Q1 2024 Federal Realty Investment Trust Earnings Call
Operator: Good day, and welcome to the Federal Realty Investment Trust first quarter of 2024 earnings call. At this time, all participants are in listen-only mode. The 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 would now like to turn the conference over to Leah.
Good day and welcome to the Federal Realty Investment Trust first quarter of 'twenty 'twenty four earnings call.
Leah: At this time, all participants are in listen only mode.
Leah: A question and answer session will follow the formal presentation.
Operator: If anyone should require operator assistance during the conference. Please press star zero on the telephone keypad.
Operator: Please note this conference is being recorded.
Operator: I would now like to turn the conference over to Leah Brady. Please go ahead ma'am.
Leah: Good afternoon. Thank you for joining us today for Federal Realty's First Quarter 2024 Earnings Conference Call. Joining me on the call are Dawn Wood, Federal Chief Executive Officer, Jeff Berkes, President and Chief Operating Officer, Dan Gee, Executive Vice President, Chief Financial Officer and Treasurer, Jan Sweetnam, Executive Vice President, Chief Investment Officer, and Wendy Seher, Executive Vice President, Eastern Region President, as well as other members of our executive team that are available to take your questions at the conclusion of our prepared remarks.
Leah: Good afternoon, and thank you for joining us today for federal Realty's first quarter 'twenty 'twenty four earnings conference call. Joining me on the call are Don Wood, <unk>, Chief Executive Officer, Jeff Berkowitz, President and Chief Operating Officer, Dan <unk>, Executive Vice President and Chief Financial Officer, and Treasurer, John Sweet and I'm Executive Vice President.
Leah: <unk> investment officer, and when do you see our executive Vice President Eastern region presence.
Leah: As well as other members of our executive team that are available to you.
Leah: 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.
Leah: 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 the 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.
Leah: He believes the expectations reflected in such forward looking statements are based on reasonable assumptions, but it really is your 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 rate since our earnings release and supplemental reporting package that we issued Tonight. Our interim report filed on Form 10-K and.
Leah: The earnings release and supplemental reporting package that we issued tonight, our annual 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 results of operations. Given the number of participants on the call, we kindly ask that you limit yourself to one question during the Q&A portion of our call. If you have additional questions, please repeat.
Leah: Other financial disclosure documents provide a more in depth discussion of risk factors that may affect our financial condition and results of operations given the number of participants on the call. We kindly ask that you limit yourself to one question during the Q&A portion of our call you have additional questions. Please reach out.
Leah: With that I will turn it over to John <unk> to begin the discussion of our first quarter results Don.
Donald C. Wood: Thanks, Leah, and good afternoon, everyone. Well, it's a new year, and the federal government continues to charge forward with a very solid $1.64 recorded in the first quarter, along with 3.8% same-center growth when excluding term fees and COVID repayment, and an all-time first quarter record 567,000 square feet of retail led to 9% higher rents. The answer to the often asked question of, do demographics matter post-pandemic? It's become quite evident that they sure do.
Speaker Change: Thanks, Lee and good afternoon, everyone.
Donald C. Wood: Well, it's a new year and federal continues to charge forward with a very solid dollars 64 recorded in the first quarter, along with three 8% same center growth when excluding term fees and Covid repayments and at all time first quarter record 567000 square feet of retail at least a 9% higher rents they answered too.
Donald C. Wood: The often asked question of do demographics matter of post pandemic, it's become quite evident they sure do.
Donald C. Wood: The level of leasing activity in the quarter is particularly notable. Our record retail leasing was impressive, but maybe more so with 190,000 square feet of office space leased at our mixed-use property. Supplementing the long-awaited $141,000 square-foot lease to accounting consulting firm PwC at 1 Santana West, bringing that building to nearly half its lease, was an additional nearly 50,000 feet leased elsewhere in the mixed-use portfolio, including two deals at 915 Meeting Street at Pike and Rose, bringing that building to nearly 80. The remaining vacancy at 915 Meeting Street at Pike and Rose and 1 Santana West represents considerably less than Tenant interest in the remaining space if both buildings remain south.
Donald C. Wood: The level of leasing activity in the quarter is particularly notable a record retail leasing was impressive but maybe more so what is the 190000 square feet of office space leased at our mixed use properties.
Donald C. Wood: Lamenting the long awaited 141000 square foot lease to accounting consulting firm Pwc, one Santana west, bringing that building to nearly half leased what's the additional nearly 50000 feet leased elsewhere in the mixed use portfolio, including two deals at 915 meeting Street at Pike, <unk> rose, bringing that.
Donald C. Wood: Buildings and nearly 80% leased.
Donald C. Wood: The remaining vacancy at 915 meeting Street at Pike, <unk> Rose and one Santana west represents considerably less than 2% of the value of the company.
Donald C. Wood: Tenant interest in the remaining space at both buildings remain stout.
Donald C. Wood: All in all, for the quarter, we signed 117 commercial leases, retail plus mixed-use office for over 775,000 square feet of space with strong economics, not including our residential portfolio, which itself generated record first-quarter property operating income of over $17 million. Make no mistake; our product, primarily retail, but also including complementary office and residential, is very desirable in the marketplace and a huge positive differential. Now, obviously, higher interest rates take away some of that operating positivity when you get down to the FFO line, but we still grew at over 3% in the quarter and at $1.64, the higher end of our guidance. We did 104 comparable retail deals in the quarter that cumulatively were written at 9% higher cash basis rent than the final year of the previous tenant or 20% on a straight line basis.
Donald C. Wood: All in all for the quarter, we signed 117 commercial leases retail plus mixed use office for over 775000 square feet of space with strong economics, not including our residential portfolio, which itself generated record first quarter property operating income of over $17 million.
Donald C. Wood: Make no mistake, our product primarily retail, but also including complementary office and residential is very desirable in the marketplace and a huge positive differentiator.
Donald C. Wood: Now, obviously higher interest rates take away some of that operating positivity when you get down because you have a full line, but we still grew at over 3% in the quarter at $1 60 for the higher end of our guidance range.
Donald C. Wood: We did a 104 comparable retail deals in the quarter that cumulatively were written at 9% higher cash basis rent in the final year of the previous tenant or 20% on a straight line basis.
Donald C. Wood: And just to pound the point home one more time... Those cash-based rollover increases come on top of leases that have had what we believe to be the highest contractual rent bumps throughout their term in the sector, making that rollover all the more impressive. Contractual rent bumps for the deals done in the first quarter were roughly 2.3% for anchor and small shop. The weighted average contractual rent bumps for the entire retail portfolio, not just one or two or three quarters worth, approximates two and a quarter percent and higher when considering the office. Best in the business, as far as we can tell.
Donald C. Wood: It just depends on when to hold one more time.
Donald C. Wood: Those cash base rollover increases come on top of leases that have had what we believe to be our highest contractual rent bumps throughout their term in the sector, making that rollover all the more impressive.
Donald C. Wood: Contractual rent bumps for the deals done in the first quarter were roughly two 3% blended anchor and small shop.
Donald C. Wood: The weighted average contractual rent bumps for the entire retail portfolio, not just one or two or three quarters worth approximates two in a quarter per cent and higher when considering the offices best in the business as far as we can tell.
