Q3 2023 Federal Realty Investment Trust Earnings Call
Good afternoon, and thank you for joining us today for better Realty's third quarter 2023 earnings.
You mean me on the call are Don Wood at all even out.
He's executive officer, Jeff, our guest President and Chief operating Officer, and Chief Executive Vice President and Chief Financial Officer, and Treasurer, Dan Spiegelman, Executive Vice President and Chief Investment Officer, and when he ye Executive Vice President Eastern region as well as other members of our executive either year to take your questions at the conclusion of her.
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 99.
Forward looking statements include any annualized or projected information as well.
Do you expected or anticipated events or results including guidance.
Although federal Realty believes expectations reflected in such forward looking statements are based on reasonable assumptions, but our real if you drew.
Our 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.
The earnings release, and supplemental reporting package that we issued Tonight. Our interim report filed on Form 10-K, and other financial disclosure documents provide a more in depth discussion of risk factors that may affect our financial condition and the results of operation given the number of participants on the call. We kindly ask you limit yourself to one question during the Q&A portion of our call.
If you have additional questions. Please re queue with that I will turn the call over to Don Wood.
Our discussion of our third quarter results.
Yeah.
Thanks, Leah and good afternoon, everyone.
It's a good time to own high quality retail centric real estate.
Demand exceeds supply for the best stuff and this past quarter's results and in fact, the whole year. Thus far has made that patently obvious.
For the third consecutive quarter, we saw comparable leases in other words, 95% of all the deals done during the quarter. The only deals we exclude in our definition of a comparable related to ground up construction.
For over a half a million square feet 553000 to be exact.
For the nine months of 2023, that's over one 6 million square feet of automobiles are Mark we've never had before.
More than the first nine months of 'twenty, two which itself was a record.
More than the first months nine months of 2021, which itself set a record.
You can see it in the occupancy numbers to all the bed Bath closings were expected to win.
Reduce occupancy in the quarter versus last year by 100 basis points. Our overall occupancy declined 30 basis points on a lease basis and 50 basis points on an occupied basis that says something about the man.
If you dig deeper small shop occupancy part of the business. We are the most consternation about increased another 50 basis points to 97% not always basis, and 80 basis points on an occupied.
This trend has been a steady and powerful trend for two and a half years now.
When you look at occupancy possibilities going forward by looking at our past, it's reasonable to expect another hundred basis points of small shop occupancy and another 250 basis points a backdrop.
Due largely to bed Bath, roughly 200 basis points overall in the coming 18 months to two years, depending of course on the extent of future bankruptcies that are not obvious to us today.
I go through all of this to really try to hammer home the obvious health of a business centered around leasing as high quality retail centric properties in the first ring suburbs of America's greatest cities, while Bottomline results are and will continue to be muted by the higher but certainly historically reasonable cost of capital.
That's likely here to stay rents will likely adjust upward over time to that reality, especially with tenants and in locations that are affluent.
Hope that higher interest rates don't cloud investors' appreciation of the strong underlying business fundamentals that exist today and likely tomorrow.
So let's talk about rents.
100 comparable deals, which again represents 95% of the deals done this before so certainly representative of the total company.
553000 square feet.
Starting new rent of $34 51.
Final year of old rent $31 17 at plus 11% on a cash basis, 21% on a straight line basis.
Weighted average lease term of eight eight years excluding options.
The average lease term with all options exercised its more like 16 years.
The average CAGR contractual rent bumps of this borders leases was 2.5%.
T is profile of $31 19 sense. When you don't consider this broader adoption exercises $16 67 per foot when you do.
Been hearing that our rents are high for the better part of the last 20 years I guess on a relative basis. They are.
Better properties of higher rents better properties of higher tenant sales and profitability to frankly, it's obvious.
That's sustained leasing volume and those economics bode well for the future, especially with the contractual rent bumps third quarter results benefited from that level of activity over the past six quarters.
<unk> per share of $1 65 in the third quarter was ahead of consensus was ahead of internal expectations and ahead of last year's third quarter by 4%. Despite for a higher interest expense and loss bed Bath <unk> <unk>. This is a really strong quarter for us.
Okay.
As you know we were particularly active on the acquisition front during the Covid years 2021 through 2022 in total $1 billion and new additions to the portfolio during that time, whereby the post acquisition leasing continues to exceed your acquisition underwriting.
