacity for several hundred million dollar mixed-use deals?

A: Have appetite and capacity; comes down to IRR and whether numbers work. Joint ventures possible for bigger deals, but key is project-specific numbers working.