Federal Realty Investment Trust Q3 FY2025 earnings call

• Leasing: Best leasing quarter ever with 727,000 sq ft of comparable space written at $35.71, 28% more annual cash rent than prior tenants. 2/3 of space was renewals with de minimis capital. Comparable occupancy in the pool climbed 40 basis points last quarter to 94%, overall occupancy 93.8%.
• Financials: Comparable operating income grew 4.4% in the quarter, FFO per share $1.77. Development projects in Hoboken, Bala Cynwyd, and Santana Row are on track and on budget.
• Acquisitions: Acquired Annapolis Town Center, and another $150M acquisition under contract. Investor tour of Town Center Crossing and Plaza in Leawood was successful, and the company is focused on acquiring high-quality dominant centers in affluent markets.

In the third quarter, Federal Realty had a strong leasing performance with 727,000 feet of comparable space written at $35.71, achieving 28% more annual cash rent than the previous tenant. Two-thirds of the space was for renewals with minimal capital required. Comparable operating income grew by 4.4%, leading to FFO per share of $1.77. Development projects in Hoboken, New Jersey; Bala Cynwyd, Pennsylvania; and Santana Row are moving along on or under budget, with total capital for these projects estimated at roughly $280 million, expected to yield 6.5% to 7% unlevered. On the acquisition front, Annapolis Town Center was acquired, and another approximately $150 million acquisition was under contract. Revenue contribution from leasing, development, and acquisitions are key segments driving performance.

• Raised FFO per share guidance excluding new market tax credits to $7.05-$7.11, NAREIT-defined FFO to $7.20-$7.26. 2025 comparable POI growth increased to 3.5%-4%.
• Expect comparable occupied levels in the low 94s by year-end. 2026 guidance not formal, but recurring growth expected to be consistent with 2025 performance, with development POI contribution expected to increase next year into double digits.

• Market value may differ from expected returns. Timing differences between acquisition and sale transactions could affect leverage. Credit risk related to tenancy and credit reserve need to be considered in tandem with SNO (straight-line rent) metrics.

Q: For the team, Dan, you talked about the dispositions and processing kind of a blended cap rate. But just curious if you can give any color on how the two main buckets, retail versus resi, compare given kind of early feedback on what may be kind of out there in the marketplace to test pricing?

A: Sure, sure. Look, we've got, as we mentioned, $400 million in the market now that's probably a little bit more skewed towards residential. Overall, the $1.5 billion, the 1/3 of the peripheral residential, 2/3 noncore retail. Pricing is going to be kind of in and around 5%, sub-5% for what we're selling on the residential, and it will be in and around 6 -- yes, low 6s, 6%, sometimes high 5s on a blended basis on the retail. And so blended, we should be in the mid to upper 5s overall. So I think a nice positive spread to where we're deploying the capital in and around the high 6s, low 7s on a cash basis and GAAP yields above that.

Q: Dan, you mentioned you're not going to issue formal 2026 guidance, but you did talk about some of the factors, right, like Annapolis and the benefit that you'll see next year as well as the capitalized interest in Santana [indiscernible]. So can you outline kind of any sort of onetime or other topics that you've already talked about for 2026, just so we can get a sense of where the puck is going. What's the trajectory of the company and what the earnings growth next year could look like based on what you've already said?

A: Yes, good question. Thank you, Michael. With respect to onetimers, obviously, the big one timer really is what's occurred in 2025 with the new market tax credit. We would encourage folks if you want to understand kind of the true operational growth underlying the business is to exclude that onetimer in 2025 and focus on the $7.08 of kind of more of a recurring number. And in terms of looking forward, we don't have anything or expect to have any onetimers. Onetimers, we consider recurring numbers, as term fees. We think that's recurring. It's a part of the business. It's unforecastable, but we do not expect any kind of material differences from our current guidance, which we increased a little bit this quarter in the $5 million, $5 million to $6 million range. So it should be consistent with that. With regards to capitalized interest, you brought up -- we had about $13.5 million or expecting in the $13 million to $14 million range this year. We're not done. We don't have a precise number, but I think as a placeholder using kind of a $10 million to $11 million kind of level for capitalized interest is something you can use for now, but we'll provide more precision on that in February. With regards to growth, we don't have a precise number, but right now, at current guidance in 2025 the recurring number is in the mid-4s, 4.6%. I would expect that, that feels like it should be somewhat consistent with where we'd expect things to be next year as well on a recurring basis. Keep in mind, that's with about 150 to 200 basis points of headwind from the refinancing of our bonds in February that we're expecting. And so that's, call it, 5.5% to 7% underlying growth in the core business, which I think is -- we feel really, really good about. And so that's kind of, I think, the big numbers I would point you to. We do expect -- we only have $3 million to $5 million of incremental development POI contribution this year, that will be up higher next year into the double digits. We'll have a more precise number for you in terms of the 2026 incremental contribution on the following February.