Similarly leasing production at properties that have recently undergone redevelopment and property improvement plans have also continued to outperform our expectations and we also expect that to continue.
And while big new acquisitions have slowed given the higher cost of capital note that in 2023, we've been able to invest over a $120 million at 8% with a blended IRR above 10.
We did that through.
One the acquisition of our partner's, 22% interest in Escondido shopping center.
Secondly, the acquisition of the fee and the portion of the Huntington Square shopping center that we didn't previously own.
Number three in October the V under Mercer on one in Princeton, New Jersey, one of our best performing regional shopping centers over the last 20 years.
Smart accretive capital deployment of real estate, very well known to us in each case.
And as strong as the core shopping center business has been the large mixed use properties have been even stronger.
Retail leased occupancy at 97%.
Residential leased occupancy at 98%.
Office leased occupancy at 97% excluding buildings under development.
Powerful traffic counts and tenant sales make these properties.
Enter the communities in which they operate a draw customers from distance is far more than local neighborhood.
And so as not to leave it out as I've mentioned on prior calls our multi tenant leasing strategy at Santana West has generated meaningful tenant interest that has progressed to advanced lease negotiations with multiple tenants for more than half the building while leases are not executed yet our progress here is noteworthy.
Strength of our business is grounded in superior demographics always has been always will be more density higher incomes are real barriers to entry are always important in our business, but never more so than in uncertain times in the economy.
Past cycles are proving this out time and time again.
With 70000 households, with it with annual household incomes of over $150000 sitting within three miles of federal centers, There's simply no large open air portfolio available for the public investor to own and that's why not one.
Naturally we're all on the lookout for changes in the strength of the American consumer and their spending habits, because as you know it's remained surprisingly resilient.
So we tried to dissect the limited tenant sales data that we have for the 2023 third quarter and compared it to the 2022.
As expected for us sales were up portfolio wide.
Digging a little deeper our properties with the highest average income surrounding them so quarter over quarter tenant sales that were significantly better than our properties with the lowest average incomes surrounding them.
No surprise.
But an indicator we're keeping our eyes on in the months and the year ahead.
They've set upfront, it's a good time to own high quality retail centric real estate let.
Let me now turn it over to Dan before opening it up to your questions.
Thank you Don and Hello, everyone.
Another strong quarter of bottom line.
Despite higher interest costs.
Even with the headwinds stronger P. O Y is driven almost 4% growth.
After the third quarter and 2020 Three's first nine months.
The $1 65 per share beat consensus by <unk> was two cents above the upper end of our guidance range.
With respect to this continued strong performance, we can point to the following drivers.
Higher property level P O y than forecast.
Driven by higher rents as we got tenants opened ahead of forecast and kept tenants in them.
Higher overage percentage rent and specialty leasing.
Term fees than we forecast as well as lower property level expenses.
Despite the offset of higher interest costs and higher G&A as you can see we had another very very strong quarter.
With respect to our comparable metrics P. Oi growth was three 8%.
On a cash basis comparable POI growth.
Excluding term fees in the prior period was also 8%.
Near to year to date.
For the first nine months cash basis comparable py ex term fees and prior period rents.
Dance at four 6%.
Upper bound of our expectations.
And will result in an increase in 2020 three's outlook for that.
Which I will touch upon later.
This helps contribute to an overall view of why growth, 7% for the third quarter and seven 5% year to date.
Term fees in the comparable pool this quarter, we're up to.
$2 4 million versus $1 3 million in the third quarter of last year.
Prior period rent this quarter was down.
900000 versus $1 7 million in the third quarter of 'twenty two.
Basically a wash these two adjustments.
Tales for term fees from prior period rent quarter are disclosed in our 8-K.
Year over year occupancy showed continued progress.
With our overall occupied metrics landing at 92, 3% and our leased percentage at 94.0%.
Both metrics meaningfully higher than we had forecasted due to strong leasing and our team's efforts to get tenants open and rent paying.
Net of the negative 100 basis points.
Occupancy impact from the bed Bath departures during the quarter, our occupied metric grew by 50 basis points and our lease metric grew by 70 basis points.
As a result, our signed not occupied percentage in total stands at over 250 basis points to $27 million comprised of roughly $17 million incremental total rents in our existing portfolio with an additional $10 million of total rent and our non comparable pool, where leases are signed and the space has to be delivered.
So let me emphasize the strong quarter of comparable retail leasing with 11% cash rollover and 21%.
