Q2 2025 Federal Realty Investment Trust Earnings Call
Good afternoon and welcome to the federal Realty Investment. Trust second quarter 2025 earnings conference call.
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I would now like to turn the conference over to Jill. Sawyer senior vice president investor relations. Please go ahead.
Thanks Gary. Good afternoon, thank you for joining us today for federal Realty, second quarter 2025 earnings conference calls.
Joining me on the call are John Wood, Federal's chief executive officer, Dan, Gilliam money, Chief Financial Officer, Wendy, sear Eastern region, president and Chief Operating Officer in yon. Sweden, Chief investment officer, as well as other members of our executive team that are available to take your questions at the conclusion of our prepared, remarks
a reminder that certain matters discussed on this call may be deemed to be forward-looking statements or looking statements include any annualized or projected information as well as statements referring to expected or anticipated events or results including guidance. Although Federal realy believes the expectations reflected in such forward-looking statements are based on reasonable assumptions Federal realy future operations and its actual performance May differ materially from the information in our forward-looking statements and we could give no insurance to these. Expectations can be attained
Your name's released in supplemental reporting package that we issued tonight, our annual report filed on form 10K and our other Financial disclosure documents provide a more in-depth discussion of risk factors that may affect our financial condition and operational results. Given the number of participants on the call, we kindly ask that you limit yourself to 1 question during the Q&A portion of our call, if you have additional questions, please reach you. And with that, I will turn the call over to Don Wood.
Well, thank you, Jill and good afternoon everybody.
A real act of quarter led by beaten, raised results near record, leasing a big and important acquisition. A couple of fully priced dispositions, and some innovative and value-enhancing deal making.
First the quarter.
Reported ffo per share of $1.91 includes 15 cents associated with our development of Freedom Plaza, Shopping Center in Los Angeles, as all the conditions necessary to recognize the new market tax credit income that we previously discussed have been satisfied.
Whether or not you include or exclude the income in your modeling, please understand that this heavily negotiated deal de-risked the development significantly and went a long way to assuring its profitability to a return that was enhanced by over 20%.
Excluding the tax credit impact ffo of a176 per share, exceeded consensus, and prior year ffo resulting, in the beat and raid that Dan will discuss in a few minutes.
Comparable property level operating income through roughly 5% in. The second quarter, excluding tax credit by the way, while comparable, retail leasing of 644,000 square feet was very near an all-time quarterly record.
TI dollars remained under control and continued to benefit from the favorable Supply demand Dynamics for high quality retail real estate.
This is a really good quarter, strong quarter with good visibility of that strength, continuing through the rest of the year.
Now Whitney's going to speak about our Leawood. Kansas Acquisitions a few minutes, in a few minutes, but let me first, make some clarifying comments about our strategy.
Our acquisition strategy, our disposition strategy, and our development strategy.
First acquisitions.
Couple of decades.
Big dominant and I do mean, dominant retail properties of the highest quality that sit on large parcels and affluent submarkets, where our tenant relationships and Redevelopment skills can make a significant different in the Pro difference in the properties growth rate.
Every property we acquire has to be in a bullseye location, measured by income demographics, trade area, reach of retailer, desirability, and economic constraints. This assures we retain our best location, with status protected from new supply.
The only change we're making to this criteria relates to the geography, not quality.
The playing field that we're exploring is wider similar to The Way We expanded into Arizona a few years back.
believe that we've been needlessly limiting our acquisition purview since Co our tenants have told us that
Our core competencies of improved, tenant selection, smart, placemaking, selective Redevelopment, and site intensification are really needed and valued in places like Leawood and retailers are ready to join us as space becomes available.
Turns out that the Leawood Kansas Shopper is simply not very different from the Pike and Rose Maryland Chopper except that they don't have nearly the retailer choices that the high-quality Coastal properties do.
We intend to change that.
Since publicizing our interest, in an expanded playing field.
Our inbound inquiries from Sellers and brokers in markets. And submarkets, with characteristics, similar to Leawood has increased substantially.
