Q4 2024 Federal Realty Investment Trust Earnings Call
Good evening and welcome to the Federal Realty Investment Trust fourth quarter 2024 earnings Conference call all participants will be in listen only mode.
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Please note this event is being recorded.
Speaker Change: Now I'd like to turn the conference over to Leah Brady. Please go ahead.
Leah Brady: Good afternoon, and thank you for joining us today for Federal Realty's fourth quarter 2024 earnings Conference call. Joining me on the call are Don Wood Federal Chief Executive Officer, Dan <unk> Executive Vice President Chief Financial Officer and Treasurer.
Sweden, and executive Vice President and Chief Investment Officer, and when you see our executive Vice President Eastern region, President and Chief operating officer as well as other members of our executive team that are if you wanted to take your questions. The conclusion of our prepared remarks, a reminder, that certain matters discussed on this call maybe deemed to be forward looking statements within the meaning of the private Securities Litigation Reform Act.
Leah Brady: 1995 forward looking statements include any annualized or projected information as well as statements, referring to expected or anticipated events or results including guidance.
Leah Brady: I don't know if he believes expectations reflected in such forward looking statements are based on reasonable assumptions I don't receive future operations and its actual performance may differ materially from the information in our forward looking statements and we can give no assurance that these expectations can be attained the earnings release and supplemental reporting package that we issued Tonight. Our interim report filed on Form 10-K, and our other financial disclosure.
Speaker Change: Documents provide a more in depth discussion of risk factors that may affect our financial condition and results of operation given the number of participants on the call. We kindly ask that you limit yourself to one question during the Q&A portion of the call. If you have additional questions. Please re queue and with that I will turn the call over to Don Wood to begin our discussion of our fourth quarter results Don.
Don wood: Thank you Lee and good afternoon, everyone.
Don wood: Lots of records were shattered in both the fourth quarter and 2024 that bode well for 2025 and beyond.
Don wood: It starts with leasing.
Don wood: On a comparable deals in the quarter for 649000 square feet at 10% more cash 121% more straight line rent and the previous lease.
Don wood: Nearly $2 4 million square feet of comparable space for calendar, 2024, and 11% more cash right, 22% more straight line rent than the previous lease.
Don wood: Both the quarter and the full year set all time records for us and not by a little bit.
Don wood: Volume in the fourth quarter and total year beat the previous high watermark.
Don wood: Covid boosted 2021 by 9% and 14% respectively.
Don wood: Occupancy touch 96, 2% on a lease basis and 94, 1% on an occupied basis at year end the strongest in nearly a decade.
Don wood: Dividends per share were raised to $4 40 per share for the record setting 57th consecutive year.
Don wood: Total revenue surpassed $300 million in the quarter and $1.2 billion for the year for the first time ever and grew at 7% and 6% over their respective prior periods and <unk> per share and $1 73 in the quarter and $6 77 for the year set all time records even with.
Don wood: One time for stat charge for Jeff purpose, leaving the company.
Don wood: Without it <unk> per share of $1 77 in the quarter and 681 for the year Rose seven 9% and 4% respectively.
Don wood: 'twenty 'twenty four was a very good year.
Don wood: Retail real estate market remains strong driven by favorable supply demand dynamics and continued consumer spending.
Don wood: Our diverse portfolio spanning various property types and anchored by strong resilient operators positions us well for sustained success.
Don wood: Struggling retailers, making headlines today have minimal impact on our portfolio nowhere is the quality of this portfolio more evident and then the continued improvement in occupancy that you see in the fourth quarter over the third quarter and the expectation for even higher occupancy by the end of next year.
While the new administration in Washington is certainly shaking things up on so many fronts across the broader economy, our outlook remains positive.
Don wood: Line that we expect to grow faster at both the comparable property level and the bottom line earnings level in 2025 than we did in 2024.
Don wood: Our product is very much in demand and that includes the office component of our mixed use communities in San Jose Boston Bethesda.
Don wood: After years of uncertainty on the part of employers.
Don wood: Future office space requirements back to office movement in the country as a real that's fully underway.
Don wood: The recognition on the part of many employers that they need more and better space, coupled with our class a offering a modern fully amortize I do mean fully.
Don wood: Office.
Don wood: <unk>, it's no surprise that we're seeing a significant uptick in interest in tours and they'll wise and then executed leases.
Don wood: We're especially seeing at Santana West and 915 meeting Street at Pike, <unk> Rose, where nearly 150000 square feet of deals have been executed or put under heavily negotiated LOI is in the last 90 days.
Don wood: Santana West and 915 meeting Street are currently 82% and 91% committed under such arrangements at this point respectively.
Don wood: Domestic that both buildings will be nearly fully leased in this calendar year.
Don wood: It's really good news and while the 2025 P&L won't be the beneficiary since rent havent commenced from jordy those tenants, that's just timing and should provide a nice bump to 'twenty six 'twenty seven.
Don wood: On the development front things are picking up too.
Don wood: Not only is our $90 million residential over retail product is valid Kim with shopping center firing along on budget and a bit ahead of schedule.
Don wood: We've approved two other developments as you can see in our form 8-K this quarter.
Don wood: The first is the Newbuild of 45 residential units top 10000 feet of ground floor retail in Hoboken, New Jersey.
Don wood: Rail, one Washington Street, Hoboken main commercial thoroughfare.
Don wood: The vacant capital one bank pad and commensurate surface Park.
Don wood: The opportunity to densify amazing piece of corner real estate works economically to a 6%, 7% unlevered yield on $45 million and a 9% IRR extra more favorable construction pricing strong retail rents and growing residential rents.