Rollover on a straight line basis, which was achieved with meaningfully less capital than we've historically seen.
Despite having significantly higher share of new leases signed during the quarter.
Which was largely caused due to mix.
As last quarter, we had a high percentage of renewals.
Tenant improvements and landlord work per square foot for these new leases came down meaningfully to $41 per square foot.
And resulted in a blended $31 per square foot, including renewables.
Strong new leasing activity as evidenced by 61, new deals totaling 423000 square feet retail leasing representing 75% of the volume for the board.
With more than half of this leasing for space that was vacant at June 30.
Big driver the strong occupancy gains in the third quarter net of the bed Bath departments.
Historically federal's disclose leasing volume.
Rollover and capital metrics I've been reflective of arm's length negotiated transactions.
And therefore have not included option exercise.
Options are one way for the tenant.
And they also do not have any capital associated with them.
In an effort to continuously improve our disclosure we have expanded the retail leasing schedule and our 8-K to include the option exercise.
We had 100 and we had 482000 square feet of options exercised this quarter, which incidentally had solid rollover of 9%, but more importantly, bring our total reported capital number from $32 per square foot in total down to $17 per square foot when including these option exercise.
This expanded disclosure can be found on page 23 of the supplement.
Note that we have also highlighted what percentage.
Total leases signed each quarter, our comparable our trailing 12 month average is 95% by number 97% by GLA.
Which we believe presents a more comprehensive picture of the investment.
Particularly for road.
Now to the balance sheet.
At quarter end, we maintained one $3 billion in total available liquidity.
Comprised of $1 2 billion available under our revolver and roughly a 100 million of cat.
With respect to really leverage our net debt to EBITDA ratio held steady at six times, we continue to expect it to be back into the fives from 'twenty to 'twenty four.
Our in process 750 million dollar.
Pipeline of active Redevelopments and expansions a competitive advantage for federal given its scale is.
Only $180 million to spend against our $1 3 billion of available liquidity.
A large chunk of that remaining figure being leasing up which was good news when deployed.
This pipeline should continue to drive incremental P O I.
Into 'twenty four.
25.
And into 'twenty six.
Now on to guidance, we are increasing our forecast for <unk> per share for 2023 up to a range of $6 50.
The $6.58 up from the previous range of 646%.
Guidance now reflects 20 twenty-three F. A boe growth over 2022 of 3% to 4% three.
Three 5% at the midpoint we.
We have managed through retailer bankruptcies to date extremely well now.
As I previously discussed we have relatively small exposure to expected near term retailer fallout.
Our credit reserves will likely come in lower than the originally fully loaded under a 135 basis points.
Range that we provided when they revised credit reserve at 85 to 95 basis points.
The dip in occupancy we expected this quarter was much less than forecasted as two of our buy buy baby locations and only one of our Christmas tree shop locations.
Went away and were assumed.
Coupled with strong performance on accelerating rent commencement.
Poor mentioned strong leasing volumes for the quarter.
Okay.
Our comparable growth perspective, given our solid first nine months, we are increasing our 2% to 4% comparable POI growth range.
Up to two and three quarters to three and three quarters percent.
In the 3% to 5% range for comparable POI growth adjusting for prior period rents in term fees to three and three quarters support and three quarters percent.
On a cash basis adjusting for prior period rent and term fees were increasing our 3% to 5% outlook.
Up to 4% to 5%.
Additionally, as discussed previously at length, we expect to continue to capitalize interest expense for Santana West without this year through at least 2024 and have refined our G&A assumption.
Down to $51 million to $53 million for the year as always we have provided an updated summary of the assumptions for our guidance on page 27 of them or anything.
With respect to 2024, we will provide guidance in detail.
2023 year end call in February.
And with that operator.
Please open up the line for questions.
Of course, we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad and if youre using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw from the queue. Please press Star then two.
As a reminder, please limit yourself to one question. If you have a follow up you may re queue. At this time, we will pause momentarily to assemble our roster.
Today's first question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
Hey, good afternoon, and I'll I'll do my best to stick to the one question. Don you guys sold I realize it's small but you sold one year third street promenade assets in Santa Monica and I remember you know over the years, but that's been sort of one of the highlights that that retail has been up.
Highlight for you I guess things have changed but stepping back are there other areas of the portfolio that used to hold you know maybe better opportunity and what's happened in the past few years as populations have ship.