We hope to have 2 more Acquisitions aside completed by year, end.
There will be no demion in the quality of Federal's portfolio as a result of the wired wider playing field. In fact, it'll be enhanced with a laser-like focus on greater growth prospects and greater Geographic diversity.
The position of privilege to be selective in this environment and we're able to do that because of the reputation and quality of our platform.
Next is our disposition strategy.
Candidates for which fall into 2 camps.
First, a pruning of assets that we simply see as limiting our long-term growth potential.
It's why we sold our Hollywood Boulevard, retail portfolio in June for 69 million and our Sheltering the gain through a 1031 exchange with the Del Monte Shopping Center acquisition, made earlier in the year,
it's why we sold our Santa Monica assets, late last year,
That sale evaluation process will continue with the specific goal of improving our growth profile.
Also considered for disposition are certain assets that are a unique byproduct, the Federal's business plan,
Those are buildings, either residential or office, generally.
That are peripheral to our shopping centers and mixed use communities. But that have top of the market valuations because of the adjacent retail environment that we've created over many years,
Now, I want to pause here and clarify what we mean by peripheral, or standalone.
Residential and office assets their assets. That while part of our broader Shopping Center in mixed-use, communities are not integrated into the core retail. Amenity base which Drive our mixed use strategy.
We therefore believe that the sale of carefully, selected locationally, peripheral assets does not hurt the value of the larger Shopping Center or mixed-use community.
We've included a couple of simple site plan visuals linked to the earnings release and available on our IR site. That illustrate. What it is that we mean here
It's why we sold lavari at Santana Row, a high quality Standalone, residential asset. That sits a block off the row on the periphery of the neighborhood.
Lavari has no retail beneath it and was sold for 74 million in June at a sub 5 cap.
Across from it, you'll see the larger residential building that we called misora.
Similar situation, and we plan to Market it for sale in the coming months.
At Pike and Roads that can mean. Palace the Standalone luxury Residential Building 1 block behind the main shopping street and a Congressional Plaza shopping center where we have the stories apartments that sit behind it. The we could also sell those. These are all high-quality assets that we've built over the last 25 years that are right for monetization without disrupting the productivity or the valuation of the core mixed use environments. We've created
The same logic applies to select office assets, where widespread return to office mandates are rewarding the most highly amenitiz product.
It's probably not right yet, but we're open to recycling that capital here with the right buyer in valuation when the time comes.
The luxury of having this optionality is a unique, Ace in the Hole of ours, and it's a testament to our high quality and differentiated portfolio.
And finally, our development strategy.
Development remains an important core competency of our company in a way to extract maximum value from our larger Shopping Center in mixed juice properties.
Now, of course, opportunities as are not as robust as they were in a lower interest rate environment and
the pivot to acquisitions.
But they will be again. And in the meantime, we're still finding opportunities to add accretion and value largely with residential development, as their historically, lower exit, cap rates, make the economics work,
We are very willing to opportunistically monetize, peripheral residential assets that we develop once they're stabilized, in order to redeploy that low-cost Capital into new retail raw material.
Expectancy our residential project is valid Kenwood, Pennsylvania. Start leasing up next year in 2026 and Hoboken, New Jersey in 2027.
We just broke ground on 258 apartments on Lot 12 in Santana Row, marking the first new residential project there in a decade.
For which leasing will start in 2028.
These projects represent just a part of our future growth pipeline with thousands more residential entitlements already banked or moving through the process.
We've heard investor concerns loud and clear, and I hope that my prepared remarks today are a start to clarifying the communication of our strategy.
We couldn't be more excited to further, execute on it, to the power of federal royalty, Stellar reputation with all sorts of retailers, as well as potential Sellers and their representatives of some powerful and dominant shopping centers.
Our goal is to deliver enhanced growth through the inevitable economic Cycles will all face.
And what I continue to believe is the highest quality retail Centric portfolio in the business.
I think I'll stop there and with that turn over to Wendy and then Dan for the on the ground detail.
