The operator introduces the Federal Realty Investment Trust First Quarter of 2024 Earnings Call and informs participants that the call will be recorded. Leah Brady, along with other members of the executive team, will be discussing the company's performance. The call may include forward-looking statements, but the company cannot guarantee their accuracy. More information can be found in the earnings release, supplemental reporting package, and annual report.

Federal Realty Investment Trust had a successful first quarter, recording a solid $1.64 and achieving 3.8% same-center growth. The company also leased a record-breaking 567,000 square feet of retail space at higher rents, showcasing the importance of demographics post-pandemic. The company also had a notable 190,000 square feet of office space leased at their mixed-use properties, including a long-awaited 141,000 square-foot lease to accounting consulting firm PWC at One Santana West. In total, the company signed 117 commercial leases for over 775,000 square feet of space with strong economics. Their residential portfolio also generated record first quarter property operating income of over $17 million. The company's product, which includes retail, office, and residential spaces, is highly desirable in the marketplace.

In the first quarter, the company saw a growth of over 3% and achieved a higher end of their guidance range at $1.64. They completed 104 comparable retail deals with a 9% increase in cash basis rent and 20% on a straight-line basis. The company also reported a weighted average contractual rent bump of 2.25% for the entire retail portfolio, which is higher than the industry standard. They have also seen an increase in occupancy, particularly in small-shop space, and have plans to further increase occupancy. The company takes a proactive approach to leasing in order to maintain a healthy tenant mix and ensure consistent cash flow.

The company has upcoming anchor renewals and a diverse tenant base, minimizing exposure to struggling retailers. They have been able to pass on cost increases to customers and do not expect any significant issues with collectability. They have shifted focus to acquiring new properties, taking advantage of a limited supply and less competition in the market. They are looking for larger shopping centers with potential for remerchandising, redevelopment, and higher rents.

The company is looking to invest in shopping centers in markets that have shown significant growth, particularly in post-pandemic markets such as Phoenix, Central and South Florida, and Northern Virginia. They are focused on finding shopping centers that will immediately increase earnings and provide returns above their long-term cost-of-capital. The company has already begun the due diligence process on one large asset and has a growing pipeline for others. In the first quarter, the company reported a 3.1% increase in FFO per share and a 5.6% increase in property operating income, driven by strong performance in their comparable portfolio and residential properties.

In the first quarter, the company saw lower term fees and timing issues with collections, but expects to reverse this trend. Comparable POI growth was 3.8%, with minimum rents and total property revenues also increasing. Leasing volumes were at record levels, leading to a higher leased rate and occupancy rate. The company has a strong pipeline of lease deals and expects to improve occupancy metrics in the coming quarters. The residential portfolio also performed well, with 6% growth in the first quarter and a strong pipeline of development projects. Darien Residential and Darien Retail are both performing above expectations.

The Huntington Shopping Center is almost fully leased, and other properties, such as 915 Meeting Street and One Santana West, are also making progress. Sodexo has moved into its new headquarters at Pike & Rose. The company's balance sheet is strong, with no major maturities until 2026 and over $1.33 billion in available liquidity. The company expects to improve its leverage metrics and fixed charge coverage over the course of 2024. Due to a strong first quarter and continued leasing demand, the company is raising its 2024 FFO guidance to $6.77 per share, representing 3.4% growth.

The company is revising its forecast for 2024 due to higher interest rates and stronger portfolio performance. They are also revising their comparable growth outlook and providing guidance for the second quarter. Leasing progress at two properties will not impact the forecast until 2025. All other guidance assumptions remain unchanged. The company will update their forecast for acquisitions and dispositions as they are completed. The second quarter FFO outlook is $1.63 to $1.69, with the third and fourth quarters expected to increase sequentially. The operator can now open the line for questions.

The operator announces that they will now begin the question-and-answer session. The first question is from Juan Sanabria of BMO Capital Markets, who asks about the company's acquisitions and funding. Dan Guglielmone responds, saying that they have $300-400 million worth of assets under consideration for sale, with initial cap rates in the low 6s. Dori Kesten of Wells Fargo asks about the strong quarter in small-shop leasing, and Donald Wood defers to Wendy to answer.

The speaker, Wendy Seher, discusses the strong quarter on small-shop leasing and the team's ability to move the needle by 70 basis points. The deals made for the quarter are broad-based, including national, regional, and local businesses. Popular categories for leasing include restaurants, both full-service and fast casual, apparel, health and wellness, and beauty. The CEO, Donald Wood, adds that the demand for shop space is broad-based across all types of open-air shopping centers. The CFO, Dan Guglielmone, mentions that the rent bumps on small-shops are around 3%, and the company has also seen success with anchor and office leasing, leading to a blended increase in the mid-2s. Overall, the team is pleased with the results.

