Q3 2021 Federal Realty Investment Trust Earnings Call
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Yes.
Greetings and welcome to the Federal Realty Investment Trust third quarter 2021 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Please note. This conference is being recorded I will now turn the conference over to your host Mike Anna. Thank you you may begin.
Good afternoon. Thank you for joining us today for Federal Realty's third quarter 2021 earnings conference call joining.
Joining me on the call are Don Wood, Angie Jeff Bird.
<unk> here.
<unk> and Melissa Solis.
They will be available to take your questions at the conclusion of our prepared remarks.
A reminder, that certain matters discussed on this call may be deemed to be forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Forward looking statements include any annualized or projected information as well as statements, referring to expected or anticipated events or results including guidance.
Although federal Realty believes that expectations reflected in such forward looking statements are based on reasonable assumptions.
Federal Realty's future operations and its actual performance may differ materially from the information in our forward looking statements and we can give no assurance that these expectations can be attained.
The earnings release, and supplemental reporting package that we issued today on our annual report.
Our annual reported filed on Form 10-K, and our other financial disclosure documents provide a more in depth discussion of risk factors that may affect our financial condition and results of operations.
Instead of the Delta variance Serge.
A quarterly positive impact of the fast recovery men.
We collected more rent the third quarter from prior periods than we anticipated.
8 million collected versus a few million dollars forecast.
We are significantly less unpaid rent the quarter than we anticipated we can look at 96% of what was due.
We have far fewer tenant failures than we anticipate.
At $4 $9 million, we had far higher percentage rent from Covid modified and unmodified leases than we had anticipated.
We also have less pollution from our new residential construction and assembly row, because our lease up as well ahead of schedule at this point nearly half the new residential building is already lease.
Given the three hotels in our mixed use properties are performing better than we thought that they would be at this point with occupancy at all three back into the mid sixties and better.
And of course.
We more than covered our dividend on an operating cash basis in the third quarter as we did last quarter.
As a reminder, that the dividend that was never cut during cold.
So all of that means that will significantly raise earnings guidance and take a peek at the app years too.
As we've said all along visibility towards 2022 earnings was ironically better than 2021.
That's proven to be the case, Daniel talk to a guidance details in a few minutes.
So on the retail leasing side, we continue to see strong demand across the board and see that continuing for the foreseeable future.
Over the last four quarters, we've done 442 comparable fields for nearly 2 million square feet not counting another couple of hundred thousand feet for Noncomparable New development.
To put that in the context as 27% more deal volume, 25% more square footage than the annual average over the last decade.
Decade that itself was very strong for us from a retail leasing standpoint.
So we've been saying all along demand for federal royalty properties, that's not the issue.
They are in high demand from today's relevant and well capitalised restaurants, and retailers that are all trying to improve their sales productivity postcode into better real estate locations. We've always been pickier than most in terms of the tests, we choose to curator centers when.
Provides a visible and low risk window into strong future growth.
That's before considering the inevitable earnings growth coming from the lease up of our $1 billion plus development and redevelopment pipeline the costs of which are largely locked in an.
And our very active acquisition program also will add to that.
By the way, we did close on the $34 million acquisition of Clean Grove shopping center in Fairfax, Virginia, and another off market transaction during the third quarter, marking the fifth deal that we closed in 2021 and the second in Northern Virginia.
Very excited about the re merchandising and rent upside as Underinvested shopping centers staple in the middle of Fairfax County.
I've got to believe that the visibility of this company is bottom line earnings growth coming out of Covid is on a risk adjusted basis, one of the if not the most transparent in the sector.
Yeah.
That's about all I have for my prepared comments, let me turn it over to Dan who will be happy to entertain your questions after that.
Yeah.
Thank you John good afternoon, everyone.
Feels really good to be here discussing another quarter, where we blew away expectations.
$1 51 per share of <unk> represented a 7% sequential gain over a strong second quarter.
35% above <unk> last year.
It was 23 cents above our expectations, which represents an 18%.
As Don highlighted the outperformance was broad based with upside coming from continued progress on collections.
Occupancy and leasing gains.
Better than forecasted contributions from hotel parking and percentage rent.
Faster lease up at our developments at another accretive off market transaction.
While collections climbed higher to 96% in the current period.
Up from 94% last quarter, plus another $8 million of prior period collection leasing as well continues to command center stage for yet another quarter et cetera.
Momentum that started during the second half of 2020 continues with a fifth consecutive quarter of well above average leasing volumes across the portfolio.