Don wood: It's like populated New York City suburb.
Don wood: We expect to break ground in a few months.
Speaker Change: Secondly, Andorra shopping center in Philadelphia is gearing up for a transformational redevelopment that will include a state of the art giant supermarket, along with a fully renovated la fitness health club.
Speaker Change: New shop space with upgraded service and restaurant tenants and greatly improve place, making a park.
Speaker Change: This $32 million investment will kick off this spring and yield an incremental 7% to 8% unlevered yield.
Speaker Change: To come on the development front later in this year too.
Speaker Change: We remain very active on the acquisition front with prospects being studied negotiated in both our existing markets along with a few new ones and we expect to close on a great shopping center in Northern California, and a few weeks.
Speaker Change: $123 $5 million purchase with a very productive whole foods anchor and a cadre of lifestyle oriented tenants will complement our west coast portfolio, a beautifully and will be managed from our Santana row headquarters.
Speaker Change: We expect to be able to talk more about that one by the end of the month.
Speaker Change: I also wanted to use the opportunity to introduce three newly promoted vice president So our executive ranks underscoring our focus on continually developing a deep bench of professionals all of whom are expected to play a key strategic role in our long term future congrats.
Speaker Change: Congratulations to Sarah Ford Rogers as VP of development working out of our Assembly row office.
Speaker Change: France as VP of acquisitions, representing our west coast, and Arizona territories, and so Vanessa Mendoza as VP of leasing working out of our headquarters in North Bethesda.
Speaker Change: Congratulations also to Mr. Florida, Blue, who has been promoted to senior Vice President of our information Technology group.
Speaker Change: Each of these executives have been highly respected members of our team for years and it brings me great pleasure to be able to recognize the real estate challenged with promotions that expand their influence responsibility within organization love being able to do that.
Speaker Change: That's all I wanted to cover in our prepared remarks. This afternoon, and so I'll turn it over to Dan to provide more granularity before opening it up to your questions.
Thank you Don and Hello, everyone.
Dan: Ported NAREIT <unk> per share of $6.77 for the year.
$1 73 for the fourth quarter reflect the four cent one time charge for Jeff's departure, excluding the charge, our <unk> growth was 4% and roughly 8% for the full year and fourth quarter respectively.
Dan: P O Y it was up five 4% for the full year and six 8% for the fourth quarter we.
Dan: We finished 2024 with moment.
Dan: Primary drivers for the solid performance in 'twenty four.
Dan: First P O Y gross our comparable portfolio.
Dan: Primary catalysts being occupancy increases from continued strength in tenant demand.
Dan: As both leased and occupied metrics increased 200, and 190 190 basis points, respectively over year end 2023 levels.
Dan: As well as solid brown rollover of 11% on a cash basis and sector, leading contractual rent bumps roughly 2.5% blended anchor.
Dan: And small shop.
Second contributions from our redevelopment and expansion pipeline with Huntington Darrin Commons 915 meeting St. Lawrence Park approaching stabilization over the year, driving an incremental $12 million and Peel off.
Dan: The upper end of our range.
Dan: And strong performance by the $1 $4 billion of gross assets. We've acquired since mid 2022, where performance almost across the board has exceeded underwriting but in particular at the shops at Pembroke Gardens in Florida, and Kings down Town Center in Virginia.
Dan: This was primarily offset by upward pressure on property level expense margins.
Dan: And higher interest expense relative to 2023.
Dan: Comparable POI growth, excluding prior period rent and term fees came in at four 2% during the fourth quarter.
Dan: And averaged three 4% for the year.
Dan: Comparable men rents grew 4% in the fourth quarter and three 4% for the year.
Dan: Our residential portfolio was a source of strength in 2020.
Dan: Same store residential P. Oi growth was 5% when including Gary and Commons, which continues to outperform with 7%.
Dan: Value proposition, providing a premium residential offering on top of an attractive retail amenity base is driving outperformance across our targeted residential portfolio.
Dan: Additionally, in 2024, we opportunistically acquired almost $300 million in high quality retail assets during the year a blended initial yields in the low to mid Sevens and Unlevered IRR is in the mid to high Eight's. When you include the asset that we put under contract during the fourth quarter, that's over four of them.
Dan: Hopefully more to discuss the year progresses as we continue to seek new under managed and under capitalized properties to add to the portfolio.
Dan: On the development redevelopment and expansion fronts with the stabilization of a number of redevelopment projects to close out the year, including Darien Commons in Connecticut at Lawrence Park in Philly.
Dan: Our in process pipeline now stands at approximately $785 million with just $230 million remaining to spend with us.
Dan: The addition of a residential over retail project in Hoboken, and the retail redevelopment and endure in Philly, we continue to mine opportunities across our portfolio and deploy capital Accretively on an external basis to drive future <unk>.
Dan: Additional opportunities are under consideration, which likely will be added to the pipeline over the course of 'twenty five and into 'twenty six.
Dan: Now to the balance sheet and an update on our liquidity position.
Dan: Our financial flexibility continues to expand as improvement in our leverage metrics accelerated over the course of 2024.
Dan: Leaning on opportunistic equity issuance on our ATM program to fund accretive acquisitions.
Dan: Targeted asset sales and a growing free cash flow component, which has allowed us to improve our leverage metrics meaningfully.
Dan: Fourth quarter annualized adjusted net debt to EBITDA stands at five five times down from six.
Dan: Times as reported on this call last year.
Dan: At time, we forecasted this metric to hit our targeted level of five five times in 2025.
Dan: We've been able to get it done in 2024.