Thank you. Don exceptional, operating results were achieved on all fronts in the second quarter. As I mentioned on my last call, I anticipated leasing to be strong heading into 2 Pew, but the volume out page outpaced even my own expectations
119 comparable deals, totaling 644,000 square feet. Second highest volume of leasing ever recorded, just shy of our highest record in the fourth quarter of 24,
Rent, spreads were a solid 10% over in place. Rents at 21% on a straight line basis.
We have been able to increase both our leased and occupied rates year-over-year as a result of limited exposure to recent bankruptcy headlines.
Our investment Market on The Limited bankruptcy exposure. We do have is roughly 30 to 35% on a handful of spaces.
We have pending deals on all of these spaces and should be executing leases over the next few quarters.
I continue to be bullish on the leasing demand, as I look at our pipeline which is roughly a robust, uh, million and a half square feet at rent, spreads in the mid- teens.
Retailers remain very focused on best-in-class locations, with high disposable incomes and proven sales performance? Which is on, which is why I'm particularly excited about the addition of Town Center Plaza and Towne Center Crossing in Kansas City.
These centers mean all of our disciplined real estate criteria. Critical mass totaling, 550,000 square feet number 1 dominant retail intersection located in affluent. Leawood Kansas
The demographics speaks volumes with medium H, medium household, incomes of 180,000 in Leawood placing this Market on par with the strongest markets. We operate in currently,
annual foot trapic puts this acquisition in the top 15 percentile of our portfolio and the top 2% of all shopping centers in the US per Placer, AI
Built decades, long relationships with who are expressing interest in Kansas City. Because Federal is the landlord
It's about rebalancing, the mix phasing out, underperforming tenants, and bringing in stronger Brands. While at the same time, capturing rent growth.
If we look at our history of results,
applying the same strategy, it's not really about what Market rents are today. It's about what Market rents could be with a strategic marketing strategy. That is applied.
And with that application, we'll get increased traffic and sales. Strong sales equals rent growth. I really can't say that enough.
While we recent acquisitions are exciting. Our regional decentralized approach continues to strive value throughout our existing portfolio. Whether it's a new giant grosser under construction with small shops at Andor.
217 residential units and 19,000 square feet of new retail, space and balakin would.
New pads, for example, Starbucks and Chase, or opening a World Market in an outdoor former Kmart garden center. We continue to turn over New Opportunities within our existing portfolio.
As I look towards the second half of the year are manageable, watch lists disciplined approach to cost and aggressive approach to getting tenants open and paying rent is yielding positive results.
With executed in place deals already in third quarter combined, with a healthy pipeline of new. Leases that are in process. We are setting up 2026 for continued momentum to drive internal growth.
And with that, I'll turn it over to Dan.
Thank you, Wendy, and hello, everyone.
A reported nayri ffo for Sheriff. For the second quarter of a $1.91 includes the recognition of the new market tax credit income, a quarter earlier than we had guided them.
Backing out the 15 cents the resulting $1.76 per share is 2 cents. Above the top of our effective. 2q guidance range of $1.70 to $1.74.
As a result of this outperformance, we raised guidance for 2025 by $0.04 at the midpoint from $717.
To 721 per share.
Or from 70002 previously to 706 per share.
When excluding the tax credit income.
More details on that, a bit later in my remarks.
comparable POI growth, excluding prior period rents and turn fees was 4.9% for the quarter, which is better than we had forecasted driven by comparable base rents
which were up 4% on a year-over-year basis.
Please note that the free rent period.
For our 11-year lease extension was Cisco Systems at 500 cents in a row ended during the quarter on May 31st.
Cash basis comparable growth, excluding prior period rents, as a result of turn fees, was 4% for the quarter.
And 5.2% after adding back to Cisco, free rent.
a quick update on office, leasing for the quarter as
141,000 square feet of total office. Leases assigned for the quarter, with new signed deals at Santana West bringing the building to almost 90% leased, with solid activity on the partial floor that remains available.
