The operator introduces the Federal Realty Investment Trust Second Quarter of 2024 Earnings Call and turns it over to Brenda Pomar, Senior Director of Corporate Communications. Pomar introduces the CEO, COO, and other members of the executive team and reminds listeners that some statements may be considered forward-looking and that actual performance may differ from expectations. She also directs listeners to the earnings release and other financial documents for more information on risk factors.

In the second quarter, the company had record FFO per share, strong leasing volume, and occupancy gains. The residential operating income also saw an increase, and there was significant transactional activity, including acquisitions and sales. The company expects the strong leasing environment to continue for the rest of the year. The average starting rent for comparable deals was 10% higher than the previous lease.

The company's impressive financial results are due in part to the contractual rent bumps on their commercial deals, averaging 2.4% this quarter and 2.25% portfolio-wide. This has been a consistent trend for the company, with only two setbacks in the past 20 years. While year-over-year growth may be muted due to store closures, the company still expects to be at the top of the sector in terms of FFO for share growth. The company's occupancy rates have steadily increased over the past three years, with a 100 basis point increase in overall lease percentage this quarter. This is attributed to record-setting leasing volumes, strategic acquisitions and sales, and planned redevelopments. The anchor lease percentage alone has gained 90 basis points since last quarter and currently sits at 96.7%.

The company has had a successful investment in Third Street Promenade in Santa Monica, but has decided to sell it and reinvest the proceeds in Virginia Gateway, a dynamic asset with potential for growth. They have also recently acquired Pinal Business Shopping Center in Northern California and are continuing to lease up Santana West.

The paragraph discusses federal realty's active negotiations with prospective tenants for their building, as well as their successful demolition and construction of a residential development in Lower Merion Township. The company also mentions their other ongoing residential projects and the recent opening of a newly redeveloped shopping center in Huntington. The redevelopment was completed on time and on budget and is now a complementary addition to the neighboring Walt Whitman Mall.

The company's President Jeff Burke reflects on the significant impact of recent capital allocation decisions, which have resulted in meaningful growth in their 102-property portfolio. These decisions include 900,000 square feet of acquisitions, a $85 million redevelopment project, a $95 million mixed-use development, and the sale of an underperforming property. The company also executed 124 leases, resulting in future growth. The company's second quarter FFO per share of $1.69 exceeded expectations, driven by strong property-level expense controls, increased occupancy levels, and a strong residential portfolio. Comparable POI growth was 2.9%, and there will be an upward revision in guidance as a result.

Bed Bath & Beyond had solid results in the second quarter of 2023, despite having to pay rent. Their portfolio occupancy increased, and they have a strong leasing pipeline with minimal exposure to troubled tenants. They expect their occupancy metrics to improve and have increased their year-end occupancy target. They also have a strong balance sheet with no major maturities until 2026 and a significant amount of available liquidity.

The company has a strong liquidity position and a significant amount of remaining funds for redevelopment and expansion projects. They have completed the sale of a property, accessed the equity markets, and acquired new properties. Their leverage metrics have improved and they are raising their 2024 FFO guidance due to strong portfolio performance and recent transactions. They expect over 5% FFO growth in the second half of 2024. Any future acquisitions and dispositions will be reflected in their guidance.

The company is revising its Comparable Growth Outlook, with upward growth projected at 3% to 4%. The Comparable Growth Outlook remains at 2.25% to 3.5%, with a downward adjustment in assumptions for term fees and G&A expense. Leasing progress at two properties is not expected to impact the forecast for 2024. The company's Board of Directors has declared an increase in its quarterly common dividend, marking 57 consecutive years of dividend increases. The company remains committed to delivering stable and growing cash flow for shareholders. The acquisition environment is not discussed in the paragraph.

Donald Wood, the CEO of the company, is discussing the current state of the real estate market and how it is affecting their business. He mentions that they have been successful this year, but that cap rates have come down due to lower interest rates. This means that properties are more expensive, but they have been able to take advantage of the market and make good deals. He also mentions that they have a new tenant for their Santana West property, which will bring their occupancy to over 50%.

The company has exceeded its expectations for small shop and anchor occupancy, with another 100 basis points expected for anchor and potentially more for small shop by the end of 2025. The pipeline looks strong and the targeted year-end occupancy level has been revised to approximately 93.5%.

The speaker is discussing the company's recent performance and future projections. They mention that the current estimates are dependent on how quickly they can open new deals, and then take a question from Michael Goldsmith about the company's same property NOI growth. The speaker responds that the growth will be driven by occupancy rates and they expect to be in the mid to upper threes in the second half of the year. They also mention that there are various factors that could impact the company's FFO range for the rest of the year.