Donald C. Wood: The sustained leasing volume and related economics bode well for the future, especially contractual rent. Now, I spoke last quarter about the upside in Iraq. Especially with respect to shop space, I felt that another 100 basis points over the 90.7% that we reported at year end was doable. In the first quarter of 2024, we picked up 70 of those 100 base points, bringing our small shop lease percentage to 91.4%. There's more to come here.
Donald C. Wood: Our sustained leasing volume and related economics, bode well for the future, especially the contractual rent bumps.
Donald C. Wood: I spoke last quarter about the upside in our occupancy, especially with respect to shop space and felt it another 100 basis points over the 97% that we reported last year and we're still in the.
Donald C. Wood: The first quarter of 2024, we picked up 70.
Donald C. Wood: Basis points, bringing our small shop lease percentage to 91, 4% is more to come here.
Donald C. Wood: Our anchored police percentage is 95.8%. There's another 200 basis points to come there too. Those two components combine to 94.3% leased overall. Pretty strong, but, as we're demonstrating, room to grow. We take a very proactive approach to leasing and often lease space well in advance of an existing lease expiration or vacancy, all in the name of improved tenant health and merchandise mix and as an insurance policy against potential gaps in future cash flow.
Donald C. Wood: Our anchor lease percentage of 95, 8%, there's another 200 basis points to come there too.
Donald C. Wood: Those two components combined of 94, 3% leased overall pretty strong, but as we're demonstrating for them to grow.
Donald C. Wood: We take a very proactive approach to leasing and often lead space well in advance of an existing lease exploration or vacancy.
Donald C. Wood: All in the name of improved tenant health and merchandising mix and as an insurance policy towards potential gaps and future cash flow.
Donald C. Wood: We've got some impactful anchor renewals coming up later this year and early next that should continue the positive trajectory. In terms of a tenant watch list, or other indications of a shift in demand, there is nothing out of the ordinary that we can point to. We have little exposure to those tenants that are most talked about these days, Express, Big Lots, Joann's, Family Dollar, 99 Cents Only, as they tend to cater to a lower income demographic.
Donald C. Wood: Got some impactful anchor renewals coming up later this year and early next that should continue the positive trajectory.
Donald C. Wood: In terms of a tenant watch list or other indications of a shift in demand. There is nothing out of the ordinary that we could point to.
Donald C. Wood: We have little exposure to those tenants that are most talked about these days express big loss Joanne It's family dollar in a United States only and they tend to cater to a lower income demographic.
Donald C. Wood: Our tenants have been largely enabled to pass on the cost of goods and labor increases to their customers. Those customers may grumble at the higher prices, but thus far, they've been both able and, more importantly, willing to pay them.
Donald C. Wood: Our tenants have been largely been able to pass on cost of goods and labor increases to their customers.
Donald C. Wood: Customers may grumble at the higher prices, but thus far they've been both able and more importantly willing to pay them.
Donald C. Wood: In addition, our retail tenant base is very well diversified, both in terms of tenant concentration and property type. And while we'll always have one-off tenant failures, that's just part of the business, portfolio-wide collectability issues haven't been and aren't expected to be outside our historical experience or specific 2024 guidance. Business looks good. The last topic I want to address before turning it over to Dan relates to external growth. While we turned down the dial a bit on immediate development projects, the residential development of Balla Kinwood Shopping Center notwithstanding, we turned up the dial and level of intensity on sourcing acquisitions.
Donald C. Wood: In addition, our retail tenant base is very well diversified both in terms of tenant concentration as well as property type and while we'll always have one off tenant failures and that's just part of the business portfolio wide collectibility issues haven't been and are expect are not expected to be outside of our historic.
Dan: Well experienced what specific 'twenty 'twenty four guidance business looks good.
Donald C. Wood: The last topic I want to address before turning it over to Dan relates to external growth.
Dan: While we turned them down the dial a bit an immediate development projects. The residential development at Bala Cynwyd shopping center, notwithstanding we turned up the dial and level of intensity on sourcing acquisitions, it's an interesting and unique time in the acquisition market place right now.
Donald C. Wood: It's an interesting and unique time in the acquisition marketplace right now. While there is a limited supply of federal realty-type opportunities out there, there's also less viable competition for those centers than there has been historically.
Donald C. Wood: Well, there's a limited supply of federal Realty type opportunities out there. There's also less viable competition for those centers and there has been historically.
Donald C. Wood: We look for shopping centers that are generally larger in size than the average center, with opportunities for re-merchandising, redevelopment, higher rents, and, yup, potential site intensification. We look for shopping centers in markets that have strengthened significantly over the past 15 years, especially post-pandemic. Markets like Phoenix, Central and South Florida, and Northern Virginia, among others.
Dan: We look for shopping centers that are generally larger in size than the average center with opportunities for re merchandising redevelopment higher rents and yup potential site densification.
Donald C. Wood: We look for shopping centers in markets that have strengthened significantly over the past 15 years, and especially post pandemic.
Donald C. Wood: Markets like Phoenix, Central South West Central and South, Florida, and Northern Virginia among others.
Donald C. Wood: We look for shopping centers that are immediately accretive to earnings based on our cost of capital but, even more importantly, produce returns meaningfully above our long-term cost of capital. We look for shopping centers that will be immediately financed through the combination of other asset sales and our largely undrawn $1.25 billion credit facility and then refinanced for the long term, such as We've begun our due diligence process on one such large asset currently and have a growing pipeline on both.
Donald C. Wood: We look for shopping centers that are immediately accretive to earnings based on their cost of capital based on our cost of capital advantage, but even more importantly produce returns meaningfully above our long term cost of capital.
Donald C. Wood: We look for shopping centers that would be immediately financed with a combination of other asset sales and our largely undrawn $1 billion to $5 billion credit facility and then refinance for the long term subsequently.
Donald C. Wood: Begun our due diligence process on one such large asset currently and have a growing pipeline on those.
Donald C. Wood: Obviously, it remains to be seen if and how much success we'll have in this buy versus build cycle, but using both our operating strength and reputation, as well as our balance sheet strength and flexibility, is a specific focus of ours for the balance of this year and next. That's all I wanted to cover and make remarks this afternoon, so I'll turn it over to Dan to provide more granularity before opening it up to your questions. Thank you, Dawn, and hello everyone.
Donald C. Wood: Obviously remains to be seen if and how much successful habit this buy versus build cycle.
Dan: But using both our operating strength and reputation as well as our balance sheet strength and flexibility is a specific focus of ours for the balance of this year and next.
Donald C. Wood: That's all I wanted to cover in prepared remarks. This afternoon. So I'll turn it over to Dan to provide more granularity before opening it up to your questions.
Dan: Thank you Don and Hello, everyone. Our reported <unk> per share of $1 64 for the first quarter was up three 1% versus a year ago and came in at the upper end of our quarterly guidance range of $1 $61 65.
Dan Gee: Our reported FFO per share of $1.64 for the first quarter was up 3.1% versus a year ago, and came in at the upper end of our quarterly guidance range of $1.60 to $1.65, which we provided on our earnings call back in February. Property Operating Income was up 5.6%, also above our expectations, highlighting the overall strength of our relationship. Primary drivers for the strong start to 2024.