Now reassessing. So we may see more sales of assets that previously we wouldn't have seen you guys sell.
Thanks for the question Alex the answer is a hard no.
Santa Monica Third Street is a it's a really unique.
Situation frankly in the country.
We made a fortunate on on third Street and if I showed you. The irr's are from when we owned it. So you know when we sold that building in and frankly, the rest of it they are really spectacular, but there is no doubt that COVID-19 changed third street significantly.
And yeah, we there's a there's a downside.
On the AR on the Street.
We're not believers in the ability that can continue what we have now at a different basis, maybe that could make some sense again, because it would be reset and starting again a please don't take a third street promenade and extrapolate that to the other assets within the portfolio. It's a unique one.
The next question comes from Steve Sochua with Evercore. Please go ahead.
Yeah, Thanks, Hey, good afternoon.
Dan maybe just sticking on the transaction market and looking for opportunities you know one of your I guess peers in the shopping center space, just kind of pivoting and putting a fair number of assets on the market for sale I'm. Just curious if any of those larger format assets might hold appeal to all federal.
Okay.
From a sales perspective for us Steve the answer to that is not really I mean, it's the same it's the same process that we would that we would normally go through each year. As you know you can always expect $100 million to $200 million 300, sometimes of sales depending upon the marketplace and what it is we don't have.
I don't see that for us at this point and including looking forward I'm really happy frankly with the positioning that we have on the other side in terms of buying there's gonna be a buying opportunity man I'm not sure. If it's if it's the right now to.
To tell you the truth is hard to imagine with all the debt coming due in the situation of the banks begin in the next year or two or three are that there wont be some some really nice opportunities that we see but will stick and we'll stick to that time and see it then.
Not today it would be my answer.
The next question is from Juan Sanabria with BMO capital markets. Please go ahead.
Hi, Good afternoon, I was just hoping you could talk a little bit about the signed but not occupied pipeline.
On the expectations for the.
For that NOI to come online.
And maybe the mix.
On the timing perspective between the development redevelopment slash their kind of normal course assets.
Our same store pool, if you could just give us a little color on the expectations for that thank you.
Sure sure you know I think that you'll see roughly about 10% of the aggregate number the 27 million coming in the fourth quarter.
I think the balance of it largely will come out over the course of 2024.
Yeah.
I don't think I think it'll be fairly a.
Front end loaded first half of the year, a little bit more weighted in the back half of the year and it will not be materially different in terms of kind of when it comes online.
When you look at everything, including all of the space coming online for the.
The non comparable.
Properties, so largely only 10% of fourth quarter and then the balance in 2020.
Yeah.
The next question comes from Greg Mcginniss with Scotiabank. Please go ahead.
Hey, good evening.
Two parter on guidance here first is on the implied Q4 F O per share guidance range, which at dollar 59 to $1 67 feels a bit wider than usual so what could take it to the top or bottom end of that range and with regards to development funding you quite reasonably took equity funding out of guidance, but maintain.
Disposition expectations. So how should we be thinking about funding development at year end and into 'twenty 'twenty four.
Yeah, Dave we narrowed the range the implied range. There is it is what it is about 50 967.
It is is there I think look we did an exceptional job this quarter getting started.
Faster.
Faster than we expected, we're going to hope to do that again.
I think a good job keeping tenants in place for longer.
I think that we'll see occupancy growth.
And the in the fourth quarter, given the significant amount of leasing that we had.
I think that there's not going to be.
Probably there's a little wide.
The ones that you know and you probably want to look at a few.
<unk> outside.
The midpoint, there, but I wouldn't read too much into that.
Yeah, I think part of it is is also we'll see what happens with regards to <unk>.
We're fine tuning our G&A for.
For the remainder of the year and you know I think one of the things that we did really well.
We delivered choice hotels.
Yeah early Ah got it in before quarter end.
And that'll be a nice recognition.
Through the entire quarter realm.
Relative to kind of what we had expected.
And then obviously I think youre going to see that.
The headwind of interest rates and who knows what happens through the balance of the last two months, but obviously, we're facing higher interest rates than we had expected and you know obviously the timing and what we do in terms of our refinancing.
They they fixing some of that.
On the development.
And then with regards to funding developments, we have an undrawn $1 2 billion dollar credit facility, we are continuing to look.
Look at.
Modest levels on alluded to are.