We saw our occupied percentage surged 60 basis points in the quarter, maybe nine 6% to 92%.
Continued its resurgence up 16% please.
Please note for those that keep track as we expected term fees in the quarter were down significantly to $500000 versus $6 $1 million in the third quarter of last year.
A headwind of a minus four 2% without it our comparable metric would have been 20%.
Our remaining spend on our $1 $2 billion in process development pipeline stands.
Okay.
$215 million with another $50 million remaining on our property improvement initiatives across the portfolio.
You may have noticed that we added a new project to our redevelopment schedule in our 8-K, a complete repositioning of Huntington shopping center on long Island and.
And $80 million project, which will transform it physically obsolete power center on a great piece of land into a re merchandize whole foods anchored center.
The project is expected to achieve an incremental yield of 7%.
Now onto the balance sheet, and an update on liquidity and leverage.
So the $125 million of mortgage debt hasn't been repaid over the last 60 days, we have no debt maturing until mid 2023.
<unk> growth in 2023, and 2024, and the 5% to 10% range.
The drivers behind the improved outlook for 2021.
A significantly stronger third quarter than previously expected.
This should continue in the fourth quarter as we increase our fourth quarter estimate to $1 36 to $1 41 per share a 10% improvement versus previous guidance, but down from this quarter.
While we again selected more rent unexpected from prior periods in the third quarter, we don't expect that to repeat.
Repairs and maintenance demo and other experiments.
<unk> are all expected at elevated levels as we continue to drive the quality of our existing portfolio and G&A will be higher in the fourth quarter as well given higher compensation expense.
In addition, we forecast issuing 150 to 200 million of common equity under our forward agreements before year end.
For 2022 improvement in outlook is driven by strength.
Across all facets of our business.
Stronger occupancy growth driven by the continued momentum in leasing activity contributions from our in process $1 2 billion development pipeline.
Full year contribution for all of our 2021 acquisitions.
And higher collections as we return to pre Covid levels.
Let me try to add some color to each of these areas to provide greater transparency to a multi year path of outsized growth.
The first driver of growth occupancy and leasing, which I would like to break into two components.
First what deals are already executed.
With physical occupancy at 92% and our lease rate of 92, 8% our signed not open spread of 260 basis points for our in place portfolio. This represents roughly $25 million of incremental total rent.
The second component.
What leasing demand will drive going forward.
Given the strength of our leasing pipeline getting back to 95% lease a level. We were at just three years ago is certainly achievable.
If you look at our current pipeline of new leasing activity for currently unoccupied space. This could add another approximately 115 basis points to the current lease percentage were $12 million of total rent upside when execute.
Please note for every 100 basis points of occupancy gain we see roughly $10 million in additional total rent on average.
The third driver of growth our development pipeline.
It's a full year of contribution these purchases are very accretive.
Lastly collections.
Current periods collections for 2021 are forecasted to finish at 95% on average for the entire year.
We are expecting that to be higher in 2022 with <unk>.
With pre Covid levels returning in 2023.
This is expected to more than offset any falloff prior rent collection next year.
Keep in mind for every 100 basis points of collection percentage improvement it.
It represents almost $9 million annually.
Please note that similar to last quarter. There was no benefit soon to our guidance in either 2021 or 2022 from switching tenants from cash.
Back to accrual basis accounting.
The combination of these primary drivers of growth supplemented by forecasted upside in other parts of our business such as parking tell investments percentage rent gives us a clear and transparent path of growth not only in 2022.
Beyond into 2023 and 'twenty four.
We couldnt be happier with our market position and expect to have sector, leading <unk> growth over the next few years.
With that operator, please open the line for questions.
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Well first of all Alex it's just to know that Youre very predictable for the terms of the first part of your your statements are without question, but in terms of the bigger in terms of the question Youre asking you know.
It's a whole bunch of things, it's not just one thing, but certainly the notion of the amount of time that that a lot of people. It's certainly in our markets have not had not been out and had been at home and at restrictions one way or the other he got Antonio as you know that gets old.
And so you want to think I think youre seeing a revised rejuvenize if you will.
Love for socialization.
I can tell you any restaurant.
Certainly in New York.
You would say you would be you.
I didn't get a reservation and we're seeing that same thing throughout our properties. So people want to be out tenants are upgrading their space and having the ability.
Obviously, I'm talking I'm talking our portfolio, primarily but having the ability to get into better real estate.
In our portfolio that was as low as 89% 90, some odd percent leased that's as rare as it gets for Finn.