Dan Gee: Which we provided on our earnings call back in February.
Dan Gee: Property operating income was up five 6% also above our expectations highlighting the overall strength of our real estate.
Dan Gee: Primary drivers for the strong start to 2024.
Dan Gee: growth in our comparable portfolio, up almost 4% excluding prior period rents and term fees, driven by resiliency and our occupancy levels, continued strength in our residential portfolio, and stronger contributions from specialty and temporary leases. This was primarily offset by lighter term fees than forecast and some timing noise with respect to collection. We have an expectation of reversing this over the balance. Operable POI growth, excluding the impact of prior period rent and term fees, was 3.8%.
Dan Gee: P O y growth in our comparable portfolio up almost 4% excluding prior period rents determine fees driven by resiliency and our occupancy levels.
Dan Gee: Continued strength in our residential portfolio and.
Dan Gee: And stronger contributions from specialty and temp leases.
Dan Gee: This was primarily offset by lighter term Houston forecast and some timing noise with respect to collect.
Dan Gee: We have an expectation of reversing that over the balance will be.
Dan Gee: Operable py growth, excluding the impact of prior period rent and term fees was three 8% comp.
Dan Gee: Comparable Minimum Rents, Route 3.6. Comparable total property revenues were up 4.1%. Portfolio occupancy levels showed greater resiliency than we forecast as our leased rate increased up to 94.3% and our occupancy rate staying at the 92% level. Both metrics were better than expected as retail leasing volumes hit record levels, with our leasing and tenant coordination teams getting tenants open sooner and keeping tenants in place longer.
Dan Gee: Comparable minimum rents grew three 6%.
Dan Gee: Comparable total property revenues were up four 1%.
Dan Gee: Portfolio occupancy levels showed greater resiliency than the forecast as our leased rate increased up to 94, 3% and our occupancy rates staying at the 92% up both metrics better than expected as retail leasing volumes hit record levels with our leasing and tenant coordination teams.
Dan Gee: Getting tenants open sooner.
Dan Gee: Keeping tenants in place longer.
Dan Gee: Testimony to our ability to grind out revenue growth at the property level while curating best-in-class tenant life. Given the tremendous start to the year from a leasing perspective, coupled with a strong pipeline of lease deals in process, which are some of the highest levels we've seen post-COVID. We are extremely well-positioned to drive our occupancy metrics over the coming quarter to increase our targeted year and occupancy levels, but we are in a good spot at this point in the year.
Dan Gee: A testament to our ability to grind out revenue growth or property level.
Dan Gee: <unk> best in class tenant minds.
Dan Gee: Given the tremendous start to the year from a leasing perspective, coupled with a strong pipeline of big deals in process.
Dan Gee: Some of the highest levels, we've seen post COVID-19, we are extremely well positioned to drive our occupancy metrics over the coming quarters.
Dan Gee: It's too soon to increase our targeted year end occupancy levels. We are in a good spot at this point of the year.
Dan Gee: Another part of our business worthy of note is our residential portfolio, which continues to be a source of strength. Same-store residential POI growth was 6% in the first quarter, on the heels of a similarly strong fourth quarter.
Dan Gee: The other part of our business worthy of note is our residential portfolio continues.
Dan Gee: Continues to be a source of strength.
Dan Gee: Same store residential POI growth was 6% in the first quarter on the heels of a similarly strong fourth quarter.
Dan Gee: This was driven by 5 plus percent revenue growth against 3 percent expense growth, leading to results well ahead of expectations. While we are dialing down, development starts are still substantial, and the development pipeline continues to make meaningful contributions as lease-up continues at these projects. Darien Residential continues to exceed expectations. 99% Darien Retail is over 90% of the several store openings set over the, and Huntington Shopping Center is 94% leased, with Whole Foods and others set to open by Thursday.
Dan Gee: This was driven by five plus percent revenue growth against 3% expense growth leading to results well ahead of four years.
Dan Gee: While we are dialing down new development starts.
Dan Gee: Are still substantial in process development pipeline continues to make meaningful contributions as lease up continues at these projects.
Dan Gee: CRE and residential continues to exceed expectations and is 99% leased.
Dan Gee: Darien retail is over 90% of them several store openings set over the coming quarters.
Dan Gee: Huntington shopping center is 94% leased with whole foods and other is set to open by third quarter.
Dan Gee: And as Dawn mentioned, 915 Meeting Street and One Santa Ana West continue solid progress at almost 80% and 50% leased respectively. Additionally, note that global food service giant Sodexo moved into its new North American headquarters at Pike and Rose.
Dan Gee: And as Don mentioned 915 meetings, and one Santana West continued solid progress at almost 80% and 50% leased respectively.
Dan Gee: Note that global foodservice giant so Jack so moved into its new North American headquarters of icon rose during the quarter.
Dan Gee: Now on to the balance sheet and an update on our liquidity positions. All of our refinancing requirements for 2024 were handled at the very start of the quarter with our $485 million, 3.25% exchangeable notes offer. This leaves us with no material maturities until 2026.
Dan Gee: Now onto the balance sheet and an update our liquidity position.
Dan Gee: We stand with over $1.33 billion of available equity from our $1.25 billion credit facility and cash on hand, and have redevelopment and expansion spend remaining of only $100 million for the balance. Additional funding sources this year approach almost a half a billion dollars and include expanding leveraged neutral debt capacity as Ziva.com goes online in the $150 to $175 million range, free cash flow of $50 to $75 million as we approach pre-COVID levels, and a Our leverage metrics continue to be solid, as first quarter annualized net debt EBITDA stands just inside six times.
Dan Gee: That metric is targeted to improve over the course of 2024 to 5.7 times by year-end and to 5.5 times in 2025. Fixed charge coverage was 3.5 times at quarter-end, and that metric should also improve as incremental EBITDA comes online over the balance of 2021. Now, with respect to guidance, with a first.
Dan Gee: With a solid first quarter behind us and leasing demand continuing at a stronger pace than expected, we are tightening and raising our 2024 FFO guidance from $676 per share and the midpoint to $677, with a range refined upwards to $667 to $680. This represents 3.4% bottom line FFO growth at the midpoint, and almost 5% at the upper end of the line. Keep in mind, this is being done with the realization that interest rates will likely remain higher for longer and provide roughly 2 to 3 cents of greater headwinds in 2024 than we originally forecasted in 90 days. This upward revision and guidance is driven by stronger underlying portfolio performance than expected as leasing and occupancy metrics outperform expectations.
Dan Gee: As well as a more optimistic outlook for such difficult-to-forecast items such as parking, specialty leasing, and percentage rent. Add to that, some of our first-quarter headwinds are expected to be timing issues that should reverse themselves in the coming quarter. As a result, we are also revising our comparable growth outlook upward. Comparable growth is now forecast at 2.25% to 3.5%, up from 2% to 3.5%. And our comparable growth, excluding prior period rents and term fees, is now forecast at 2.75% to 4%, up from 2.5%.