Dan: Fixed charge coverage now stands at three eight times up from three and a half times at this time last year.
Dan: We expect this metric to continue to improve all of our four times target over the course of the balance over the course of 'twenty five.
Dan: Our liquidity stood north of $1 4 billion at year end with an Undrawn $1 25 billion unsecured credit facility and $178 million combined cash and Undrawn forward equity.
Dan: We have no material debt maturities this year.
Dan: Now onto guidance for.
Dan: For 2025, we are introducing an F O per share forecast of $7 10 to $7 22 per share.
Dan: This represents about five 8% growth at the midpoint $7.16 and roughly five and 7% at the low and high ends of the range.
Dan: This was driven by comparable POI growth of <unk>.
Dan: 3% to 4%.
Dan: 3.5% at the midpoint.
And an additional 40 basis points to that range. When you exclude COVID-19 era prior period rents in term fees.
Dan: This assumes occupancy levels continue to grow from the current level of 94, 1% at 12 31 up towards.
Dan: 95% by year end 2025.
Dan: Although expect a step back in the first quarter due to the typical seasonality pullback post holidays.
Dan: We will have net drag of roughly 10 to 11.
Dan: Well, one Santana west as we cease capitalization of interest expense at the property in the second quarter.
Dan: This is simply a timing delay the full.
Dan: <unk> of 12 to 14 cents from this currently 82% committed building is expected to flow directly to the bottom line, but not meaningfully until 2026.
Dan: As we begin to then recognize rents.
Dan: Having said that we do expect 14 to 15 cents of benefit from revenues earned from new market tax credits associated with our Freedom Plaza shopping center.
Dan: The combination of these tax credit revenues at plus 14% to 15 cents.
Dan: With net timing drag and twenty-five from Santana west of minus 10 to 11.
Dan: And the wind down of Covid era prior period rents.
Dan: Minus three to four.
Dan: Fully offset each other.
Dan: Which normalizes, our 2025 NAREIT defined <unk> growth.
Dan: And we expect positive <unk> growth off this base.
Dan: 2026.
Dan: Although assumptions to our 2025 guidance include.
Dan: One incremental P O Y contributions from our development and expansion pipeline, a three and a half.
Dan: Three to five.
Dan: Three to 5 million and capitalized interest for 2025 estimated at $12 million to $14 million down from 20 million in 2024.
Dan: Both of these two assumptions reflect the aforementioned timing impact from Santana West.
Dan: We forecast $175 million to $225 million of spend this year on redevelopment and expansions at our existing properties.
Dan: G&A is forecast in the $45 million to $48 million range for the year.
Dan: Term fees will be $4 million to $5 million largely in line with 2024.
The aforementioned 3 million dollar.
Dan: Lower prior period collections as we expect.
Dan: De minimis amount in 2025.
Dan: We have assumed a total credit reserves of roughly 75 to 100 basis points and 25, given limited exposure to bankrupt tenants.
Dan: But more in line with historical averages and a normalized cycle of tenant risk and the retailing sector.
Dan: As is our custom this guidance does not reflect any acquisitions or dispositions in 2025, except the $123 $5 million in northern California acquisition under contract, which we expect to close later this month.
Dan: We will adjust slightly upwards.
For all other acquisitions and dispositions as we go.
Dan: Please see a summary of this detailed guidance in our 8-K on page 27 of our.
Dan: With respect to quarterly F O cadence for 2025.
Dan: First quarter will start with a range of 160 770 <unk> second.
Dan: Second quarter.
Dan: 171 to $1 74 third quarter 190 to $1 93 in the fourth quarter at 182 to 185.
Cadence for comparable growth will start slow in the first quarter in the mid twos.
Dan: And improved sequentially over the course of the year.
Speaker Change: With that operator, please open the line for questions.
Speaker Change: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to the dry your question. Please press Star then two.
Speaker Change: Please limit yourself to one question. If you have further questions you may reenter the question queue.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from once in Austria at BMO capital markets. Please go ahead.
Speaker Change: Hi, good morning, or good afternoon, sorry.
Speaker Change: Just hoping you could talk a little bit about the tax credits for the first time at least I remember hearing about it.
Speaker Change: I guess why included in asthma. So I think the 10-K mentions.
Speaker Change: Offsetting incremental cost of $1 6 million is that being incorporated.
Speaker Change: And the net number you talked about a mess up when the guidance page.
Speaker Change: Just hoping for a little bit more color on Joseph around that.
Speaker Change: Yeah, that's fine yeah. So that that is that that reflects the net number and so the.
Speaker Change: Net number that we report nets out those expenses.
Speaker Change: Yeah. The tax credits historically, you know the federal government has had programs to incentivize development.
Speaker Change: Well the up and coming.
Speaker Change: Gentrifying communities.
Speaker Change: And freedom Plaza for only those that Jordan Downs, but freedom Plaza in East L. A was one of those developments that developed and qualified and we earned those favorable tax credits, we monetize those credits themselves with bank, we earned the revenues associated with them.
Speaker Change: That project.
Speaker Change: Sure So yeah I'm extremely.
Speaker Change: Extremely complex transactions.
Speaker Change: And we expect to I.
Speaker Change: I guess it fulfill all of the required contingencies associated with them and be able to recognize the earn revenues later this year.
Speaker Change: And yeah, Yeah. That's the approach we've taken a more detail on that is on page 31.
Speaker Change: I see it it's been disclosed previously but on F 31 in our 10-K.
Speaker Change: The next question comes from Dori Kesten with Wells Fargo. Please go ahead.