And so the ability to actually have a chance to upgrade.
It is.
Based on the conversations that you're having today is it just one or two or you think you could easily about four or five or six buildings to go no no no Alex it's it's it's it's Detroit.
It's it's one so you know for US first of all let's just get it all perspective right. There is assembly row with office hike in rows with office.
<unk> opportunities and then it's Santana row.
In all three markets.
The demand is there the Santana west is a different kettle of fish because it's one big building that we're looking for one big tenant to take the whole thing at Assembly.
What has happened to the building that was was Puma and just boom up forever has been astonishing in the past period of time, there you may see.
US able to announce another building next year, we're working it hard right now but to your point that is that demand could.
It could mean that there is there is faster.
Fast or route to the next building.
Terms of Pike <unk> rose, we certainly didn't expect to be announcing.
Another office building here as you know building, we just moved into we were the only tenants an ear on August 10, 2020. So the notion that this building is 90% or 89, whatever it is percent leased and our conversations with choice who originally started about this building with such that we couldn't.
Not accommodate them so that we needed if we wanted to do that deal to start another building.
Honestly and I don't think this is even handed throughout the country. Obviously there is there is a whole question of.
What happens to office space.
We have a pretty strong pipeline R. R acquisition schemes were busy nothing real material to talk about yet, but you know we've got some stuff on the Verizon are excited about and you know maybe next quarter or two will be able to just.
Talk more about it but the the market's picked up.
Very very significantly hour, we're obviously happy to see that but being disciplined and go differentiating ourselves by trying to get stuff before it comes to market and put our money and assets that we think we have a reasonable chance to redeveloped and grow the income stream over time.
And you know Craig the only thing I just want to add to that is is it's.
It's a different perspective, when you're trying to do with what Jeff is talking about here. When you also have the development pipeline. That's already been spent creating inevitable future growth. When you also have a portfolio that was hit harder during COVID-19 and therefore has more room to grow to get back to stabilize.
Occupancy. So there are other other levers if you will to pull that continue the growth and and frankly any acquisitions are are you know the cherry on the top of of an already very robust growth <unk>.
Wow.
Alright, and then just.
On the other arm of external growth, maybe you could talk about Huntington.
And do you already have anchor let me got to take the newly constructed anchor in small steps space.
So yeah, let's talk about Huntington first of all I think Simon did an amazing job amazing job.
At the adjacent Walt Whitman mall, two two hunting, but they did they just did a great job, bringing the entire profile of that of that.
Products up to go with that market frankly deserves that.
We would have liked to have done something similar huntington, but we have leases in place, which are restricted will COVID-19 took care of that doesn't it.
And so the <unk>.
The notion of being able therefore to go and lock in whole foods as our anger, which we have is a game changer.
And so now the the the the future of Huntington, which will Mary up very nicely to a brand new won't limit mall adjacent to it with a whole foods anchored <unk>.
Yeah.
[noise], Okay, great and then just done the resolved can we saw big coffin straight-line. This quarter I'm curious if you started converting any of your catch basis tendon back to accrue all this quarter.
And how should we think about the run rate of straight line going into 2022.
Probably gonna be lumpy.
It it'll it'll be.
It should grow with all the office Leashing that we're doing.
The the big driver was Puma this quarter, which is still in a free rent period, but as we do more and more office leasing that's gonna push two hour straight line ready increasing and that should increase your next.
Next quarter it into 2022.
And no changes to our.
[noise] assessing kind of Castro are cool.
Okay great. Thank.
Our next question is from Gary Johnson of Deutsche Bank. Please proceed with your question.
Hi, Good evening, everyone How're you doing.
I do have it.
Have any of the big three master mixed use development recovered more briskly are there any leading or notable laggards uhm and if so does that bode well for a snapback in demand clearly for the laggard in the coming quarters or would you describe demand as policing demand as being relatively balanced across the <unk>.
Isn't it throws at the pandemic or how much value do you think has already been harvested in your view.
Significant.
And and you know, Jeff and I.
Argue about this cause it's all conjecture right, who knows well when you look at you know what things are trading at all the way through I I'm I'm thinking, 15%, maybe 20% more.
Big numbers.
Great guys. Thanks.
Our next question is from Craig Mcinnes at Scotiabank. Please proceed with your question.
Good evening.
Associate strong contract for the future.
Yeah.
And on the office side have you seen any changes.
Oh, yeah activity [laughter].
No I like the way when they put it.