Dan Gee: While we made significant leasing progress at 1 Santana West and 950 Meeting Street in the first quarter, none of those leases are expected to impact our forecast in 2024, but we will see the impact in 2025. More to come on that outlook as the year progresses and additional leases get signed. All other guidance assumptions as outlined on page 27 of our 8K remain unchanged, although please note we do not include prospective acquisitions and dispositions activity in our guidance. We will update our forecast for that activity as it gets completed. Now, before we go to Q&A, I'd like you to please listen up. This is important.
Dan Gee: With the first quarter in the books at $1.64 per share, our quarterly FFO outlook for the second quarter is $1.63 to $1.69. Again, $1.63 to $1.69 for the second quarter. Consistent with the cadence presented on our call in February, the third and fourth quarters should increase sequentially from there, reflecting the continued momentum we are seeing across our business. With that operator, you can open up the line for questions.
Operator: Thank you, sir. Ladies and gentlemen, we will now be conducting a question and answer session. We kindly ask that you limit yourself to one question. If you have additional questions, please refrain. If you would like to ask a question, please press 1, my apologies, the star, and then 1 on each telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 to leave the question queue. For participants making use of speaker equipment, it may be necessary to pick up the handset before pressing the start button. Our first question comes from Juan Sanabria of BMO Capital Markets. Please go ahead.
Juan Carlos Sanabria: Good afternoon. Thank you for your time.
Dan Gee: Just wanted to ask a little bit more about the acquisitions and the funding. I think Dan you said that there was, you know, a fair amount of product that you're looking to maybe monetize. So I'm hoping you can give us a little bit more information on that.
Dan Gee: Yeah, we have, as I mentioned, kind of a road map for the beginning of the year; we've got upwards of three to $400 million of assets that we currently have under consideration for sale. You know, kind of the initial cap rates or yields on those assets are kind of in the low sixes.
Dan Gee: Capital. We'll see whether or not all of that pool under consideration will get executed, but
Dori Lynn Kesten: We'll get executed, but we've broadened the pool, and we'll use that effectively as a source of capital. Our next question comes from Dori Kesten.
Wendy A. Seher: Yeah, I mean, we had a very strong quarter for small shop leasing, and we were able to move the needle, I think, 70 basis points, so I'm fairly pleased with that, with what the team's been able to pull together. It's really broad-based when you look at kind of the deals that we're making for the quarter and the small shops in terms of national, regional, and local. The categories that we're seeing, as you may guess, are restaurants in nature.
Wendy A. Seher: We have both full-service restaurants. [inaudible] When you talk about health and wellness, and you talk about beauty, and anything in that wide category is very active today. So a lot of good categories that are really helping us boost the overall sales and production of our small shops.
Unknown Executive: Yeah, Dori, the only thing I would add...
Unknown Executive: This is really just to make the point that Wendy made, it's broad-based. As you know, we own all different kinds of open-air shopping centers and, really, across the board. Certainly, including the mixed-use stuff, we've had very strong broad-based demand for chopsticks.
Dan Gee: And just to add further, the rent bumps on the small shop are right in the 3% range on average. And more importantly, we've done exceptionally well on anchors where it's across the board. And I think that's a differentiator that's not appreciated. And so, add to that, which Don alluded to, you know, we get 3% or better on the office, which, you know, brought our blended up into the mid-twos across, you know, the almost 800,000 square feet of leasing that we did in the court. I am really, really pleased with that.
Samir Upadhyay Khanal: Thank you. The next question comes from Samir Khanal of Epicor ISI. Please go ahead.
Dan Gee: Hi, good afternoon, everybody. Hey, Dan, can you talk more about your guidance, same score? You're certainly tracking at the higher end, right, close to the top end, and everything you've kind of talked about and Dawn's talked about, it feels like probably tracking even above budget in many segments of the business. There's a lot of tailwind, so help us understand what's kind of dragging.
Dan Gee: Yeah, look, I think we, you know, our credit reserve, we kept it kind of where it is this quarter. And so we're hopeful that that something, that, and so forth.
Michael Goldsmith: Look, it's early in the year. It's one quarter behind us. Typically, we don't move guidance up, even when we beat in a quarter. And so, we'll look to see how the rest of the year unfolds, and hopefully, we can be up towards that upper end. We'll see how the second and third quarter goes.
Donald C. Wood: Thank you. Our next question comes from Michael Goldsmith of UBS. Please go ahead.
Greg Michael McGinniss: Good afternoon. Thanks a lot for taking my question.
Operator: We heard from the industrial leaks that retailers are deferring large capital investments in large warehouses. So have you seen any of that pressure of the capital investment required for retail stores in your shopping centers? Have you seen any of that pressure leak into your space recently? Yeah, Michael.
Donald C. Wood: Yeah, Michael, this is Don. From my perspective, there is capital pressure from retailers to build out stores. But that's something, frankly, I think we've been talking about for 10 years. I don't see any difference over the past couple of years with respect to that. In fact, you know, Frankly, I think we've been pretty successful in eliminating the capital necessary. So no, as a result of the industrial space that you're talking about, or, frankly, other characteristics, the demand-supply characteristics in retail right now are such that we've been able to keep capital under control. Our next question comes from Greg McGinniss.
Operator: Our next question comes from Greg McGinniss of Scotiabank. Please go ahead. Hello, this is Viktor Fedorov on...
Donald C. Wood: Yeah, you know that Cisco bought Splunk. They just closed it a month or two ago. They've assumed the lease, so immediately, our credit, which I thought was pretty good with Splunk, is a whole lot better with Cisco for the remainder term of that lease. They have not given us any indication at all in terms of what their long-term plans are, other than in their visits to Santana Row. It wouldn't surprise you to know that they love the place and, frankly, have made that comment while they were there touring for their newspaper So what happens after 2027, I think, effectively when we're in will remain to be seen. But I view that acquisition as a real positive.
Alexander David Goldfarb: Our next question comes from Alexander Goldfarb of Piper Handler. Please go ahead.
Jeffrey S. Berkes: Hey, thank you. Good afternoon. Dawn, question for you as you look at acquisitions. I know you guys are pretty rigorous in the way you approach acquisitions, but curious, because of what's going on now in the retail environment, you know, dwindling availability, all the good stuff that we talk about, as you look at assets or your team underwrites assets on a, let's say, you know, next three-year period, are they coming out at higher returns than what you would have seen sort of pre-pandemic, or because of natural issues like existing lease role and time for entitlements and all that stuff, that when you're underwriting today, you're not really seeing the benefit of the tighter environment as you underwrite it, stuff that comes more once you take hold of an asset that occurs over time versus, hey, because of what's going on right now, in the next three years, we're able to outperform 50 bps, let's say, versus what we would have been pre-pandemic? Hey, Alex.
Jeffrey S. Berkes: Hey, Alex, it's Jeff. You know, the acquisitions market is interesting right now; there are probably a lot of people that would like to sell or have to sell that, you know, wish the Fed would provide clarity on where rates are going and would hop off the sidelines. You know, that said, we really have leaned into the acquisitions market over the last six months or so, and as Don indicated in his opening remarks, we've had some great success over the last few months.
Jeffrey S. Berkes: The acquisitions market is interesting right now, there's probably a lot of people are doing and why.
