The operator welcomes participants to the Federal Realty Investment Trust Fourth Quarter 2023 Earnings Conference Call and introduces the speakers. The call will be recorded and there will be an opportunity for questions after the presentation. The speakers include members of the executive team and they will discuss forward-looking statements, but there is no guarantee that these expectations will be met.

In the paragraph, the speaker discusses the recently released earnings report and supplemental reporting package, as well as the annual report for the company. They mention the risk factors that may affect the company's financial condition and results of operations. The speaker also asks participants to limit themselves to one question during the Q&A portion of the call. They then turn the discussion over to Don Wood to discuss the company's fourth quarter results. The speaker highlights the strong earnings per share for the quarter and the overall record-breaking year for the company. They also mention the growth of the company's portfolio and its potential for future growth through acquisitions and redevelopment efforts.

The demand for high-quality assets in closed-in suburbs is expected to continue to exceed supply due to the impacts of the pandemic and lack of new supply. The company's average in-place rents are $31.60 per foot, but comparable retail deals in the fourth quarter were at $44.57 per foot. Percentage rent and overage rent reached an all-time high of $19.3 million for the year. The company had a successful leasing year, exceeding 2 million square feet for the third year in a row. The cash basis rollover increases on leases with high contractual rent bumps were particularly impressive.

The company's contractual rent bumps for the fourth quarter were around 2.5%, with a weighted average of 2.25% for the entire retail portfolio. Leasing volume and economics are strong, with a potential for further occupancy growth in the next 12-18 months. The mixed-use properties have a high occupancy rate and command premium rents. The company's mixed-use office development projects have been successful in leasing, with 215,000 square feet already leased or in the final stages of the leasing process. This showcases the company's strength in leasing high-quality retail properties in suburban areas near major cities.

The author discusses the impact of higher interest rates on bottom line results, but remains optimistic about the strong business fundamentals. They also mention plans for expansion at Bala Cynwyd Shopping Center, which is fully leased and has a diverse tenant roster. The expansion will include residential units, retail space, and covered parking. The author expects another record earnings year in 2024 and hands over the presentation to Dan for further details.

In the fourth quarter of 2023, our FFO per share increased by 3.8%, driven by POI growth in our comparable portfolio, contributions from our redevelopment and expansion pipeline, and expense controls. However, higher interest rates had a negative impact. Without this, FFO per share growth would have been 8%. GAAP based comparable POI and revenue growth were 4% and 3.2% respectively, while on a cash basis, growth was 5.2% and 4.7%. Our residential portfolio also showed strong growth, with same store residential POI and revenue growing by 5.8% and 6% respectively. We expect this trend to continue in 2024.

Federal Realty's strategy of offering high-quality residential properties on top of attractive retail amenities has led to strong performance in their targeted residential portfolio. This is further supported by the continued stabilization of their redevelopment and expansion pipeline, which is expected to drive growth in the future. Notable updates to the pipeline, such as the Darien Commons project in Connecticut and the 915 Meeting Street project, demonstrate the success of this strategy, with high occupancy rates and strong rental prices. Additionally, the Huntington Shopping Center and Melville asset on Long Island showcase Federal's skill in retail redevelopment.

In 2023, the company invested over $120 million in properties they partially owned at an 8.1% cap rate, which has resulted in double-digit unlevered IRRs. They also refinanced their $600 million bond maturities, increasing their liquidity to over $1.3 billion with no major maturities until 2026. Their leverage metrics are strong and they expect to hit their target of 5.5 times net debt to EBITDA in 2025. They are introducing a 2024 FFO per share forecast of $6.65 to $6.87, representing 3-5% growth.

The company expects a growth of 2.5% to 4% in 2024, excluding prior period rents and term fees. This is based on an increase in occupancy levels and contributions from their redevelopment and expansion pipeline. However, this will be offset by lower prior period collections and net term fees, as well as higher money costs. The company also plans to spend $100 million to $150 million on redevelopment and expansion, with a forecasted G&A of $48 million to $52 million. The total credit reserve is expected to be 70 to 90 basis points, in line with pre-pandemic levels. The guidance does not include any acquisitions or dispositions and may be adjusted upwards. Quarterly FFO is expected to increase each quarter, starting with $1.60 to $1.65 in Q1. More details can be found in the company's 8-K and press release.

The operator opens the line for questions and the first question comes from Juan Sanabria about office leasing. Donald Wood mentions a large tenant that they are close to signing a lease with, along with a couple of smaller deals, which would bring the Santana West building to 50% leased. They are also close to signing on a couple of deals at Pike & Rose, bringing that building to 80% leased. The next question comes from Alexander Goldfarb about the tenancy, which includes some non-rated and non-investment grade tenants.

The company is focused on improving its portfolio by carefully selecting tenants with strong credit profiles and limiting exposure to highly leveraged tenants. This is possible due to the current favorable supply and demand dynamics, which allows for more choice in selecting tenants. The company also takes into consideration the long-term lease and capital decisions when choosing tenants.