Greg the real deals.
And so yeah.
Yeah, there's a lot of capital there.
A lot of capital on all deals today and that's that.
That is a trend that that continues but the rent paid for it and so when you look at it net of capital. These are good deals.
Thank you.
Yeah.
Our next question is from Juan Sanabria of BMO capital markets. Please proceed with your question.
Hi, Thanks for the time just curious on.
A couple of a hot topic items, one inflation and to supply chain issues, what impacts there having do you expect the supply chain issues too.
Okay.
But it does but your point is important it is a it has to be a very proactive.
And and.
Creative way to deal with something that is in some respect some controllable.
So we'll see how that plays out so far so good.
And on the costs really good thing that the biggest piece of our development pipeline is already locked in.
And as you know.
Yeah.
Even as I sit here at 909 Rose our office building here. This building was built with 2018 money.
And you.
You know.
Even though even though there's a there's been a delay it's taken longer to effectively get it leased up none of that has those deals are really good deals on 2018 money.
So this will work out just fine same way at Santana same way up in assembly on the new stuff, we got to lock in early best we can lock in price.
Escalation, we got to leverage buying power with bulk purchases, we have the sole source ultra alternate suppliers.
It's all it's all part of a very proactive and tightly controlled development organization.
I think we're really good at.
Thanks for that and then just.
My follow up would just be.
<unk>.
Yeah.
You kind of Miss the opportunities are in the boat.
Thank you.
Our next question is from Michael Goldsmith Avenue B S. Please proceed with your question.
Good evening and thanks for taking my question you occupy percentage grew 50 60 basis points sequentially, but least occupancy grew a bit less than that sequentially. So can you help bridge the gap between all the strong commentary about what you're seeing in retail leasing.
And kind of how that's reflected in your lease percentage and then also is 200 and 250000 square feet of new leases.
Alright, please to expect going forward.
Yeah with regards to the lease percentage being a little slower. It was it was actually reversed the last order or at least.
Significantly.
90 basis points, something like that look it's quarter to quarter look for the trends we see trends.
Continuing upwards on our lease percentage quarter over quarter, some quarters, maybe a little slower we had some tenants left we took some space back there was some issues that came up this quarter that put a little bit of a damper on are these percentage momentum, but we would expect given the leasing activity that we have and.
Leasing activity, an unoccupied space that we see we should see.
It should resume.
To a better than the base point increase that you saw.
This quarter, but the one thing to comment on is that you know are occupied percentage grew 60 basis points I don't think we had any impact we got we got rent started.
And it was I think a strong quarter for that in terms of getting tenants in getting them rent paying and that's gonna ebb and flow from quarter to quarter don't look at any one particular quarter look.
Look at the trends over time, and I think you see looking backwards. The trends have been very positive then I think that going forward, we should expect that as well.
That's really helpful in a longer term question.
You've talked a lot about reaching $7 a share and F. F O over the past several calls and updated guidance. If you take the high end of 22 numbers and you get <unk> get 10% growth in 23, and 24, you're gonna get there. So what has to go right in order for you to get there.
By the end of 2024.
Yeah.
What's happening now [laughter], what what's happening now the single biggest thing that's the impact.
[noise] timing of the trajectory.
Is the lease up.
Oh West building.
I'm in California as.
As I said you know, that's that's kind of an on off switch.
Or hopefully it's on off switch because it's a we're looking for a single parent.
Or the building or at least the majority of the bill so the timing of that create favorability in in in.
In that trajectory and the second thing is I am very confident this is gonna be a 95% lease portfolio.
Trajectory that 95.
We have to see so to the extent that it's quicker we'll get the seven fact faster. So we extended slower we'll get it through a slower but basically what we're seeing happening now.
The continuation of that.
We will get you there I hope that's helpful.
Thank you very much.
Our next question is from hand I'll. Thank you to add me do have please proceed with your question.
[noise] Hey, there.
So I guess my first question is on capital allocation, you talked a lot about the Catholic compression in the market.
Saying grocery deals and a four and a half 5% I guess I'm curious how you think about incremental disposition in the face of the strength to fund some of your external growth pursuit and how that maybe you're thinking about your stock as currency with imply cap here in a high 4% range.
Yeah.
Disposition side of things, we do what we always doing come through the portfolio and if there's assets that are.
Keeping up with the growth.
He projected from the rest of the portfolio, we look at all of them and we're actively in that process right now again nothing nothing to talk about on this call, but we always we always lots of doing a portion of your portfolio in.