Dori Kesten: Oh, Thanks, good evening.
Dori Kesten: Can you talk about the acceleration in transaction volume expected for the last few quarters or have you seen that uptick in what you're underwriting today and can you give us some current thoughts on funding.
Dori Kesten: Funding for acquisition near term just outside of the Undrawn foreign equity.
Dori Kesten: Sure he did.
Dori Kesten: Favorite dance start with start with how to fund it and let's go to Jan after that with some market conversation sure sure.
We positioned the balance sheet is as good as it's been in the last six or seven years pre COVID-19.
Dori Kesten: With significant financial flexibility and capacity on our balance sheet. The Undrawn line of credit plus access to.
Dori Kesten: The whole breadth of capital markets that we've availed ourselves to over our history and Ah.
Dori Kesten: I think that we were really really well positioned to take on the opportunities we're seeing out there.
Dori Kesten: We will use all the tools in our toolbox.
Speaker Change: Arizona Quiver in terms of Oh, yeah, allowing us to Opportunistically and Accretively finance the opportunities we see in the market.
Dori Kesten: Yeah, I can even figured out yeah, you bet, Hi, Dori yawn.
Speaker Change: Look we've never we've never been busier looking at underwriting acquisitions and in fact as soon as we get off this call well, we'll be talking about some other ones are it's just it has been so busy there's a lot of product on the marketplace. At this point at this time on the one hand on the other hand competition has gotten a little a little different there are more people Lou.
Speaker Change: Looking at the larger type of assets that we've been pursuing and again you know we try to go after you know great locations of course, but larger assets that matter you know in their markets and matter to us in terms of being sizable enough, where we you know we can really create some value with leasing merchandising and if applicable enhancing the sense of place which.
Speaker Change: We think the the asset that Don had mentioned earlier in Northern California is a perfect example of that.
Speaker Change: So we think theres a lot of activity that we're going to see we're going up we're gonna be bidding on all kinds of assets, but obviously, we don't know.
Speaker Change: What price, it's going to take and does it match, our return hurdles and our ability to grow the the earnings on the asset and so we'll see but we would expect it to be a pretty active year.
Speaker Change: The next question comes from Steve Sochua with Evercore. Please go ahead.
Steve Sochua: Yeah. Thanks, Good afternoon, Don I guess with the portfolio over 96% leased I'm just curious how the leasing discussions are changing kind of both internally and externally with the retailers and you know how are you thinking about kind of pricing space as you move forward.
Don: No Steve it's it's it's a good time to be in this businessman and there there's no doubt that.
Steve Sochua: Four.
Steve Sochua: The property you know the spaces that are very desirable, it's very common to have more than one.
Steve Sochua: The real opportunity a real real 10, and there we try to get it not only in the rent, which we obviously always do we try to get it in the bumps are.
Steve Sochua: Which is really important and most important is in control and so when you come down to those as we've talked about in the past you're always it's always that fight for control of the shopping center effectively in terms of redevelopment opportunities what we're able to do in terms of other uses in terms of.
Steve Sochua: You know the lack of sales kick outs and things and things like that so that we have more control we are having more success with that.
Steve Sochua: And so you know and you and I've talked about this for years, I guess, well I always think that art.
Steve Sochua: These leases are contracts are are among the strongest in and in this space and I have no way to determine that for sure but I know we fight hard for for not just the rent, but also those control provisions and those are our we're having more and more success with that because we are 96.
Steve Sochua: At least now having said that.
Steve Sochua: The I I don't believe.
Steve Sochua: 100% leased and our portfolio is something that is attainable, nor do I believe it's something that should be attainable because to the extent youre doing that that you're you're probably leaving money on the table and all space is not created equal some that's better than something that's worth, but I still think and Dan kind of put it to do it pretty well before that.
Steve Sochua: At 94, one on the occupied basis, I think it's pretty darn likely that we're going to be able to get up towards towards 95 things can always happen, obviously, but but that that can continue to go and.
Speaker Change: The same with the with the 96 for a bid for a bit more but you know me in this company is about using all those arrows in our quiver. So it was important as that is so it was redevelopment. So it was development. So as acquisitions all parts of our you know parts of the business. So you should see.
Steve Sochua: Sure you should see strong contracts.
Steve Sochua: Stronger contracts as we go through this period of the cycle.
Speaker Change: The next question comes from Jeff Spector with Bank of America. Please go ahead.
Jeff Spector: Great. Thank you.
Speaker Change: I can ask a follow up on acquisitions, John you talked about.
Speaker Change: Seeing more assets and Don when we saw you in November you talked about you know your strategy and I think you said, possibly looking at more markets. So I'm. Just curious is it you're seeing more and more opportunities. Because you are looking at more markets and for example would mean an asset traded in.
Speaker Change: And Ohio today is that I'm, just curious is that something that you even looked at like is that you know.
Speaker Change: That does that fit the new strategy. Thank you.
Yeah go ahead.
Speaker Change: No.
Speaker Change: Yeah, Yeah, so what so Jeff I think it's twofold I think overall there are simply more assets available in the marketplace today than there were six or nine months ago.
Speaker Change: You know I think with our debt costs are being higher for longer I think there's just you know certain sellers have capitulated and just cant wait any longer and certainly we're looking at some assets where you know loans are now due in October and November and people need to transact and so overall I just think theres simply a lot more available.
Speaker Change: And then you put on top of that yeah. There are certain assets that we would as certain markets that we haven't gone to before and so therefore, we're looking at assets in those as well so between the two it's just been really really really busy and to answer your question on Cleveland, Yeah. We we looked at that in for a set of reasons. It just didnt quite fit.