Jeffrey S. Berkes: The solar asset so, but you know wished and said would provide some clarity on where our rates are going in.
Jeffrey S. Berkes: Off the sidelines that's fed.
Jeffrey S. Berkes: We really leaned into the acquisitions market over the last six months or so and as Don indicated in his.
Jeffrey S. Berkes: Opening remarks, we've had some great success over the last few months and what we're seeing you know quite frankly.
Jeffrey S. Berkes: And we're seeing, you know, quite frankly, a fairly good range of deals where we think we can apply all the things that we're good at, most of which Don mentioned, but, you know, just to reiterate our leasing and merchandising skills or redevelopment skills, the fact that we don't look at real estate shopping centers very specifically; we're agnostic as to format and more concerned about the strength of location and And, you know, right now, with our cost of capital advantage, there's just not as much competition out there to buy, and with our cost of capital advantage, we're seeing some really good opportunities.
Jeffrey S. Berkes: A fairly good a range of deals where we think we can apply all of the things that we're good at most which Don mentioned, but just to reiterate our leasing and merchandising skills or redevelopment skills and the fact that we don't look at rooms food shopping centers Super specifically, we're agnostic.
Jeffrey S. Berkes: The format and more.
Jeffrey S. Berkes: More concerned about the the strength of location and all of that and right now with our cost of capital advantage.
Jeffrey S. Berkes: And yes, they do produce higher returns because not everybody has that advantage, and there are fewer buyers out there today. So we're pretty happy with what we're saying. And we're pretty happy with what we're finding as we're underwriting in terms of our ability to get into a property and work the rent role and really move the NOI up. So, all good so far. You know, Alex, you asked a very interesting question.
Jeffrey S. Berkes: There's just not as much competition out there to buy in with Argos Apple advantage, we're seeing some really good opportunities and yes, they do produce higher returns because.
Jeffrey S. Berkes: Not everybody has that advantage there are buyers out there today so.
Jeffrey S. Berkes: We're pretty happy with what we're saying and we're pretty happy with Ah.
Jeffrey S. Berkes: What we're finding is more underwriting in terms of our ability to get into property and work the rent roll and really move the NOI up.
Jeffrey S. Berkes: So all good so far.
Donald C. Wood: You know, Alex, you ask a very interesting question there about how we underwrite and what the actual results will be once that underwriting effectively happens. And it's been something that I personally look at very hard because, over the past several years, we have very much exceeded the leasing underwriting that we've done in the acquisitions that we've made. And I would expect, frankly, that to happen and that to continue to happen.
Jeffrey S. Berkes: You know Alex you asked a very interesting question in there about about how we underwrite and what the actual results will.
Donald C. Wood: It will be once that that underwriting in fact that happens and it's been something that that I can tell you I personally look at very hard.
Donald C. Wood: Because over the past several years, we have very much exceeded the leasing underwriting that we've done in our in the acquisitions that we've made and and I would expect frankly that that happened that's to continue that there isn't inherent.
Donald C. Wood: There's an inherent conservatism, if you will, in looking at a new property, even within your existing markets, etc., that is different once this company gets out there and does what it does. And I do think the combination of our context, frankly, our reputation, and our understanding of what it is that we can do with an asset often results in actual results that are above the underwriting. I would expect that to continue to happen, and I'm not sure it's anything specifically about the marketplace today, as it is more about the specific shopping center that we would be acquiring and our optimism with respect to what we do with it.
Donald C. Wood: Conservatism, if you will in in looking at are at a new property.
Donald C. Wood: Even within your existing markets et cetera that that is different once this company gets out there and does what it does and I do think the combination of our contacts frankly, our reputation and our understanding of what it is that we can do with an asset often results in.
Donald C. Wood: And in an.
Donald C. Wood: Actual results that are above the underwriting I would expect that to continue to happen.
Donald C. Wood: And I'm not sure it's anything about specifically about the marketplace today as it is more about the specific shopping center that we would be acquiring and our optimism with respect to what we do with it.
Craig Allen Mailman: Thank you. Our next question comes from Craig Mailman of City. Please go ahead.
Donald C. Wood: Thank you. Our next question comes from Craig Mailman of Citi. Please go ahead.
Operator: Hey everyone. Not to, you know, beat a dead horse here with acquisitions, but I guess another question I have is just as you guys are looking at what's out there today, is it all just, you know, operating assets that you guys could, you know, for the next three to five years kind of re-merchandise or densify and that's the play? Or are there opportunities out there like you guys have done at Assembly or Santana that are that decade to two decade play for the company long-term to harvest value? Are any of those available, or is this just going to be kind of some near-term stuff?
Donald C. Wood: [inaudible]
Craig Allen Mailman: Everyone not to beat a dead horse here with with acquisitions.
Donald C. Wood: But.
Donald C. Wood: I guess another question I have is just as you guys are looking at what's out there today.
Donald C. Wood: Is it all just you know operating assets that you guys could you go over the next three to five years kind of re merchandize or densify and that's the play or are there opportunities out there like you guys have done that's assembly or Santana that aren't that decade, two decades play for the company long term to harvest value.
Donald C. Wood: Any of those available or is this just going to be kind of some near term stuff that you see some opportunities, but maybe the upside is as I was kind of a long tail, then and big and some of the other kind of bigger mixed use projects you guys have done in your history.
Donald C. Wood: Yeah, Craig, that's a great question, and the answer is in the middle.
Speaker Change: Yes, Craig that's a great question and the answer is in the middle.
Speaker Change: No you should not be thinking about our acquisitions turning into the next assembly row.
Craig: Or Santana row, or Pike, <unk> rose frankly, having those assets are in each of our major markets that we do business in is really important to this company and each of those assets as a whole bunch more to go and do having said that what we've learned in terms of being able to too I think.
Speaker Change: Don't forget of course residential experts who were pretty darn good on the residential side, even specifically on specified narrow band of office I think were pretty darn. Good. So when we sit and look at the reason we want a bigger piece of property is yes to do all those things, you said, which you're implying or are easy and Bob.
Donald C. Wood: No, you should not be thinking about our acquisitions turning into the next Assembly Row, or Santana Row, or Pike and Rose. Frankly, having those assets in each of our major markets that we do business in is really important to this company, and each of those assets has a whole bunch more to go and do. So when we sit and look at the reason we want a bigger piece of property, yes, to do all those things you said, which you're implying are easy and boring, my words, not yours, in terms of improving the retail, growing those rents, which is fundamentally critical.
Donald C. Wood: During my words, not yours in terms of improving the merchandising you're growing those rents of which is fundamentally critical I also want a plus to those assets and the plus to those assets could be incremental residential entitlements it could be intensified retail.
Donald C. Wood: I also want a plus for those assets, and the plus for those assets could be incremental residential entitlements. It could be intensified retail plays on other parcels within it. You know, the thing I love about this company is that we have all arrows in the quiver. We're not a one-trick pony. So the ability for that land and that shopping center to be enhanced not only with re-merchandising
Donald C. Wood: Players on other parcels within it.
Donald C. Wood: You know the thing I Love about this company is all arrows in the quiver.
Donald C. Wood: Not a one trick pony so the ability the ability for that lands in that shopping center to be enhanced not only with merchant re merchandising and.