$100 million or so every year run that process right now.
And they will just just to make their point.
We expect spec rates go up.
Had accordingly, when you are looking at capital allocation How's your going to undergo whether that's with those dispositions or whether it's with equity or you know we take a balanced approach.
So you should expect.
You should expect some dispositions and taking advantage of the market that is that is there today as Danny said you should you should expect some of the forward contracts that we've taken to be issues all on a modest space all with a balanced approach to that I'm not surprising.
With one.
Way to fund this company, but we're we're that we're using all the tools we've got a bill.
Okay, and then I don't know if I missed this you talked about the 25 million a sin, but at least rent did you talk about what proportion of that will likely hit or is embedded in your 2022.
Oh look a bit a big chunk of that that number will will hit in 22.
Yeah, I would say that 90% of the income from those leases will happen in the fourth quarter and over the balance of 2022.
Okay that sounds good.
Terms of cadence.
I hear Ya I hear Ya percentage rent, if I could sneak one more in here I guess, how they performed in a quarter of expectation saw a big pick up versus prior quarters and thoughts on that into your rent here.
Yeah, no strong and.
Significantly better than we've got there's two components to it first is there are there are you know this percentage ran on deals that were not adjusted during COVID-19. They are natural or unnatural breakpoints, depending on how the contract is written and salesmen Hot [laughter]. So so just there's a there's a natural component 2% address.
That is better than the others and then as I think we've talked about in the past there were there have been some of our COVID-19 deals effectively traded out fixed rent for a low a low breakpoint a percentage rent. So that we were sharing the recovery if you will with the prospective tenant.
The recovery has been stronger.
And so percentage rent on those COVID-19 adjusted deals.
Or higher so I think what would be a $4.9 million in the corner.
When you think about $5 million or will it be 5 billion times or $20 million for the year Noah wall.
This was a this was it was a really good quarter and some of those some of those deals in percentage will convert back to fixed rent deals. So just by by the very nature of the contract.
It won't be as strong.
In particular.
Number going forward, but.
But I hope that's helped.
Either case, it's because sales were higher than we thought it would be.
Mmm no I understood understood and certainly appreciate the color on the the the the sales the adjustment you made in the least is is that gonna be for the next year or two years or when do they go back to more traditional most of them. Most of them are done in 22, I think one or two will make the width of 23.
Got it thank you.
Thank you.
Our next question has been keeping can I truly.
Please proceed with your question.
Thanks Hon. Good evening.
Just going back to your acquisition.
Your basis value per square foot was pretty low and I know that was negotiated drink COVID-19, but even if you kind of market to market is still pretty low basis. So I was just curious.
I know you could mention IRR, but what's the real estate strategy behind your acquisition.
Hey, <unk>.
His job you know it's it's.
Little different of course, or maybe a lot different food and a couple of cases on the the group of properties will be bored, but you know, it's and you know as well and we're always looking to highest and best use of the real estate right. So in a couple of those centers is relatively simple, claiming them up into doing a better.
Java, saying, including in one case potentially having a better grocery anchor.
There is some densification opportunities for a couple of the property.
For sure and then grows on us a little bit of a blank.
Blank slate that we need to think through and figure out what we're gonna do with all leases about property coming up 25, and we're in that process.
The goal there is to narrow the options by the end of the urine.
Interaction at some point.
And 22, but we're not quite there yet, but as you know our our view is always buy a piece of land where you can buy in terms of location population density incomes Road network all that good stuff and then.
Put on that piece of land, what the market demands and generate as much right as possible one.
That's why we bought those deals they all have those characteristics will be.
Different as each one but that's what were you doing.
<unk>, we're really optimal into growth profile and when we bought in the last year.
You are right given to look at one of the components, we look at it and that's that's price brighter.
Because at the end of the day, what you get in.
Will help determine what it is that you can make.
Make work in terms of highest investors and so when you look at something like gross mine ice breakers really important to us because we're not sure of exactly which way. We can go up because of the price. We got it at we've got multiple ways to go and that's when you really think about creating value it really off.
Often comes down to the flexibility could you always have an idea and then often something gets in the way of that idea whether your choices and so I don't want to I don't want to say that price breakers not important it's really important and obviously when you get the highest the best usually try to figure out what your iron.
<unk> will be as you go go through that going in price is probably the most important factor the determining what it is that you can do.
Yeah takes about color and it is interesting because you are seeing different take different strategies and you know.