Speaker Change: Fit what we were looking for but that would be in that that would be a market that we wouldn't have looked at going to before but we would know.
Speaker Change: Yeah, I don't have anything to add to that you know and that's that's that's what I would have said.
Speaker Change: The next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
Alexander Goldfarb: Hi, good afternoon down there.
Speaker Change: Don You mentioned and you were pretty forceful and your comments about the credit quality of the portfolio and a lot of the.
Speaker Change: Retail bankruptcies have an impacted you guys just sort of curious your overall watch list and your confidence that your tenancy easing that good credit position I know you have that that range out there, but I don't know if that range is just the generic range or if there is some problem children. If you will.
Speaker Change: That that range is is there to solve.
Speaker Change: Or to be there for this year.
Alex: Yes, good question Alex.
Speaker Change: Near term concerns that are in the market with the Joanna The party city is the big lots and so forth.
Speaker Change: We just don't have much exposure to and we have no big lots one party city to Joanne soon they'll leave that's reflected in our in our AR and our forecast.
Speaker Change: Container store Oh, they affirmed every single one of their leases.
Staying in place for very little concession.
Speaker Change: Look most of the stuff we're concerned about is maybe longer term more medium term.
Speaker Change: And what things can get accelerated so I think given the volatility of the economy and the environment.
I think just having a normalized 75 to 100 basis points credit reserve is appropriate.
Speaker Change: We have nothing specific there.
Speaker Change: And nothing that I can really use a buildup to get you.
Speaker Change: With regards to but I think it's a prudent level for us to have given the oh the volatility that we see in the economy today.
The next question comes from Craig Mailman with Citi. Please go ahead.
Craig Mailman: Hey, everyone.
Craig Mailman: There are some bigger you know mixed use deals in the market I'm just kind of curious what the appetite or capacity is to do you know 60.
Craig Mailman: It's several hundred million dollar deal and is now the right time to potentially look to JV you know some of the bigger high profile assets that you guys own.
Craig Mailman: Yeah. That's a good question, Craig and let me do the easy part first.
Craig Mailman: We do have the appetite and we do have the capacity.
Craig Mailman: For you know.
It's not necessarily that it's these are big or bigger mixed use assets. The question just like small asset comes down to what's the IRR IRR and what can you get to and so there's really not a difference from my perspective at least in in.
Craig Mailman: Liking a particular format.
Craig Mailman: Over and above the other as long as it's a retail based asset because it really comes down to how is that previous owner manage it how is he or she got into the rents how are they how much capital has been deferred.
Craig Mailman: And how much does it need all the same things you look at and every project.
Craig Mailman: Project I like them and and you know there's there's you know the couple that are in the market today.
Craig Mailman: They're going they're going for numbers that still have to make sense to us and so we run through that underwriting process. If there's a big mixed use.
Craig Mailman: Asset out there you can be sure we're looking at it.
Craig Mailman: Because we like that that property type, but it still comes down to the individual property type with research individual asset rather so with respect to joint venture partners Yeah.
Craig Mailman: On a big one that could make some sense to be able to be able to do that way always like to as you would expect from us take a balanced approach to how we manage that that balance sheet.
Craig Mailman: And there certainly seems to be joint venture money, that's available out there to to partner up and that is so that's certainly a possibility on on the bigger stuff, but the bigger thing is do the numbers work overall on a on that particular that particular property that we're looking at.
Speaker Change: The next question comes from Hyundai Ulsan genes with Mizuho. Please go ahead.
Craig Mailman: Yeah.
Speaker Change: Hey, guys wanted to ask about this.
Craig Mailman: Let's talk about tariffs I'm just curious have.
Speaker Change: Your conversations potentially with some of your tenants might be going.
Speaker Change: Thoughts on your your your upper end consumer seemingly a bit more insulated here, but just curious on the comment of tariffs and what you might be hearing from your from your tenants. Thanks, Yeah, I must start and when do you I know you and I have talked about it so.
Speaker Change: Maybe add on if I'm missing anything on this but the company you know, it's really interesting the biggest thing from a tenant perspective, that's different than than necessarily you would think and Dell are I would think is that they're there they're more nonplussed by this generally than than the news.
Speaker Change: [laughter], because they've been dealing with with the notion of tariffs where its gone certainly in the first.
Speaker Change: Administration, certainly and limited respects Dorn, COVID-19 et cetera lots of retailers have diversified their sources of where they are the source our goods from so.
Speaker Change: You know it's interesting I don't maybe with respect to our you know tenants that kind of serve.
Speaker Change: The less affluent consumer buying.
Speaker Change: And stuff from a from China and they are unable to pass it on maybe you know that the dollars concepts that could possibly be something that that it's harder because it always at the end of the day, it's attacks and so when you sit and think about it who pays the tax [laughter] and and in better real estate in the bed.
Speaker Change: Areas that tax to the extent that's there gets is more likely to be able to be absorbed by.
Speaker Change: By the consumer and that's harder to do just like we've been talking about for the past couple of years with with a lower income.
Speaker Change: Properties and portfolios.
Speaker Change: Aside from that every single business has their their own way to operate and to prepare and protect themselves from the conversations we've been having they certainly seem to be doing that one am I missing anything here.
Speaker Change: The major points I would also say that well that you know the retailers that are savvy, and then really working to increase their margins and they've been doing a good job of that and as Don said, they perhaps are not new to them.
Speaker Change: Figured out how to.
Speaker Change: To navigate this.
Speaker Change: And I I haven't heard and I've had several one on one conversation I haven't heard anybody say.
