Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Federal Realty Investment Trust (FRT, Financial) reported an all-time record quarterly FFO per share of $1.69, exceeding internal expectations and analyst consensus.
- The company achieved an all-time record second quarter comparable leasing volume of 594,000 square feet.
- Strong occupancy gains were reported, with leased and occupied rates at 95.3% and 93.1%, respectively.
- Quarterly residential operating income on stabilized REDI properties increased by 6.7% year-over-year, and 9.5% when including new properties.
- Federal Realty Investment Trust (FRT) completed significant transactions, including a $215 million acquisition in Virginia Gateway and a $60 million acquisition in Pinole Vista Crossing.
Negative Points
- Year-over-year growth in FFO per share was muted due to the impact of Bed Bath & Beyond store closures.
- The company faces challenges in maintaining its high occupancy rates, with expectations of further increases being modest.
- There is ongoing pressure on construction costs, which could impact future redevelopment projects.
- The company has a significant amount of capital tied up in redevelopment and expansion projects, with $205 million remaining to be spent.
- Federal Realty Investment Trust (FRT) has maintained a bad debt reserve of 70 to 90 basis points, indicating potential concerns about tenant creditworthiness.
Q & A Highlights
Q: Can you talk a little bit more about the acquisition environment and pricing expectations?
A: (Donald Wood, CEO) The acquisition environment has been favorable, and we have successfully capitalized on a window of opportunity. If we were to sign up Virginia Gateway today, it would be more expensive than our purchase price, indicating that cap rates have come in slightly. We continue to see opportunities, but they are directly correlated with the cost of money and interest rates.
Q: What is the current leasing status at Santana West, and how should we think about capitalized interest in 2025?
A: (Daniel Guglielmone, CFO) Santana West is now leased above 50%, with active negotiations for an additional 70,000 square feet. We expect it to be well leased by the end of the year or early next year. There is no change in our outlook for capitalized interest in 2025 at this time.
Q: Can you provide an update on your year-end occupancy expectations?
A: (Donald Wood, CEO) We have revised our targeted year-end occupancy level upward to roughly 93.5%. This is based on strong leasing demand and our ability to get tenants open and rent-paying.
Q: What are the assumptions behind your same-property NOI growth guidance for the second half of the year?
A: (Daniel Guglielmone, CFO) The primary driver will be occupancy growth. We expect to see the full impact of our leasing activity in the third quarter, which should result in mid to upper-3% same-property NOI growth for the second half of the year.
Q: What are the swing factors that could impact your FFO guidance range?
A: (Daniel Guglielmone, CFO) Occupancy is a significant driver. Other factors include parking and percentage rents, term fees, and the timing of tenant payments. Additionally, the number of interest rate cuts could also impact our results.
Q: Are you seeing any impact on tenant demand due to economic pressures on lower-end consumers?
A: (Wendy Seher, EVP, Eastern Region President) We are not seeing a significant impact on leasing demand. Our portfolio is more focused on affluent demographics, which are less affected by economic pressures on lower-end consumers.
Q: How do you view the potential acquisition of ROIC by Blackstone and its implications for the shopping center sector?
A: (Donald Wood, CEO) The potential acquisition indicates a positive outlook for retail space demand over the next five years. It reflects the strong supply-demand characteristics and valuations in the sector. Smaller companies in the shopping center index may continue to be under pressure for sale.
Q: What improvements are you seeing in lease terms, particularly regarding rent bumps and renewal options?
A: (Daniel Guglielmone, CFO) We are achieving blended rent bumps of 2.4%, with a significant percentage of leases at 3% or better. We are also focusing on controlling tenant improvement (TI) dollars and limiting options, which enhances our negotiating leverage.
Q: What is your outlook for market rent growth over the next 12 to 14 months?
A: (Donald Wood, CEO) We expect strong rent growth driven by tenants' ability to push through inflationary costs and improve their margins. Our contractual rent bumps and strong starting rents position us well for continued growth.
Q: Why maintain the 70 to 90 basis points of bad debt in your guidance?
A: (Daniel Guglielmone, CFO) We believe it is prudent to maintain this range given the current environment. We ended the first half of the year at the lower end of this range and hope to remain there, which would enhance our ability to outperform.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