As well as leases that bring 915 Meeting Street of Pike and Rose to 96% Leasing.
This brings our total amenitiz mixed-use portfolio. Inclusive of Santos and 915 Meeting Street to 96% leased in total.
With a weighted average remaining lease term of 8 years.
Amenitiz mixed use and affluent first-ring. Suburbs of major. Metros is in high demand and we continue to see it across our portfolio.
now, to the balance sheet and an update on our liquidity position,
We improved our liquidity at quarter end to 1.55 billion dollars with over 1. 2 3 7.
Even strong growth in Evita over the quarter and the last 12 months combined with asset sales completed. During the 2q, we're able to meaningfully enhance our credit metrics
Now stands at 5.4 times excluding?
The new income tax credit income.
Down from 5.7 times as reported last quarter, and is now within our leverage Target metric, uh, Target for that metric.
As mentioned we successfully completed the sale of 2 Assets in 2 Q for 143 million at a blended yield in the mid to Upper fives on a next 12-month basis.
We are currently marking an additional 200 plus million, and are considering another 200 million after that to start marketing later in the year.
This 400 plus million in total is part of the broader pool. We previously identified for potential sales.
Which is comprised of a mix of both stabilized lower growth retail and peripherally located residential and office, with blended yields targeted in the mid-fives.
Sales in process. We are very well positioned to continue to be an offense with respect to Capital deployment, whether it's for additional Acquisitions redevelopments, or even buying back our common stock.
Now, onto guidance.
As mentioned earlier with our second consecutive beat and raise the second quarter coming in 2, cents above the top of our range and effectively 3 cents above consensus at a191 per share. We are raising our forecast for NY defined ffo per share to 716 to 726 per share.
This represents about 6 and a half percent growth at the increased midpoint of 721.
Backing out the 1-time new market tax credit income from the figures. The range is 7001 to 711 per share. Whether our revised midpoint climbing for scents from 7:02 to 7:06 per share was represents over 4% versus 2024.
This increase is driven by 2 cents.
Of operating outperformance that we can lock in for the year and 2 cents accretion from the Leewood acquisition over the second half of the year.
Or 4 cents on an annualized basis.
Given the strong 2q results. We are increasing our forecast for 2025 comparable, POI growth to 3 and a quarter to 4% from the previous range of 3 to 4%.
We expect occupancy levels to climb from the current 93.6% level over the second half of the year into the Low 94s by year end.
given deal signed to date and the continued growth pipeline of leasing activity which is a strong as we have seen in years in terms of volumes
Other growth metrics and particularly rollover.
Given limited exposure to bankrupt tenants and a better-than-forecast first half of the year, in terms of our utilization of our credit reserve, we are tightening our range.
Of 75 to 100 basis points to a new range of 75 to 90 basis points.
A quick reminder, an outline of our 2025 guidance. Assumptions is on page 26 and our 8K Financial supplement.
With respect to quarterly ffo Cadence for the balance of 2025, our estimate stand, at 172 to 177.
so the third quarter,
And 1 183 to 188 for the fourth quarter.
Now, an update on our dividend.
as it is done, every year since 1967,
Federal realities board of directors has declared an increase in its quarterly. Common dividends this year by 3 cents per share per quarter to a dollar 13.
Or 4.52 cents per share on an annualized basis.
This approximately 3% interest.
Increase. Sorry.
Represents the 58th consecutive annual increase of the dividend, a Reit industry record.
We stand as the only reason with the status as a dividend King.
Which signifies 50 or more years, consecutive years of annual dividend increases.
And with that operator, you can open up the line for questions.
We will now begin the question and answer session.
to ask a question, you may press star then 1 on your telephone keypad,
If you are using a speaker-phone, please pick up your handset before pressing the keys.
To withdraw your question. Please. Press star. Then 2
Our first question is from Greg McGinness with Scotia Bank. Please go ahead.
Uh hey, good evening.