Continuing to see if we can get some asset sales done and we're very very well positioned I think from our perspective to be able to we only have $180 million left on our development a remaining $750 million development pipeline.
One $3 billion of liquidity at quarter end, certainly positions us well over the next four or five.
Five quarters.
Wanted to get done what we need to get done.
The next question comes from Michael Goldsmith with UBS. Please go ahead.
Good evening. Thanks, a lot for taking my question, how does the updated credit reserve guidance compare to historical levels and related to that on the tenant watch list you continue to see strong momentum within the within the small shop space or is that representing a larger portion of the.
Tenant watch list in the anchor space.
Yep.
Yeah with regards to the 85 to 95, yeah, that's kind of in line. Yeah. We end up around about 100 basis points. So I think we did.
Slightly better better than we are than historically meaningfully better because I think we had less impact from bed Bath and beyond that I think we originally had forecasted but.
I think that that's that's been a positive results from a managing the portfolio overtime and with regards to the watch list. We just don't have much exposure to any of the names that people are worried about.
Named like a rite aid big lots Joanne express represent a de minimis amount of our total rent exposure in the ballpark of about 25 basis points.
It's really nothing.
And so I think near term, we feel pretty good about the watch list all assess that said for 2024.
And.
We'll move forward.
Get through our budgeting process.
Through the balance of this year.
The next question is from Dori Kesten with Wells Fargo. Please go ahead.
Thanks. Good evening, you started the call with the expectation of a 100 basis points of small shop occupancy in Q T. I believe for anchor can be gained over the next 18 months to two years what.
What do you expect leasing spreads to remain comparable to what you've seen of late also over that period.
Yeah, I think I would door. It's a good question you know we talk about it a lot and and.
The notion of of how the lease up what tenants the appropriate level of merchandising.
What they will do to the rest of the shopping center I mean, we are picky and.
And in terms of of how we do that and so the.
Frankly, I think if you lease up too fast you, probably leaving money on the table and so the notion of being able to get the right tenant and get paid for that but it's something that's really important to us and combine that with the credit the type of credits that was small shop tenants the guarantees that we get the.
We very rarely do something with a first time a retailer it's almost always with a regional player or someone that's got a number.
Of stores, we we get the entire organization most of the time on a on the lease from a credit perspective. So so for me that's the key part of where we create the most value in the company. It is that that small shop stuff that works off of the anchors and on the anchor.
Leases I cant.
Can't empirically say this but I believe that the terms of the anchor deals that we get the bumps that are in those those leases and the strength of those leases I think theyre superior I think theres some of the strongest leases that those are tenants do so.
It's not it's not just about occupancy it's about profitability and that balance is something we take really serious.
The next question comes from Jeff Spector with Bank of America. Please go ahead.
Great. Thank you can you provide an update on any office lease progress at one Santana.
There was some news that maybe pwc.
For space there. Thank you.
Oh, Jeff Jeff Jeff.
No I cannot name a tenant where my comments you by the way you just cost me a sandbox with Melissa I said, if I made the comments that I made in here, which which are real clear with respect to where we are the deals we have how close we're getting et cetera, but we don't have signed leases yet I'd say.
If I made those comments in there there wouldn't be a question about the same thing.
But you are in your cost me 10 Bucks on about $1 billion on that if you at it.
That's really all I can say about that you should be optimistic because we sure are in terms of the ability to keep moving our you know moving moving forward, but no I cannot name at that.
The next question is from Hong Ling Zhong with J P. Morgan. Please go ahead.
Yeah, Hey, I guess, a follow up to to a prior question. If it if we were to think about leasing at Santana West. If you were to get a tenant and would you fully.
What the capitalized interest fully burn off there or would it be a proportional amount if.
So we expect.
We expect to continue.
Capitalized interest for the balance of the year through 2024.
To deliver space to tenants, we would expect that we would be able to match up the reduction in capitalized interest.
The rent starts and so that should be expected.
Consistent with what we've discussed in the past there's no changes in our expectations with regards to that.
So that number.
And that policy.
The next question is from Handel St Juste with Mizuho. Please go ahead.
Hi, there. This is Ravi gave the underline for unveil our hope you guys are doing well.
What's your early read for 'twenty for same store NOI somebody repairs have articulated expect next year's same store to be above average again, you talk about that a bit and the levers that you could possibly pull to achieve above average same store level for next year.