It'll be dumb to say just low basis, and Greg obviously wanted to smart deal then petsmart capital to work, but it is something I noticed that your basis is just slow on on all these deals. So anyway second question on development.
What is the likelihood of of adding a fourth.
Project to your victory.
And it does the fact that just the cost to do follow up is so high and if you do it and get started then you're basically kind of locking in a higher rent that you need to justify it that Tibet.
Hold you back from adding a fourth grand.
Grand project.
Well. Thank you so so.
I would say the chance of adding a big for a fourth project are less than 55th they're not zero, they're not even 20%.
Less than 50, 50, and there's a number of reasons for that.
The single biggest reason.
Is everything has to be looked looked at through a risk adjusted prison.
And when you look at the Big three it's funny, because we've been doing the big three for so long everybody loves It says well hey, what's the next one.
But if you worked here and you would try to figure out where you want to put capital incrementally to create the most value time and time again, you will come down to the big three because we're not close to being done.
And so the notion of adding incremental buildings to Santana row like in rows and assembly row.
[noise] channels the comparison with starting a another mixed use property that will take two decades to do.
So it all the way it comes down to capital allocation and where you are alternatives are and what the smartest thing to do is and then I think the mistake that.
Some investors and analysts make our underestimate.
The level of growth and capital that is still yet to come.
At the Big three some 10 15 in the case of Santana 20 years later.
[noise] got it thank you for color.
Our next question is from Paulina Roundhouse Smith of Green Street. Please proceed with your question.
Good evening.
Your current connectivity the impact includes 5 million <unk> rent abatement.
I'm curious.
What type of kind of transfer receiving this amendment.
And then how much longer do you think they were needed.
And three I think Sweden rent abatements or or Disanti fair amounts that you are writing off.
Yeah, I mean deferrals that you're right off our our abate, but I mean.
Different parts of the debate the deals that Dom alluded to where we restructured and we lowered the rent for a period of time.
And then would participate through participating rent.
Based on sales.
Effectively.
Whatever dimunition from the contractual rent so the new for rent is considered a debate.
To the extent that you write off previously negotiated deferrals that's in the basement.
Oh really where the abatements are occurring.
Restaurants.
Still have that because a lot of our deals that were restructured like that because of the limits on their capacity constraints during COVID-19 and so forth overall Lina I want to say one thing about that right. Now you ask the question how long do you think he'll need it.
That's irrelevant because these are deals that were cut they ever caught in the middle of Covid. They were cut to expire with expiration dates at some point either in 21 or 22 and a couple just because a good negotiating got us to 23, they actually don't need it.
Any longer and that's why you see percentage rent away you see it male offsetting that obey men and it was smart that we were able to.
To switch off and abatement for a fixed.
Fixed rent four percentage rent because we are getting paid is just in a different line. Then then you see it there. So I just wanted to make sure. You know these are contracts that were agreed to previously that have sunset dates on them. The end of this year. Some in 22 and a couple of <unk>, yeah. So that number will bill burned down.
<unk> over the course of 2022.
That's very helpful. I wasn't fully aware of that and then N.
Are you able to Sharon <unk>, some property and like <unk> <unk>, it's a full guidance and for next year, even if it's a white link it would be helpful.
Yeah, we're gonna provide that detail comprehensive.
Assumptions in our guidance for next year, just guessing it's probably.
It's probably in and around 3%.
For next year or this year, while we don't think it's relevant should come in in double digits low double digits blended for the year, but I think.
This year. It said somewhat of relevant next year will give you a detailed assumption on same comparable property growth on the February coal.
Thank you very much.
Our next question is from Nightmare <unk> J P. Morgan. Please proceed with your question.
Yes, Hi, a couple a couple of quick ones here Uhm, how much quarterly hotel and parking and why are you guys getting today and what do you see as in more normalised level for that.
Hang on Mike the Scrambler yeah.
While you're scrambling.
Wow.
Yeah, Let's let's go one question at a time I'm not sure.
Sure no problem.
Roughly the run rate right now parking income is that two and a half a million dollars a quarter and kind of given that should that should stay that's probably at about 70, 75% of of stabilized run right and then Hotelman hotels are not gonna contribute this year.
And so we should see that it's only gravy if they increase we've seen in the last couple of months kind of a real resurgence in our occupancy levels at the three hotels that we have so we're really optimistic that they will start to contribute and 22 and certainly in 2000.
Three and 44 portable.