Donald C. Wood: Higher rents, which is critical to it what was the other ways. It's something we always looked at even if we can't underwrite on day one.
Ki Bin Kim: Our next question comes from Ki-Bin Kim of Trust Securities. Please go ahead.
Donald C. Wood: Our next question comes from keeping Kim of Trust Securities. Please go ahead.
Ki Bin Kim: Okay.
Donald C. Wood: So, Dawn, as perhaps new developments start to take a little bit of a less prominent role in the near-term versus acquisitions, you know, I'm just curious about some of these projects. Maybe you made some choices on leasing, shorter-term deals, or maybe gave up a couple dollars in rent for control because, eventually, you wanted to do something bigger with it. I was just curious if, you know, how often that is the case? And if some projects take longer to start, you know, are there some nearer-term opportunities that maybe you held off on that might, that we can expect in the near future?
Ki Bin Kim: Thank you Sudan, as perhaps some new development as far as if I could take a little bit about less prominent role in the near term versus acquisition.
Donald C. Wood: Curious you know some of these projects maybe maybe you.
Donald C. Wood: It makes them true choices on leasing shorter term deals or maybe give up a couple of dollars and ran for control because eventually you want to do something bigger with it.
Donald C. Wood: I was just curious if how often is that the case and if some projects take longer to start you know are there some near term opportunities that maybe you hold off on that Mike that that we can expect in the near term.
Donald C. Wood: Stephen, let me make sure I've got what you're really asking. I can tell you that, first of all, and I wanted to make this point, on the development side of our business, there will be a development cycle again. And so the notion of us not being, well, yes, we're turning down the dial on construction starts. But effectively, we are as active and even more active in terms of entitlement and in terms of design of future development projects on our existing properties.
Dawn: You bet, let me make sure I got what you're you're you're really asking I can tell you that first of all I wanted to make this point on the development side of our business.
Donald C. Wood: Now, if you're asking if on our existing properties, that means we give up rent and we do things so that we can entitlement so that we can construct in the future, the answer is very rarely, very rarely do we do that. Now, occasionally, when we see an opportunity at an existing shopping center, negotiate within a lease the ability to effectively get out of that lease in exchange for paying back the unadvertised TI or something like that, or the money that they would say yes to. But that happens very rarely.
Donald C. Wood: And so the notion of us of us not.
Donald C. Wood: And in terms of design of future development projects on our existing properties now.
Donald C. Wood: You're asking if on our existing properties that means we'd give up rent and we do things so that we can.
Donald C. Wood: Entitled Window, So that we can construct in the future. The answer is very rarely very rarely do they do do we do that now occasionally we'll we will when we see an opportunity at an existing shopping center.
Donald C. Wood: Negotiate within at least the ability to effectively get out of that lease in exchange for paying back.
Donald C. Wood: The on amortized ti or something if something like that or the money that we that they would have a say yet but that happens very rarely so no. I don't think you should think of us on the development side is giving up.
Wendy A. Seher: So no, I don't think you should think of us on the development side as giving up money today, if you will, for the future. Wendy's looking at me. Go, Wendy.
Wendy A. Seher: Money today, if you will for for the future when he's looking at me.
Michael William Mueller: So I just wanted to kind of add a little bit of color to that. We've always been. We are very strict about how we want to be able to control the property from a merchandising standpoint, from a redevelopment standpoint, so we've always highlighted that in our negotiations. In this marketplace now, with really demand exceeding supply, we can lean in on that a little bit further in terms of getting some of those controls that we absolutely need.
Wendy: So I just wanted to kind of add a little bit of color to that we've always been split up.
Michael William Mueller: It's very strict about how we want to be able.
Michael William Mueller: The control of the property from a merchandising standpoint from a redevelopment standpoint, we've always highlighted that.
Michael William Mueller: Our negotiation in this marketplace now with really demand exceeding supply we can lean in on that a little bit further in terms of getting some of those controls that we absolutely need and believe it or not the discussions that we're having are easier to have with national and regional.
Michael William Mueller: And believe it or not, the discussions that we're having are easier to have with national and regional tenants because they know us, they know how we execute, they know how we invest, and how we ultimately improve the property. So all of that is happening kind of concurrently at the same time. And keep in mind if I'm not answering your question or we're not answering your question there, please give us a call afterwards. I'd love to be happy to go through it. Our next question comes from Mike Miller of J.P. Morgan. Please go ahead. Yeah, hi.
Michael William Mueller: Tenant because they know us they know how we execute how we invest and how we ultimately improve the properties. So so all of that is happening kind of concurrently at the same time.
Michael William Mueller: And keep in if I'm not answering your question or we're not answering your question. There. Please give us a full afterwards I'd love to be happy to go through it more.
Michael William Mueller: Okay.
Michael William Mueller: Our next question comes from Mike Mueller of J P. Morgan. Please go ahead.
Michael William Mueller: Yeah, Hi, sedan, given the traction on office and our development leasing that youre, having and how the focus seems to be more on acquisitions as opposed to development starts can you give us some sort of high level color on how you see capitalized interest trending say through year end 'twenty five.
Michael William Mueller: Yeah look I think we've given guidance on 'twenty 'twenty, four and I think that we're keeping that kind of constant I think all the leasing that we're doing is not going to impact anything in 2024.
Donald C. Wood: I think we've given guidance for 2024, and I think that we're keeping that kind of constant. I think all the leasing that we're doing is not going to impact anything except for some of the recent leasing. And I think we really need to see how additional leasing gets done and really kind of how the timing of possession, timing of build out, and so forth before we can, I think, give any color with regard to 2025.
Donald C. Wood: The recent leasing and I think I really we need to see how additional leasing gets done.
Donald C. Wood: And really kind of how.
Donald C. Wood: <unk> possession timing of build out and so forth before we can I think give any color with regards to 2025, and so that more and more to come on that later in the year.
Donald C. Wood: And so, more to come on that later in the. And the only thing I would say to you, Mike, on that is the Orioles just took three out of four from the Yankees. Congratulations. You're in first place on May 2nd. More to come, just like 25.
Speaker Change: And the only thing I would say to you Mike.
Donald C. Wood: And that is the or else has put the three out of four from the Yankees. Congratulations for first place on May 2nd.
Donald C. Wood: More to come just like 25.
Donald C. Wood: Yeah.
Operator: Our next question comes from Handleton's just out of Mizzow. Please go ahead.
Speaker Change: Our next question comes from Hendel, St. Just Michelle Please go ahead.
Ravi Vijay Vaidya: Hi there, this is Ravi Vaidya on the line for Hundel. Hope you guys are doing well here. I just wanted to ask about the TIs. I noticed that for the new leases, there were about 10 bucks higher afoot this quarter than last. Is there anything in particular regarding any of the recent bankruptcy backfills or anything, any other activity with leasing that may have driven that?
Operator: Hi, there. This is Ravi on the line for Honeywell, Our hope you guys are doing well here.
Dan Gee: Yes, look, it is a little bit of a volatile number, you know, with the number of new leases that get signed per quarter. Generally, it's somewhat in line with the last, maybe not the last four quarters, but certainly the last six or eight.