Yeah look I think as I said in my statement, we're going to get.
Guidance for 2024 in detail.
On our call in February.
With restore its the same store, we will be growing July next year, He said that before I'll confirm that here.
But that's about what I'm prepared to say at this point.
The next question is from Anthony Powell with Barclays. Please go ahead.
Hi, Good evening I guess a question on the residential piece of the business. Obviously, the multifamily rigs had a pretty tough earnings season. So what are you seeing there in terms of our rents are renewal rates and whatnot and how should that perform in the next few quarters.
Yeah, you should be very positive about that.
It's it's if you think about where our residential is it's only in four places where by places and they're all at the mixed use properties.
They have higher rents on an a in general because of where they are and the rent growth is generally better because of where where they are we're seeing that particularly true.
At Assembly in just outside of Boston, We're saying that's equally true in Silicon Valley and so when you kind of think about the particular markets that we're in and you think of the cost of home prices and at home price and you know in mortgages that effectively go they're renting in at fully a minute ties.
Great locations looks awfully good.
And you know that's our business model. So I can't really talk generally about our about the residential world because I don't know it.
Outside of these mixed use environments in our four big projects I Hope that's helpful be positive about it.
The next question comes from Linda Tsai with Jefferies. Please go ahead.
Hi, it looks like your weighted average lease term was around each quarter, but stays pretty consistent in the six five to seven and a half years I just wonder if there's any desire to drive lower lease terms to capture more upside given the low retail supply.
The only thing I would say to that is is it.
It depends on the deal.
And so when you're sitting there and not only can you get a strong starting rent, but you can get strong bumps in there well lock that in.
And and you know that's that's a key part of you know what it is that we do in terms of the eight eight years. This time versus six five or seven years, that's simply simply a matter of mix right.
There are certainly certain locations, where certain things are happening with redevelopment or whatever else. We're purposely trying to keep it to keep it.
Tighter and shorter period of time, and we do stuff like that but overall portfolio wide.
Yeah, I really do.
Linda I really love you to understand those and look hard at those those contractual bumps because they're a real differentiator over over the term or beliefs.
The next question is a follow up from Alexander Goldfarb with Piper Sandler. Please go ahead.
Hey, guys. Thank you.
Don as we think about you know that's sort of the traditional items and tenant leases that they like optionality on renewals co tenancy.
Use restrictions are you starting to see the tenants give on some of those as availability dwindles and they need there's less.
Space should be anchored level and if you have can you give us some tangible examples of where you've seen tenants make deal today like the big sort of tough negotiating tenants, where they may deal today that they went to have made a few years ago because of the dwindling availability.
Good question, Alex It really is and I'm going to I'm going to turn it over to Wendy to make sure that you get the specifics.
Alex So I would say the answer is yeah. Overall, we are seeing you know with that.
Really especially for better specialty brands, they are not able to find the kind of product that they're looking for and so there is a big demand for.
Our some of our.
Besides Geronimo and well for example, I was just talking to the leasing people for Bethesda valid we have a waiting list of 10 to 12 patents that are trying to get into Bethesda row in the in the right format they'd like to join US. So when I'm hearing about waiting list, Yeah, we're able to drive those term a little bit better.
Than we had before but just it's pretty exciting we just signed a deal with you.
Yeah.
And storage of LNG in the world.
And just over 21000 square feet, a great opportunity I can't obviously get into the specifics of that deal, but I will tell you from the time, we started the lease we signed it it was 40 days.
So it was a it was a clear desire on their part to get that deal done.
Geographic area that we feel pretty strong all well not only benefit them, but will benefit our shopping.
Yeah.
I would say Alex is just you know keep in mind that were pretty telephone waste.
And we're not necessarily.
Giving away a lot of the things that you were talking about again what.
The leverage is definitely is when he started shifting.
Shifting to log a landlord in many respects.
Given the shortage of space and you know given our proclivity to be tough on all terms in a way it's not just the financial terms.
<unk> had some good deals right now and we're cutting them with great tenants.
Yeah, really really positive environment right now.
As a reminder to ask a question. Please press Star then one.
The next question is a follow up from one center barilla with BMO capital markets. Please go ahead.
Hi, Thank you just going back to Michael's question from earlier in the call.
The implied fourth quarter guide.
Maybe could you provide a little bit of a bridge on the implied sequential deceleration of what those drivers are and as I saw from the third quarter run rate to the midpoint of the implied fourth quarter Guide. Please.