Speaker Change: Got it.
Speaker Change: Anything other than another another challenge.
Speaker Change: Business at times.
Speaker Change: The next question comes from Michael Goldsmith with UBS. Please go ahead.
Michael Goldsmith: Good afternoon. Thanks, a lot for taking my question, Dan comp POI in 2024, or three 4%, you're guiding to 2025 or 3% to 4% with a headwind of 40 basis points from the collection of prior program. So it points to a fundamental acceleration, though I might think.
Michael Goldsmith: And about that right and what's driving that acceleration that you're expecting in the upcoming year.
Michael Goldsmith: Yeah, No I appreciate that a good question Michael Yeah, So the 3% to 4% is after the the headwind.
Michael Goldsmith: <unk> rent so you could think about it as three four to 4.4.
Michael Goldsmith: So yes, there is some acceleration and.
Michael Goldsmith: And then it's really driven by largely by occupancy.
Michael Goldsmith: And in the strength of the occupancy we experienced this year when he does it.
Michael Goldsmith: The past year, and 24, where we see occupancy where we see the puck going in 2025, I think that that's that's really the biggest driver of our continued acceleration.
Michael Goldsmith: And our comparable portfolio.
Mike Mueller: The next question comes from Mike Mueller with Jpmorgan. Please go ahead.
Mike Mueller: Yeah, Hi, I guess with the two new development announcements should we see this as a bit of a pivot at the margin back toward development compared to where the focus seem to be last year.
Mike Mueller: You know.
Mike Mueller: I don't know if it's time, yet to say Theres, a pivot I would say that you know as I've talked about in past calls the ability to make numbers work.
Mike Mueller: Certainly is enhanced in in places, where we already own the land.
Mike Mueller: And so the notion of having land that that has little or no cost like the bell at Kingwood.
Mike Mueller: That we're under construction with I mean that helps a ton land cost is 15 20, 23% or so of the total project. That's a heck of a head start.
Mike Mueller: Other thing clearly is at least at this point in time in the markets. We're looking at most contractors certainly gcs and subs are willing to take less of profit margins and so and that's because there isn't as much business out there now that to the extent that changes that changes.
Mike Mueller: But right now we're able to make a couple of these projects work I think we're pretty close to a couple more.
Mike Mueller: That hopefully we are we get to later in the year, but but it's it's not yet equilibrium, if you will acquisitions versus versus development, but but while you know a year or two ago. It was all acquisitions, if anything and no development at all certainly there is a.
Mike Mueller: Start if you will to the potential development cycle.
Greg Mcginniss: The next question comes from Greg Mcginniss with Scotiabank. Please go ahead.
Greg Mcginniss: Hey, good afternoon, I just wanted to clarify the commentary on Santana West that 12 to 14 cents.
Greg Mcginniss: <unk> contribution is net of the capitalized interest burn off correct, correct and it assumes a fully stabilized asset.
Yeah look it's a little bit about we're taking a hit in 2025 shutting wall.
Greg Mcginniss: <unk> interest and then getting the benefit of all the rent starts to Miss timing.
Greg Mcginniss: So yes, it will be net of the capitalized interest that we see.
Greg Mcginniss: In 2025, having been burned off and then it flows right to the bottom line at 12 to 14 cents that we mentioned primarily in 2026.
Speaker Change: The next question comes from Keybanc, Ken its truest. Please go ahead.
Speaker Change: Thank you good afternoon.
Greg Mcginniss:
Speaker Change: How far in advance do you try to lock up construction costs like lumber steel and although the tariff situation isn't finalized yet I was just curious how that might impact our development yields and what kind of compression you might see.
Greg Mcginniss: C going forward.
Greg Mcginniss: Yeah.
Greg Mcginniss: Thank you Ben.
Greg Mcginniss: You know.
Greg Mcginniss: As soon as we are able to fully design a project.
Greg Mcginniss: We certainly start with respect to two.
Greg Mcginniss: Moving toward a GMP.
Greg Mcginniss: And certainly that takes time, we are basically there on on the.
Greg Mcginniss: The Hoboken project, we just announced by the way that's a concrete building.
Greg Mcginniss: I don't expect any issues with respect to with respect to the cost. There are we've got some other things are coming up that will be more lumber.
Speaker Change: As the primary.
Speaker Change: Cause you can't get it locked down until you have a fourth a completely designed.
Speaker Change: And we're not effectively warehousing materials in order to do well.
Speaker Change: Locked down money early so.
Speaker Change: As you know you're asking one of the questions that that's tied to the whole last three weeks if you will.
Presidency, and where that's going to lead there is a lot of unknowns as to whether that's that's actually going to be impacting us.
Speaker Change: Construction costs deal costs, a big tariff related as the as the year goes on as the years.
Speaker Change: Go on today, we're taking no risk if you will on the projects that we are starting that we've already announced with respect to costs, though because they are locked down.
Speaker Change: The next question comes from Floris Van <unk> with <unk>.
Speaker Change: This point. Please go ahead.
Speaker Change: Alright, thanks, good evening.
Speaker Change: Don.
Speaker Change: Federal went to the sort of the preeminent mixed use owner developer in the shopping center sector. I think you know based on our numbers you own the three most valuable mixed use projects in the in the strip sector.
Speaker Change: I'm curious as to you know you talked a little bit about being on the warpath.
Speaker Change: Capital allocation would you prefer to buy another.
Speaker Change: Assembly row for example, or would you rather buy five Virginia, gateways, which would be similar kind of NOI contribution.
