Release Date: October 30, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Federal Realty Investment Trust (NYSE:FRT) reported a record quarterly FFO per share of $1.71, indicating strong financial performance.
• The company achieved significant leasing productivity with 126 leases for comparable space totaling 581,000 square feet, surpassing previous averages.
• Leasing rates for new leases were 14% higher than the previous leases, demonstrating strong demand and pricing power.
• The portfolio ended the third quarter with a 95.9% leased rate and 94% occupancy, showing improvement in occupancy metrics.
• FRT has over $1.4 billion in available liquidity, positioning it well for future acquisitions and developments.

Negative Points

• Higher property-level expenses offset some of the gains from increased rental income.
• The company experienced lower term fees than forecasted, impacting overall financial performance.
• There is a potential for increased credit reserves in 2025 due to expectations of a moderating economy.
• Capitalized interest is expected to decrease as more development projects are completed, potentially impacting short-term earnings.
• The guidance range for FFO per share remains wide, indicating uncertainty in future financial outcomes.

Q & A Highlights

• Warning! GuruFocus has detected 9 Warning Signs with FRT.

Q: Could you speak to the drivers of the recent increase in occupancy and leased rates? Are there any particular tenant categories standing out or surprises to the upside? A: Don Wood, CEO: It's a good time to be in this business due to strong demand, often with multiple tenants vying for space, allowing us to push rents and improve lease terms. We've also improved the time between lease signing and rent commencement significantly throughout 2024. Demand is broad across various property types, from grocery-anchored centers to mixed-use properties.

Q: Can you provide more details on the potential acquisitions mentioned, including asset types and cap rate trends? A: Don Wood, CEO: We are looking at larger assets, each over $100 million. The market is showing some good products, and we are seeing cap rates in the mid-sixes to sevens, with growth potential. These deals are attractive relative to our cost of capital, aiming for IRRs in the eight to nine percent range.

Q: How do you balance between new developments and acquisitions, and how close are you to announcing new projects? A: Don Wood, CEO: Having multiple options like development, redevelopment, and acquisitions is crucial. New developments will likely focus on residential to enhance mixed-use environments. Construction costs are stabilizing, and rent growth is better than expected, making new projects more viable. We hope to announce new projects in the next quarter or two.

Q: The guidance range for the fourth quarter seems wide. Is there a reason for this? A: Dan G., CFO: There's no specific reason for the wider range other than typical variability heading into the final quarter. We narrowed it from $0.18 to $0.10, which felt appropriate, but left some room for unforeseen events.

Q: Can you discuss the pricing environment and conversations with retailers, both small shops and big boxes? A: Wendy, EVP Eastern Region: Demand continues to exceed supply, allowing us to push rents and improve lease terms. For example, our mixed-use properties have full-service restaurants doing over $1,100 per foot on average, providing room to negotiate better terms. We're also limiting retailer controls and improving lease conditions.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.