Hum.
Yeah look I think that are you know.
I think we're probably a little conservative.
Diddley them on some of the numbers there.
We've had a good year, which could impact G&A will go up.
So those are kind of good I think the numbers a little bit of conservatism and probably a little bit of an increase in the AR and in the final quarter probably is what it is.
You know what I think gets you to kind of the midpoint the implied midpoint of the guidance.
The next question comes from Nick Joseph with Citi. Please go ahead.
Thanks, I'm curious kind of the plans and thoughts for Mercer mall after acquiring the fee interest I know, it's supposed to do.
This potential expansion or conversion so I'm wondering on the timing there and kind of the current thoughts.
Sure Yeah, Hey, Nick Let me answer those Jeff Let me answer the first part of that question and then turn it over to Wendy.
Can walk you through some of the things that.
We've got going on at Mercer, but the acquisition to be which happened in October was something that we baked into the deal 20 years ago.
So yeah exercising that option today.
No it's not.
Have any bearing on what we would what we would do with the property longer term.
The plans that we have in place for Mercy right now or you know would have progressed with or without that but we've got a lot of great things going on at the property and it's been a it's been a great asset for us. So when do you want to fill in some of the detail I'm sure we'd been working on rebranding the property. So they don't be rebranded as Mercer on one.
That's kind of a catchy feel to it we are you'll be seeing signage going up on the pylon signs to execute on that merchandising and N V. A branding of the property.
Have D S W. He's going to be leaner and meaner, and they downsized and children tenants coming in right next to them plus we have back fill them as you saw with crate and barrel.
A portion of the bed Bath and beyond that we got.
I think it was the end of last year. So a lot of exciting things going on at Mercer and a lot of investment in our part.
We're able to drive those rents with that with a good demand in the market and get a return on invested capital.
Yeah, just remind folks that you know that was a $55 million investment.
7% yield.
So kudos to the folks who are embedded that option of 20 years ago to allow us to have this really great opportunity to invest capital.
At a property we own.
You know what I think is implied a current cap rate on it significantly inside of a yield to acquire a portion of the fee underneath yeah, Nick and I am going to chime in I know, it's a long answer to a simple question about an asset, but Mercer totes shows so much about kind of what we what's right down the middle of the plate for us there's a big.
Piece of land is a big piece of land that we were able to get control of Jeff got did an amazing job frankly, 20 years ago and there as you think about when you talk about us for the long term, we didn't take a chance on whether we were going to own the fee or not on the fee. We had a contractually done. So the timing is now, but if you looked at what happened to that income stream.
Such a big piece of land there was so much that was done in that property that was not originally underwritten. It reminds me of things like Pembroke today. It reminds me of things like Rosemont today, the things that we've been able to do that you can't quite underwrite, but because their dominant community based centers that draw from a large area.
You know we want to keep it going.
And with what's for failing around it.
And some of the challenges that the inside mall space around it it's looking stronger than ever.
The next question comes from Huddling, Zhang with J P. Morgan. Please go ahead.
Yeah, Hey, guys I guess as I look at your redevelopment pipeline most of your products. Your redevelopment expansion projects are expected to stabilize by next year.
When should we expect you to start activating our future projects in your pipeline.
Yeah, it's it's a it's a great. It's a great question and one that we spend a lot of time around here doing obviously, the higher cost of money means a higher level of Oh, our return thresholds and and so really what it's about for US and this I think is different than most people is we do have the ability to do.
Given the residential entitlements that we haven't given the amount of a redevelopment on retail properties with an additional residential component, that's something where you've got you know rates that change every year, you got year leases and so the notion of being able to get something started for a few years from.
Now and having it move in is much more likely in that category than it is obviously when you were talking about the you know what.
Some are.
Some other piece of.
Real estate, so you'll see more of those redevelopments retail redevelopments that we do on our existing properties that will continue and we will start will pick up again next year, but you'll also see some of the larger stuff I think later on next year with respect to particularly residential.
Opportunities within the portfolio places that we've already created that that retail environment to be additive to it.
At this time I am showing no further questions and this concludes our question and answer session I would now like to hand, the call back to Leah Brady for closing remarks.
He looks forward to seeing many of you in the next few weeks thanks for joining us today.
The conference has now concluded. Thank you for your participation you may now disconnect your lines.
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