The speaker believes that occupancy is the main factor that will help the company reach the top of their expected range. Other revenue sources, such as parking and percentage rent, are expected to be average. Term fees will likely be at the bottom of the range due to tenants not wanting to give back space. The company has a conservative approach to revenue recognition and timing can cause fluctuations between quarters. Getting tenants open on time and beating rent commencement dates will also contribute to reaching the top of the range. The potential impact of interest rate cuts is also mentioned. In terms of tenant sales growth, the speaker is asked if they have seen any impact from economic challenges on retailers' willingness to take new space, but the speaker does not mention any specific concerns from retailers.

The speaker discusses the demand for leasing in their various product types and how it is not being affected by the lower end consumer's sensitivity. They mention specific tenants such as Dollar Tree and Party City and their discussions with Starbucks. They also mention that their markets have a more affluent demographic, which is not experiencing the same fatigue in higher priced items. The speaker then addresses a question about new supply and explains that construction costs play a significant role in the difference between new supply and redevelopment rents. They also mention that construction prices are starting to come down.

The cost of materials like lumber and the lack of work can affect the profitability of developers, which in turn can impact rent prices. The potential for growth and the addition of mixed-use properties can also drive up residential rents. However, the focus on densification and mixed-use development in their locations makes them less concerned about competition from other retail options.

The speaker discusses the company's lack of competition in their trade areas and the resulting pricing power with retailers. The next question is about leasing demand by category, specifically restaurants. The speaker mentions that categories are still widespread and strong, with fast casual restaurants, whole price apparel, specialty foods, and health and beauty doing well. Sales in these categories are growing and the company is able to push rents.

The speaker discusses the importance of considering the strength of operators when evaluating categories and mentions that mediocre businesses may struggle in the current market. They also suggest that when the company resumes development and redevelopment, it will likely focus on mixed-use properties rather than retail or office spaces.

The speaker discusses the integration of residential and office units with other amenities in their shopping centers. They mention that their shopping centers are located in high demographic areas, making it possible to add residential units. They also mention their recent acquisition of a retail center in Huntington and their plans to add residential units to their shopping centers. The speaker then answers a question about the cap rate on Santa Monica and the sources of capital for potential acquisitions in the future.

Floris van Dijkum asks about the company's focus on softer aspects of leases, such as rent bumps, and notes that many of their peers are now achieving 3% rent bumps annually and have fewer renewal options.

Donald Wood, CEO of a real estate company, discusses the improvements in lease terms that the company is seeing. The company has been able to negotiate rent bumps of 4% for small shop tenants and mid to upper ones for anchors. The starting rent is also an important component of the negotiations. The company is also focused on controlling TI dollars and limiting them, resulting in an impressive net effective straight line rent in the mid-teens.

Wendy Seher and Donald Wood discuss the different components of their contracts with tenants and how they are approaching them differently in the current high-demand market. They mention options, increases, control rights, exclusivity, and how they are trying to negotiate more flexibility on options. They also mention their balanced approach in working with national and regional tenants. Wood adds that he believes their contracts are among the strongest in the industry, with strong lease bumps and qualitative factors such as redevelopment rights and lack of sales kick outs and co-tenancy. He also attributes their strong contracts to their better locations giving them more leverage.

Ravi Vaidya asks why the company is maintaining a 70-90 bid for bad debt when there seem to be minimal credit issues. Donald Wood responds that they are sticking to that range and hoping to end up towards the lower end. Linda Tsai asks about the company's process for controlling TI dollars, and Wendy Seher explains that they have good relationships with anchors and are able to influence conversations with smaller shops to make deals and understand their capital investments.

The retail environment is strong and there is potential for market rent growth in the next 12-14 months. Tenants are facing inflationary costs and are trying to push them through to remain profitable. They are also working on increasing their margins to make their businesses more efficient. This impacts their willingness to pay more rent and their expectations for space.

The speaker discusses the potential acquisition of ROIC by Blackstone and shares their opinion that it reflects confidence in the demand for retail space over the next five years. They also mention the current supply and demand dynamics and valuations in other sectors as factors in the potential acquisition.

The speaker discusses the shopping center index and mentions that there are 17 companies in it, many of which are smaller companies that may be under pressure to sell. They also mention Blackstone as a company that sees value in these smaller companies. The next question is about bad debt, and the speaker confirms that it is still expected to be within the range of 70 to 90 basis points. The same store outlook reflects this expectation. The conference is then concluded.

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