Speaker Change: If the returns are the same or you know how how do you think about that and how do you think about portfolio construction in three years' time, how many more of these dominant assets do you expect to happen in the portfolio.
Speaker Change: I Love the question actually Floris, but but I don't fall in love with properties.
Speaker Change: At the end of the day it comes down to the IRR. It comes down with our beliefs now because we've got very good experience with with mixed use I think we can underwrite them probably better than most because we have as you say a lot of experience that way that does in our view.
Speaker Change: <unk> reduced the risk it also though.
Speaker Change: There's just a certain amount that we're willing to pay to get it [laughter] and and so you know you're not going to see us in order to have a you know all the mixed use but big projects in the country, you're not going to see a stepping out of our shoes, because the numbers don't work and at the end of the day, we are allocating capital.
Speaker Change: Here as best we can to provide the greatest risk adjusted return. So when you when you sit you think about that.
Speaker Change: The theoretical part of your question is theoretical if there were five of Virginia gateways versus one.
Speaker Change: Assembly row, but they're never rock [laughter], because that's not that's a false choice. It comes down to trying to work on the assets that are on our hit list to be able to get the sellers to transact and then underwrite them with the best knowledge. The biggest advantage I think we have is that we.
Speaker Change: Underwrite well on that type of type of project because the bar experience that way and then the reputation of having being federal allows us I think to outperform on those type of assets because we deal with those tenants we deal with that type of operation, where we're good at so I hope that helps.
Speaker Change: It's not an either or is it it is a best risk adjusted capital allocation strategy that will lead federal wherever federal is a in the next three to five years.
Speaker Change: The next question comes from Linda Tsai with Jefferies. Please go ahead.
Linda Tsai: I guess, maybe just to follow up on the transaction environment is you can look across the different formats.
Speaker Change: Are there certain regions or certain retail format types, where you see better opportunities in your underwriting.
Speaker Change: It's not really Jan what do you think about that question Linda has yeah. It's a good question and a little hard to a little hard to answer Linda.
Speaker Change: Linda.
Speaker Change: I don't know.
Speaker Change: We like again, we like larger centers and you know generally the yields have been pretty good across the board on those centers I don't know if there's a particular type that debt is you know, providing a better or worse yield. It really probably is case by case on the asset where it hits in the marketplace.
Speaker Change: What marketplace it's in so.
Speaker Change:
Speaker Change: I think that's it's hard to answer that one.
Speaker Change: Yeah. The answer is really not really.
Speaker Change: In terms of in terms of preference.
Speaker Change: The next question comes from Tayo Okusanya with Deutsche Bank. Please go ahead.
Tayo Okusanya: Oh, yes. Good afternoon, everyone. A quick question on on the leases again, clearly at 96% occupancy you guys are driving the rents that are putting up pretty nicely, but wanted to talk a little bit about kind of from a qualitative perspective, all the things we're doing are.
Tayo Okusanya: With lease terms versus retailers to kind of help me died.
Tayo Okusanya: Build your business I'm, just kind of talk a little bit about some of those initiatives and kind of results from them.
Tayo Okusanya: Sure. Let me this is Wendy I'll jump in Yeah, you know we had thought.
Speaker Change: Can you just trade up so high it really gives us the opportunity.
Speaker Change: Turning to our strategic focus on merchandising and growing sales we've had a good history. If we can grow that quality of merchants together from a sales perspective, we can drive better as Don mentioned before while we are we have we've always been very diligent.
Speaker Change: And I should say it when our contracts and making sure that we have that the amount of opportunities in control that maybe you know those contracts I would say, we're even more focused on sales volumes, where we've had the opportunity to say hey.
Speaker Change: We're only going to give you so much time and if we give you an option on top of that you need to have at certain sales performance before you can even exercise that option.
Speaker Change: I'll give you some examples of how we're able to kind of.
Speaker Change: Work and kind of fine tune it.
Speaker Change: Overall production of our shopping centers.
Speaker Change: Do you have a follow up question from wanted to not be at with BMO capital markets. Please go ahead.
Speaker Change: Oh, hi, Thanks for allowing me to follow up I guess I have a two parter one would be just on the guidance page the $5 million of disposed properties from 'twenty to 'twenty four P O y.
Speaker Change: Is that just that.
Speaker Change: The drag residual drag from what assets you sold last year.
Speaker Change: And I guess, what would be the offsetting acquisition benefit I'm, just a little confused about how I should interpret or use that information.
Speaker Change: It's the P O Y that's no longer that we recognized in 2024, that's no longer in our portfolio for 2025.
Speaker Change: So we sold assets last year Santana I mean, Santa.
Speaker Change: Santa Monica.
Speaker Change: That reflects that and others reflects the the the income that we saw in 2024, that's not in our 2025 guidance isn't he asking about acquisitions, but what was the second part of the question.
Speaker Change: I guess, what would be the offset on the acquisition side just to have both sides of the coin.
Speaker Change: Well, it's pretty straightforward, we acquired Oh, I don't have that off the top of my head, but Virginia gateway.
Speaker Change: Yes.
Speaker Change: It was acquired.
Speaker Change: Well, let me follow up with you offline there.
Speaker Change: It's not something I O D a.
Speaker Change: I need to do some calculations can't do in my head right now.
Speaker Change: Sounds good thank you.
Speaker Change: Yeah. The follow up question from Alexander Goldfarb with Piper Sandler. Please go ahead.
Alexander Goldfarb: Hey, Thanks for taking the follow up.
Alexander Goldfarb: Just going back to Jeff Spector. His question on the Cleveland asset that you guys said that you. Yeah. You took a look at it and you know it was sort of a market that you wouldn't have thought about before but you know it broadens your view.