The next question in the conference call comes from Samir Khanal of Evercore ISI. He asks about the company's guidance for same-store growth, which seems to be tracking above budget. The CEO, Dan Guglielmone, explains that they are keeping their credit reserve at the same level and will wait to see how the rest of the year unfolds before potentially increasing guidance. The next question comes from Michael Goldsmith of UBS, who asks if the pressure on capital investments in large warehouses from retailers has affected the company's shopping centers. The CEO, Donald Wood, responds that there has always been pressure from retailers for capital investments, but he hasn't seen a significant change in the past few years.

The demand and supply characteristics in retail are favorable, allowing the company to keep capital under control. Cisco has replaced Splunk as a top office tenant due to its recent acquisition of Splunk. The company has not indicated its long-term plans, but the acquisition is viewed as positive. The company is rigorous in its approach to acquisitions, but the current retail environment may impact availability.

The team is currently underwriting assets on a three-year period and is seeing higher returns due to the current market conditions and their skills in leasing, merchandising, and redevelopment. They are also taking advantage of their cost-of-capital advantage and the lack of competition in the market.

The speaker is discussing the company's underwriting process and their ability to exceed their leasing underwriting in the past. They expect this trend to continue due to their contacts, reputation, and understanding of how to improve assets. The next question asks about the types of assets the company is looking at, specifically if there are opportunities for long-term value creation like Assembly or Santana.

Dan Guglielmone is asked about the potential for new acquisitions to become large mixed-use projects like Assembly Row or Santana Row. He explains that while the company is not expecting these acquisitions to become such projects, they still have potential for growth and development in terms of remerchandising, increasing rents, and adding residential or retail components. The company is not limited to one type of development and has multiple options for enhancing their assets. The next question is from Ki Bin Kim about the company's focus on acquisitions versus new development.

The speaker is responding to a question about whether the company makes choices to lease for shorter terms or give up rent for control in order to pursue future development opportunities. The speaker clarifies that the company is actively pursuing future development opportunities, but rarely sacrifices rent in the present for potential future gain. The company remains strict about controlling their properties from a merchandising and redevelopment standpoint.

The speaker discusses the process of obtaining controls for national and regional tenants and how discussions with them are easier due to their familiarity with the company. They mention that they are focused on acquisitions rather than development starts, and cannot give a prediction on capitalized interest for 2025. The speaker also mentions that the TIs for new leases have increased by $10 per foot compared to the previous quarter.

Floris van Dijkum asks about the recent leasing dynamics and ancillary benefits of the leases that Simon Property Group has been signing. He notes that vacancy rates are trending lower and rents are trending higher. He also mentions that a significant portion of shop leases have no option, while a majority of anchor leases have options. He asks if Simon Property Group is now agreeing to no options on new transactions and if they are also receiving bumps in rent on both shop and anchor spaces. CEO Donald Wood responds that there is a lot to unpack in the question and asks CFO Wendy to provide further insight.

The speaker explains that leasing is more expensive now, and tenants need to be able to pass on the higher costs to their customers. The company tries to avoid giving tenants options, but they must balance this with other factors such as tenant credit and importance to the shopping center's overall mix. Small-shop tenants typically receive good rent increases, while anchor tenants may not receive as high of an increase but can negotiate a larger increase after five years.

The company recently acquired full ownership of CocoWalk, a joint venture that was started in 2015-2016 to redevelop the asset. This was a successful venture and the company was able to buy out their partner at an attractive yield. The company does not anticipate any other joint venture buyouts in the near future, but will be open to opportunistic opportunities. The acquisition allows the company to have full control and maximize cash flows without having to share profits with a partner.

During a conference call, an operator introduces a question from Tayo Okusanya of Deutsche Bank about the potential for a life sciences component in the company's mixed-use development projects. CEO Donald Wood responds that while they would like to add life sciences, the current market conditions do not make it feasible. The company is considering other options, such as retail or residential use, for the valuable land they own. In response to a question from Linda Tsai of Jefferies about the company's guidance for the second quarter, CFO Dan Guglielmone explains that the tough comparables from the same quarter last year, which included a fully occupied Bed Bath store and favorable debt refinancing, are driving a more moderate growth rate for the upcoming quarter.

The speaker is discussing the acceleration of FFO per share and the difficulty in comparing it to previous quarters. They mention a greater acceleration in the third and fourth quarters, and a flatter second quarter. They also mention upcoming events and thank the audience for attending.

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