Ravi Vijay Vaidya: Yes.
Ravi Vijay Vaidya: It is a little bit of a volatile number.
Dan Gee: With the number of new leases that got signed per quarter.
Dan Gee: And I don't think that is a trend actually our view is that.
Dan Gee: It's probably been coming down more so.
Dan Gee: than heading in the other direction. This quarter, notwithstanding.
Dan Gee: And then heading the other direction.
Dan Gee: This quarter notwithstanding.
Florence Van Dickham: Our next question comes from Florence Van Dickham of the compass point. Please go ahead.
Dan Gee: Our next question comes from Terence Flynn.
Speaker Change: He came off of Compass point. Please go ahead.
Donald C. Wood: Good evening, guys. Don, I heard you talk so eloquently about some of the leasing dynamics. And about your portfolio and how it's positioned in the markets and why, you know, you think you have a competitive advantage. Can you maybe, obviously, vacancy rates are trending lower, and rents are trending higher? Could you maybe talk a little bit about some of the... [inaudible] The Ancillary Benefits of the Leases that you're signing today, and I'm looking forward to your lease expiration, for example, and I see that next year, approximately 80% of your shop leases have no option, but there's 20% that do, and if I look at your anchor leases, it looks like about 60% of your anchor leases
Speaker Change: Hi, good.
Speaker Change: Good evening guys.
Donald C. Wood: Don I heard you talking so eloquently about some of the leasing dynamics.
Donald C. Wood: And about your portfolio and how it's positioned in the markets and why.
Donald C. Wood: You know you think you have a competitive advantage can you maybe obviously vacancy rates are are trending lower.
Donald C. Wood: The rents are trending higher could you maybe talk a little rip out some of the.
Donald C. Wood:
Donald C. Wood: The ancillary benefits of the leases that you're signing today and I'm looking forward at your lease expiration for example, when I see that next year approximately 80% of your shop leases has no option, but there's 20% that does and if I look at your anchor leases about it looks like about 60% of your anchor.
Donald C. Wood: Leases have options as.
Donald C. Wood: Leases get to the end of your life. Are you now agreeing no options on your new transactions? And maybe talk about the bumps that you're getting, not just on your shop space but also on your anchors, obviously, besides the fact that rents are going higher.
Donald C. Wood: Leases get to the end of your life are you know as you know agreeing no options on your on your on your on your new transactions and maybe talk about the bumps that you're getting not just on your shop space, but also on your anchors are obviously, besides the fact that rents are going higher.
Donald C. Wood: Gosh, Floris, you've got so much there to unpack. I'm going to give you a few things that I thought of while you said that, and then I'm gonna ask Wendy to jump in here.
Speaker Change: Gosh, Florida, She's got so much there to unpack I'm going to give you a few things that are sort of what you said that and then ask Wendy.
Wendy: Jumping here so the reason I speak eloquently.
Donald C. Wood: About our our ability to lease is it really does come down to.
Donald C. Wood: So the reason I speak eloquently about our ability to lease is, it really does come down to a period of time when everything, Floris, everything costs 25 to 30% more than it did in 2019. The notion of, when a tenant is underwriting for themselves, their sales, and their profitability, they've got to be confident that they can push those higher costs through to the customer base. They're obviously more likely and able to do that in places with more affluence and with an effectively, you know, the customer base that is willing to pay an additional amount. All of those dynamics impact what happens in the negotiation of a lease and certainly a small shop, but anchor too.
Donald C. Wood: And in a period of time, where everything Flores everything cost, 25% to 30% more than it did in 2019.
Donald C. Wood: The notion of <unk>.
Donald C. Wood: When a tenant is underwriting for themselves their sales and their profitability they've got to be confident that they can push those higher costs through to the customer base.
Donald C. Wood: All of those dynamics impact what happens in the negotiation of the lease and certainly small shop what anchor to.
Donald C. Wood: And so when you think about what that does for us, if we had our way, we would hardly ever give it up. Because an option is one way. An option is for a tenant to say yes or no, not for the landlord. So if we had our way, we wouldn't give any. That's just not practical.
Donald C. Wood: So when you think about what that does for us if we had our way we would hardly we would never given option.
Donald C. Wood: Because an option is one way and option is for a tenant to say, yes or no not for the landlord. So so if we had our way we wouldn't give any doubts.
Donald C. Wood: That's just not practical so there has to be a balance here and we do balance with by by looking at the rather than the tenant the desirability of that tenant in the space how important they are to the merchandising mix of the entire shopping center and when we look at all that that's how we determine what it is on an individual base.
Wendy A. Seher: So there has to be a balance here, and we do it by looking at the credit of the tenant, the desirability of that tenant in the space, and how important they are to the merchandising mix of the entire shopping center. And when we look at all that, that's how we determine what it is on an individual basis, what we're trying to do with the terms of the contract that we're getting with them.
Wendy A. Seher: What we're trying to do with terms of the contracts.
Wendy A. Seher: That we're getting with them and.
Wendy A. Seher: In nearly all the cases, from a small shop perspective, we get very good bumps, 3%, 4%, maybe two and a half, maybe something a little modified from that, but very good bumps. On the anchor side, as Dan alluded to on his call, are you going to be able to see, in this industry, broadly defined, 3% bumps with anchors generally? No, no, it's not the market. It hasn't been in the market. But the difference is that the ability to get 15% after five years versus seven and a half percent is huge.
Wendy A. Seher: And nearly all of the cases.
Wendy A. Seher: From a small shop perspective, we get very good pumps, 3%, 4%, maybe two and a half maybe something a little modified from from that but very good bumps on the anchor side as Dan alluded to.
Wendy A. Seher: Are you going to are you going to be able to see in this industry broadly defined 3% bumps with with.
Wendy A. Seher: When you look at the math and go through it, we've been able to improve, and that's what Dan was referring to the anchor leases at a rate that I've been very happy with relative to what was able to be done before COVID. So, I hope that answers most of it. I don't know if there's anything more to add to that, Wendy, but feel free if there's something there.
Wendy: I've been very happy with relative to what's been able to be done before COVID-19.
Wendy A. Seher: So I hope that answers most of it I don't know if there's anything more to add to that Wendy but feel free.
Elizabeth Yang Doykan: There's something there. I would echo what you just said. The only thing that I will say that I get excited about is when I hear someone say, you've got X amount of small shops coming up in the near term because, from a historical standpoint, if we can just get to the real estate, we do better. So I think it's a very positive thing that we're getting to it soon.
Wendy: There's something there.
Wendy: I would echo what you just said the only thing that I'd love to say that I get excited about is when I hear someone say he's got X amount of small shops coming up near term because what we found some of the historic standpoint, if we can just get to the real estate, we do better. So so I think it's a very positive.
Elizabeth Yang Doykan: Thing that we're getting through it.
Dan Gee: Thank you. Our next question comes from Lizzie Doykan of Bank of America. Please go ahead.
Elizabeth Yang Doykan: Thank you. Our next question comes from Timothy Chan of Bank of America. Please go ahead.
Omotayo Tejumade Okusanya: Hi, thanks. I was just hoping to hear a bit more about the acquisition of the remaining joint venture interest in CocoaWalk done in April, and are there more near-term JV buyout opportunities for you guys on the horizon, or was this more of a one-off opportunity?