Steve Sakwa from Evercore asks a question about pricing power and potential rent increases in the future. Don Wood, the CEO, believes that the key to pushing rents is having strong leases with big bumps, which they have been working on in the past 18 months. This provides an insurance policy for the company and shows that their shopping centers have strong foundations with rents that are under market.

Don Wood, CEO of Federal Realty Investment Trust, is optimistic about the company's future growth, citing potential acquisitions and redevelopments in key locations such as Huntington and Bala Cynwyd. He also mentions the company's strong cost of capital and flexibility in terms of property types. Jeff Berkes, President and COO, agrees that 2024 will be a good year for acquisitions and emphasizes the company's willingness to invest in various types of retail properties.

The company is focused on finding properties with potential for growth and is willing to make improvements or even add residential units. They have a strong team and good relationships in the market, making them a desirable buyer. Many sellers have been waiting for the market to stabilize before putting their properties up for sale, but now there are indications that more properties will become available in 2024. The company is known for being creative in their deal structures.

The speaker mentions that they have been successful in finding solutions for private and older sellers. They have many tools at their disposal and expect to use them in the coming year. The questioner asks about the decline in retail leasing and residential occupancy in Q4, and the speaker explains that it was just timing and that their pipeline is strong. They expect to see growth in small shop leasing and attribute the timing to deals on already occupied spaces. They also mention that some markets are seasonal.

The company is trying to increase occupancy during the slower winter season in order to prepare for the busy leasing season. There may be a slight decrease in occupancy in the fourth quarter due to seasonality. The company is looking to acquire more properties and may use short-term financing for this. They also have long-term financing available, but are currently holding onto it.

The speaker, Don, is asked to elaborate on the office leasing demand at Santana West and 915 Meeting. He explains that the common thread among these relocations is the desire for full amenities in mixed-use properties. The demand for these types of properties is consistent and is seen in other projects as well. The next question is about two specific developments, Bala Cynwyd and Santana, and the speaker is asked about the NOI and timing of rent commencements.

During a Q&A session, Donald Wood asks Dan Guglielmone about the impact of an empty Lord & Taylor on Bala and the timing of Acrisure's revenue recognition. The next question comes from Floris van Dijkum, who congratulates the company on their first office leases at Santana West and Pike & Rose. Jan Sweetnam, who handles large office leasing, responds to the question about rent negotiations, stating that tenants are looking for amenities and upgrades rather than being price sensitive.

The company discusses their decision to secure a mortgage for their property in Bethesda Row due to the volatility of interest rates. They were able to secure attractive financing with a lower leverage and a structured deal that allowed them to get a lower rate than what is currently available in the market.

The company's recent financing demonstrates their ability to access different parts of the capital markets during difficult times. The addition of debt on Bethesda Row also provides tax planning flexibility. The company expects earnings growth in 2023 with an 8% annual return on invested capital, and this level of growth is expected to continue into 2024 with slightly less headwinds.

The speaker discusses how construction costs have gone down, making it more attractive to do redevelopment projects. This is due to a slowdown in business, which has allowed for better labor rates and more predictability in costs. As a result, the speaker believes there will be more opportunities for redevelopment projects in the future, such as the Bala project, which was made possible by Federal owning the land for a long time and avoiding incremental costs.

The speaker discusses the stability of construction costs and how they have come down a few percentage points due to labor costs. They also mention that the ROIC for the Bala project is 7 and the unlevered IRR is in the double digits. They explain that developing the project to a 7 is higher than the current market and as interest rates stabilize, the spread will be north of 100-200 basis points. The speaker also mentions the potential for growing rents and the POI as drivers of unlevered returns. Another speaker adds that the double digit IRR is achievable and that the growth from there will be driven by rent increases.

Federal Realty is currently in the process of developing several residential properties, with a total value of $900 million, in areas where they already own real estate. This minimizes their risk and allows for strong returns. They have a strong understanding of the rental market and operating costs. When they contract for construction, they do so with full drawings and a guaranteed maximum price. There has been interest from joint venture partners for the Bethesda Row project, and there is some hesitation due to the locked-in leases and uncertainty about the timeline for growth in the retail sector.

Don and Jeff discuss the company's appetite for deals with private joint venture investors. They have not had in-depth conversations with them yet and want to wait for the capital markets to solidify. Steve Sakwa asks about the building blocks of the guidance and POI growth, which is slower due to factors like bad debt.

The speaker discusses various factors that contribute to the FFO guidance, including occupancy levels, percentage rent, parking revenues, property expenses, term fees, development POI, interest rates, and tenant retention. They mention that they have $600 million of floating rate debt and are conservative in their assumptions for interest rates. They also mention that they have been successful in getting tenants open sooner and keeping them in possession longer. The speaker concludes by thanking the audience for attending and mentioning upcoming events.

This summary was generated with AI and may contain some inaccuracies.