Got it Okay and then when you were talking about prior peered rent's not not recurring was that a comment when you. When you were talking about 21 guidance and twenty-two you're not booking anything at the same level as to what you saw in 2023 or you just kind of have zero in for prior period on everything goes.
Forward.
No I don't have zero no I I'll give some guidance on 22 in February this year, we've been pretty consistently in the $7 million to $10 million range started out high in the third quarter of last year and it's been about seven to 8 million in the last three quarters.
I don't think we can sustain that so that should start coming down just based upon what's outstanding in terms of our bills accounts receivable.
And so it should.
Come down pretty meaningfully.
Certainly in 2022 from the levels we've had this year.
Got it okay. That's helpful. Thank you.
Our next question is from Linda Sigh of Jeffrey.
Proceed with your question.
Hi, I just have one question do you have any big pictures thoughts on how companies are utilizing office space differently coming out of Covid based on what you're seeing in your own portfolio in any anecdotes to share.
They they're all I would say is and.
And I just I just did a an interview for the Washington business Journal around the choice deal and the.
We are C pretty consistently in our places and again, it's a small sample size, but most people are looking for less space.
And from where they are to where they're going and and.
I guess I'm, not saying anything so so.
Eye-opening, there, but it's been pretty consistent and and.
Equally consistent is obviously the ones we're talking to are putting a very high value.
On the amenity base environment and buildings that are brand new and.
And so when you put those two things together or not getting frankly, the rent pressure.
Partly because I think it's you know the total rent that they're paying does not more than they were paying for.
Because they're taking less space and so so interestingly the biggest.
Component of.
Where they're going and almost all have some kind of a hybrid work model associated with it that partly allows them to take to.
Take less space, but but they're under yielding with respect to what amenity based means and the frankly newness of the building.
Today also much shorter lease terms too.
No.
No and no cases Franklin.
Thank you, but again just remember Linda.
You're not talking to a guy with a lot of office.
Knowledge throughout the country, we're talking about really San Jose, California here and.
Outside of Washington, D C and outside of Boston and that's it.
Great. Thanks.
Our next question is from Tammy T at Wells Fargo Security. Please proceed with your question.
Thank you Uhm good evening I I guess I'm, just wondering in terms of the acquisition.
<unk> I'm just wondering if you could talk about you know where you are looking to expand geographically going forward, particularly given every soccer taken from Phoenix.
Maybe there's a pile up do you think that there is no advantage to geographic portfolio concentration.
Frank and then I will have been pretty concentrated at uhm can sparkly.
Yeah, Let me, let me try and start with the Nd. Your question first Tammy mm mm I don't get all of them what I Miss.
Look we set a number of times, we really liked him Arkansas and.
And we see great benefit from having a concentration.
Each of those markets.
We think that helps us see more deals on the acquisition side of our business going forward in a certain way and puts us in a much better position when we're talking to the tenants.
Every one of our always think people will tell you that so.
[noise] concentrated in a market is important so certainly.
Now that we're in the greater Phoenix Metropolitan area, we're going to want to grow in greater and greater Phoenix and get that same concentration that we have and.
Our other target markets.
So expect to see that I think we mentioned on some byard also we are looking at it with a couple of new markets.
You know doing a research, making sure identifying or on those markets to want to be we're working on deals in those markets, whether they have it or not I don't know it's too soon to say.
Don't be surprised if we.
Pick him over a couple of markets to be I'm.
Sure the the characteristics for markets were already in which those barriers to entry good education and income and population density levels and.
Properties, where we think over time, we can.
Currently income stream and add value what we do.
Tammy I just want to add add.
Something that would just said, which I couldn't agree with more <unk>.
Really.
Cannot under estimate.
When you were a player in a market.
How prospective sellers or people that are not even sellers, but might be sellers review your.
How they will come to you how you'll see things that you wouldn't see it's so different than just owning one or two properties in a in a very.
Very wide place because obviously our business is business is local.
And.
The Best example, we have that just happened is effectively what's going on in Phoenix I mean.
We are talking to the inbound questions along with our own work in Phoenix has quadrupled.
From what would have been if we had just bought.
One or two very small.
Properties by owning camelback colonnade, where a player.
It's well known and what you can't underestimate how that can lead to to you know.
More work and certainly on the retailer side and on the operational side, you get your obvious efficiencies in and.
[noise] proportionate level of play we have seen that in Washington D C.
Suburban Maryland forever.
Now starting to see it in northern Virginia, because we've made such a play there there's no doubt in my mind that concentration is it a really big plus in this business and no more so than on the acquisition.