Elizabeth Yang Doykan: Hi, Thanks, I I was just hoping to hear a bit more about the acquisition of the remaining joint venture interest in Coca walk.
Elizabeth Yang Doykan: And are there more near term JV buyout opportunities for you guys at on the horizon or was this more of a one off opportunity.
Donald C. Wood: Yeah, look, this was a joint venture that started back in 2015-2016. It was to redevelop CocoaWalk. It was hugely, hugely successful in terms of what we accomplished there in terms of transforming that asset into what it is today and the returns that we achieved.
Speaker Change: Yeah look this was a joint venture that started back.
Donald C. Wood: Back in 2015 2016, it was to redevelop Coca walk usually usually successful in terms of what we accomplished there in terms of trend its forming that asset into what it is today and the returns that we achieved yeah. We had mechanisms in the joint venture to buyout, our partner or they buy at.
Dan Gee: We had mechanisms in the joint venture to buy out our partner, or they would buy us out, and we bought them out at, we think, a very attractive yield for us. I think that there's probably a one-off. I don't see additional opportunities. We don't have a lot of... A joint venture is like that, but we'll be opportunistic when the opportunity arises, and we just felt like it was important for us to take 100% of the ownership of CocoaWalk and to be able to operate it and run it and maximize the cash flows that we would achieve without having a partner in there getting fees.
Dan Gee: And so we want them out there that we think are very attractive yield.
Dan Gee: For us.
Dan Gee: No I think that.
Dan Gee: There's probably a one off I don't see additional opportunities we don't have a lot of.
Dan Gee: Joint ventures, like that but we'll be opportunistic when the opportunity arises and we just felt like it was important for us to take 100% of the ownership of Coca work and to be able to operate it and run it and maximize the cash flows.
Dan Gee: You know that we would achieve without having a partner in there.
Dan Gee: Getting fees.
Linda Tsai: Our next question comes from Taya Okusanya of Deutsche Bank. Please go ahead.
Dan Gee: Our next question have some tayo okusanya of Deutsche Bank. Please go ahead.
Operator: Good afternoon. In terms of the mixed-use development project, I recall at a certain point there was some interest in having a life sciences component to some of the assets. Is there still some thought around that at this point?
Omotayo Tejumade Okusanya: Hi, yes, good afternoon.
Omotayo Tejumade Okusanya: In terms of the mixed use development projects I recall at a certain point there was some interest in having.
Omotayo Tejumade Okusanya: Our life Sciences component to some of the asset.
Omotayo Tejumade Okusanya: Is there still a thought around that at this point.
Donald C. Wood: Tao, we'd love to add life sciences to assembly row or maybe even pike and row. But the math doesn't work today. It just doesn't work today.
Speaker Change: So we'd love to add life Sciences to assembly row, or maybe even Pike <unk> rose the math doesn't work today. It just doesn't it doesn't work today. So the you know you certainly know what's what's happening in that industry, you certainly know what's happening.
Donald C. Wood: A supply.
Donald C. Wood: In Somerville.
Donald C. Wood:
Donald C. Wood: So the, you know, you certainly know what's happening in that industry. You certainly know what's happening in terms of supply in Somerville, Massachusetts, for example, and even here in Montgomery County.
Donald C. Wood: Massachusetts for example, and even even here in in Montgomery County. So there is there is some real valuable land that were sitting with here, but whether it is life sciences, eventually or whether it's more retail eventually or whether it's more residential or likely are going forward.
Donald C. Wood: So there is some really valuable land that we're sitting with here. But whether it is life sciences eventually, or whether it's more retail eventually, or whether it's more residential, more likely going forward, that land and our ability to move entitlements and get what we need is very strong. So I wouldn't think about life sciences in the near future that way because I think there'll be higher and better use, most likely. Our next question comes from Linda Tsai.
Donald C. Wood: That land and our ability to move entitlements and get what we need is very strong.
Linda Tsai: So I wouldn't think about life sciences and in the near future that way, because I think there'll be higher and better use most likely.
Operator: Our next question comes from Linda Tsai of Jeffreys. Please go ahead. Hi.
Donald C. Wood: Our next question comes from Linda Tsai of Jefferies. Please go ahead.
Linda Tsai: Hi, you provided guidance for Q2 and the mid point.
Operator:
Linda Tsai: 166 implies a smaller sequential increase and that's a somewhat unusual or is there anything driving that.
Operator: Yeah.
Linda Tsai: Yes, and I think, you know, the previous question with regard to comparables probably alludes to when we think about it; we have a tough comp in 2020. In the second quarter of 2023, we had all of our fed baths in possession. Rent Paying, September 1.
Linda Tsai: Yes, and I think the previous question with regards to comparable probably alluded to when we think about it.
Linda Tsai: We have a tough comp.
Linda Tsai: In in 'twenty.
Linda Tsai: The second quarter of 2023.
Linda Tsai: Second quarter of 2023, we had all of our bed bath and possession rent paying except for one.
Dan Gee: Plus, obviously, we had the headwinds. We really had a more optimal balance sheet. We refinanced our debt in the second quarter of last year for $275 million at 2.75%. So, some of those headwinds are really what's driving, I think, the more moderate growth year over year in the second quarter. And we're really seeing the acceleration in FFO per share, and probably incomparable as well. Samir, in, And I know I'm talking to Linda. I'm addressing Samir on his previous question. So we see a greater acceleration in the third and fourth quarters and a little bit of a flatter second quarter because of that more difficult.
Linda Tsai: Plus obviously, we had the headwinds we had oh yeah.
Dan Gee: Really.
Dan Gee: A more optimal our balance sheet, we refinanced.
Dan Gee: Our debt in the second quarter of last year $275 million, two and three quarter percent.
Dan Gee: Some of those headwinds are really what's driving I think the more moderate growth year over year in the second quarter.
Dan Gee: And we're really seeing the acceleration in <unk> per share and probably in comparable as well.
Dan Gee: Uh huh.
Dan Gee: Samir.
Dan Gee: In.
Dan Gee: And I know I'm talking to Linda addressing some of your other states.
Dan Gee:
Speaker Change: So we we we see a greater acceleration in the third and fourth quarters.
Dan Gee: Little bit of a flatter second quarter because of that more difficult comp.
Dan Gee: Yeah.
Leah Andress Brady: Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I will now hand the microphone back to Leah Brady.
Speaker Change: Thank you ladies and gentlemen, we have reached the end of the question and answer session.
Leah Andress Brady: I will now hand, it that's actually a pretty okay actually knocks.
Leah Andress Brady: I am looking forward to seeing many of you in the next few weeks. Thanks for joining us today. Thank you. Ladies and gentlemen, that concludes today's event. Thank you for attending, and you may now disconnect your line.
Leah Andress Brady: Looking forward to seeing many of you in the next few weeks thanks for joining us today.
Operator: Thank you. Ladies and gentlemen, that concludes today's event. Thank you for attending. And thank you even now for connecting your life.
Leah Andress Brady: Thank you ladies and gentlemen that concludes today's it aims. Thank you for attending and you may now disconnect your line.
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