Alexander Goldfarb: As you guys think consider new markets, just sort of curious if your sort of rethinking your traditional type scenarios like high affluent infill.
Alexander Goldfarb: Infill not infill, but infill suburban or if you know the way that communities have changed there is a new way that you're thinking about it in the second part of that is everyone wants to have a meaningful concentration to allow our platform.
Alexander Goldfarb: I assume that's actually.
Alexander Goldfarb: Difficult to foresee given the limited deal flow.
Alexander Goldfarb: To like see a path to acquiring enough assets or you can actually see that even in the limited deal flow that we have right now.
Speaker Change: Boy you got a lot packed in there Buddy.
Speaker Change: And I love the question, it's going to be hard to just do that with one or two senses, but let me try first first of all.
A couple of great assumptions in there.
Speaker Change: The notion of whether federal will go down quality and those other assets.
Speaker Change: The answer is no we won't do that now because the market some of the markets. We're talking about are smaller than the big coastal cities. There there are to your other point.
Speaker Change: Fewer great centers and all we're going to be looking at is the best couple of centers and in cities that are still large cities, but not as big as the coast. So yes. It does become more more difficult. If you will to one six or seven or five you know within.
Speaker Change: Within a particular market, but it does it is not difficult to for us to get our heads around the best center or best two centers in a particular market and run them.
Speaker Change: <unk>.
Speaker Change: And then separately if you will with with the new organization that that's aiming for that so you're.
Speaker Change: Your your assumptions are generally really good.
Speaker Change: There are places that we have not looked at historically that we are comfortable that with the best asset or two in those.
Speaker Change: Large cities, but not as large as that as that goes that we could take what we do for a living which is merchandise well to the best retailers retailers that will be.
Speaker Change: We'll want to go where we're talking to and we're spending an awful lot of time with those retailers, making sure we know where they want it.
Speaker Change: Goes so that we can affect.
Speaker Change: Change there that's the kind of stuff that will be going forward. They will be the best one or two assets of in the in the market. There will be affluence there will be population density.
Speaker Change: She had a follow up question from Steve <unk> with Evercore. Please go ahead.
Speaker Change: Yeah. Thanks, Dan could you maybe just provide a little more color I think when you gave those ranges by quarter kind of implies you know a dropped sequentially from for Q2, <unk> and you know maybe there was a slower build into to Q I realize the tax credit might pop in all in the third quarter, but maybe just help.
Speaker Change: US bridge kind of the weaker first half in and you know obviously the stronger second half yes.
Speaker Change: Sure sure good question.
Speaker Change: Yeah. The guidance $1 67 to 170 is roughly down two 5% from the fourth quarter <unk>, We reported a big chunk of that is really a number of seasonality related.
Speaker Change:
Speaker Change: Numbers one is occupancy.
Speaker Change: First quarter typically we see tenant move outs, we are and I highlighted this you will see a step down in occupancy into the mid to upper 93% range.
Speaker Change: By quarter end.
Speaker Change: You'll just see that typically every year.
Speaker Change: <unk> expenses like snow are seasonal.
Speaker Change: It's been a rough first 40, some odd days in the northeast from a snow perspective.
So we'd expect that to weigh on us.
Speaker Change: Who shall income it's small.
Speaker Change: But it adds a seasonality.
Speaker Change: Is component.
Speaker Change: Oh parking and percentage rent, you've got cold weather impact on customer traffic as well as tenants hitting breakpoints.
Speaker Change: Uh huh.
Speaker Change:
Speaker Change: We capped off they can hear us.
Speaker Change: The speaker line is back on.
Speaker Change: Yeah, they're dialing back in now.
Speaker Change: Okay.
Speaker Change: Operator can you hear us.
Speaker Change: Yes.
We live in the line.
Speaker Change: Yes, you are.
Speaker Change: Okay.
Speaker Change: I ticked through most of the seasonality impacts that's a big impact.
Speaker Change: Over the year of deferrals.
Speaker Change: Did they go away versus the fourth quarter into the first quarter about a penny we did issue shares at the end of the year.
Speaker Change: And that is a couple of pennies.
Speaker Change: And those are really the big drivers that offset the obviously the charge that we have so that's really likely to be the big driver and then just ramping back up of occupancy in the second quarter.
Speaker Change: It shows the improvement of the trend.
Speaker Change: And.
So similarly for.
Speaker Change: Our.
Speaker Change: Comparable growth will show steady improvement from the first quarter.
Speaker Change: Through the second and peak out at the in the fourth quarter.
Speaker Change: Yeah I have a follow up question from from Floris Van <unk> with Compass point. Please go ahead.
Speaker Change: Hey, Dan a follow up for you I wanted to talk about a different kind of snow your ethanol pipeline of 210 basis points can you quantify the the rental impact of that.
Speaker Change: Yes, total rent associated with our comparable snow, which is just what's in the comparable pool as well.
Speaker Change: A little over $25 million.
Speaker Change: We also have leases signed in the non comparable pool that would take us up towards $42 million or <unk> $41 $42 million.
Speaker Change: We would expect that of the $41, 40% to 80% of that will be.
Speaker Change: In 2025 with the balance in 2026 and that will be weighted more heavily towards the second half of the year with 55%.
Speaker Change: Schedule starts in the second half of the year and 25, basically 25 points of the 80 points.
Speaker Change: Being in the first half.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Leah Brady for any closing remarks. Please go ahead.
Speaker Change: I look forward to seeing everybody in the next few weeks thanks for joining us today.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].