Great. Thank you for that Uhm perspective, and then.
Following up on your collections question just to be clear you expect the majority of those.
To start painful right again.
You move out does that sound right way to think about it.
Could you repeat that again.
Fluttered in N out.
Oh, sorry about that have you sitting on that collections question I just wanted to be sure I see here. Thank you expect the majority of the opinion in that four by 4% number to start painful bank again and not get resolved through is.
Is that correct.
I think some will be resolved I think some will be kicked out [laughter] right, we're down to the last three or 4% of of tenants and.
Are obviously have taken a much stronger position with them we are not in COVID-19 as it as an as an economy anywhere near the extent, we were obviously and so to the extent those businesses can't survive in the existing business and going forward, maybe they don't belong here and.
And so we're taking a harder line on on that side with respect to to a balance we certainly expect to get paid and will so I'm not I don't you know the difference between 96 or 99, 3% I don't know, whether it's half and half of those choices are two thirds, one third but it's something like that.
Okay, great. Thank you.
Our next question is from Katie Mcconnell at City. Please proceed with your question.
We don't want them around the guy.
Now the total amount.
Yeah.
Why are you laughing.
So we started with <unk>, we ended with Katie Mcdonald, but it's not Katie Mcdonald. So I thought we run around all I've already gone around the circle again, but no sir what can I do for you.
I'm not going to ask you for drivers of 2023 and 2024 guidance.
But don't worry about that but like you do pay about 21 and 22. So I really appreciate that you guys came around and provided that to the investment community. So thank you [laughter] I want to just ask you questions one.
Just one on Somerville [noise], you know you're there Joe let's put out some revised and updated plans for what he wants to see it assembly.
I guess, how close could we be to that next phase and incorporating the power center.
And to sort of a larger project and you know I know what you're talking about the big three if it gets to keep on giving it feels like this is closer now, but I wanted to sort of get your sense of where things stand.
Yeah, you know I don't I don't think that the power center conversion due to.
Assembly around 9.0 or whatever it would be at that point is is.
Imminent. So I don't want you to think about it that way. It is obvious when you said you think about a long term.
The highest and best use of any piece of property given what's happened at assembly row, and eventually one day there should be intensification.
The power Center site, but it is it is years and years away I don't the Heck you won't pay me for 23 for Pete's sake never mind whenever that's going to happen.
That asked but forgetting about that look at the rest of assembly wrong.
Look at.
This space between partners health care, and our existing property and what happens to them and it is we are looking very hard at lifestyle.
As you can imagine and and to the extent we can get.
Get the economics to make some sense at all obviously construction costs are the biggest hurdle in that but given what's happened to the adjacent properties, it's really clear to us that the assembly site at in Somerville is going to be a life Sciences site.
At some point, whether it's just the adjacencies or whether includes us will depend on whether we can make the numbers work or not but but that you should that is far more imminent certainly send the power center site.
Okay, and then just thinking about to review your enthusiasm and I don't Wanna Kirby and your enthusiasm at all but I guess, how do you sort of sit back it's been a pretty strange two years and.
<unk>. So how are you able to distinguish that all the things that are happening now are not just sort of a little bit of a catch up from just being.
Out of the market for Awhile and you know not taking what's happening right now in all the leasing activity and everyone's excited and we're getting back out and we're having meals and dinners environment chosen wording, how do not take it.
To not get ahead of yourself in terms of where it goes.
Oh, I love that question man because it.
You're basically talking talking to a very conservative guy.
In terms of in terms of those where I worry about everything going forward all the time.
In this case, though the thing that gives me confidence and it's a lot of confidence is I am sure that what we own and where it is is.
Is really valuable and so it's kind of like the office site. If we may be over office in this country now.
We talked about being over retails wherever we may be over office.
Such federal Realty exists.
Because where we had that office and what is being built.
In terms of that office, if there's any office at all.
It's going to be that demand is going to be at places like with like this that we all feel the same way on the retail and so when you hear confidence from a you don't hear confidence that that everything's, great and the world is going to stay great in the world I just knew on a relative basis whatever's happening we've got the.
Right products, and Nathanael, where my that's where my confidence.
That makes sense perfect alright, well thanks for your time and just meet your next week.
Thanks, Mike talk to you soon.
We have reached the end of the question and answer session I will now turn the call back routine like N S for closing remarks.
Thanks for joining us today, and we look forward to speaking with those attending NAREIT next week have a good evening.
Okay.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
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