Just want to touch on the, you know, potential Acquisitions and the pipeline. And you know, whether we should be assuming that those are going to be in line with the strategy discussed at the beginning of the call. Um, so Market dominant but maybe in geographies we're not uh as familiar with Federal operating in and then what types of cap rates you tend to achieve on those and where you think you can drive them to with that, uh that leasing uh, expertise driving sales, and rents that you talked about as well.
Uh, cap rates would be going in, uh, immediately a creatively, um, High sixes, low sevens.
The general guidance I would give you, um, and I hope that that's helpful, is that we can get those over the, uh, over the transom by the end of the year. We think we can.
The next question is from, Alexander goldfire with Piper Sandler. Please go ahead.
Uh,
Hey, uh, good evening down there and, uh, congrats on 58 years on the dividend, uh, pretty pretty solid record. Uh, don just big picture and you spoke a little bit about this at Nar, uh, but you guys are making a transition Kansas City. Presumably, uh, you know, some other new markets,
And for a long time like there's been a lot of growth in other areas away from the coast, but you guys have been, you know, have been sticking to your knitting. So is it really a function that just the big developments, no longer work and hence, you need to go expand elsewhere, or was your nervousness about going to other markets, finally, plated, and you're now realizing that these markets truly have, you know, the same Dynamics qualities, uh, that your, your traditional markets do
Really good question, Alex? And and let me make a a couple of points that first of all,
Postco. I do believe both from a retailer perspective and, uh, from a, a landlord perspective, the, the understanding and the openness to, uh, other areas became
More proficient. I think people thought about it more different or differently and for us what this is really about Alex is is a retailer LED uh, set of questions postco that led us to consider some other things. You saw it first, with, with places like Pembroke Pines, you know. So at first with places, like, Virginia Gateway things that were not in the first ring suburbs, but effectively had retailer demand, that was greater than it would have been post. Co preco,
And and the more we spoke to these retailers and there's a pretty good size list of of the ones I'm talking about here, we were drawn and our own team said, let's open up the top of that funnel. Let's if we can find the best and most dominant Center in in uh, markets that we here to for hadn't looked at we think we can take what it is that we do and create Out. Create outsized growth relative to what those properties would do in a in other people's hands. That's what we found.
In the first couple that I that I talked about. That's what I am. Confident will find in, um, in Leawood. And we've got a couple of other places that were that were looking at that way too. So, so I tried to get as much as I could with respect to the real estate characteristics that that we need. But it's really the retailer characteristics that are are that that car combination and partnership is really, what has caused the uh the ability of us to to to kind of look more broadly.
The next question is from, Michael Griffin with evercore, isi. Please go ahead.
Great, thanks. Um, maybe just shifting gears to leasing, you know, when the appreciate your comments, particularly around the releasing of some of those, um, you know, bankrupt, uh, bankrupt, um, you know, um, tenants that you might have, um, when we think about kind of,
Or a Windows. Leases are going to get executed and B. When they'll be commenced, I mean, are we talking executed and the third quarter, fourth quarter, and then what's going to be the lag time between executed and then commenced to realize that 35% mark-to-market? You talked about? Thank you.
Um, sure. Michael, um, thank you for the question. Uh, I think that what you'll see is the the execution of the deals will come in, over the next 3 quarters. Really, it'll probably be the third and the fourth and the first quarter of next year. And then typically on Fox space, you're going to have some openings in the fall. And then that spring 27 because it's typically about a 12-month time period to get 1 um, producing after a vacancy goes out with all the work that needs to be done. So uh, that's the best guidance. I can provide right now.
The next question is from Juan Sanabria with BMO Capital markets, please go ahead.
Hi, uh, good afternoon. Just hoping you could talk a little bit about the.
Um local restaurant closures Etc. So just hoping you could give us the latest pulse on foot traffic sales Trends and and uh in particular how the restaurants are doing
sure. Um the restaurants continue to be really resilient in the markets that we're in, I think what we're seeing is there's always some winners and losers in the restaurant category but the areas in which we're operating and the incomes that are within this areas has been very sustainable to the restaurant Community. We have a comedy of the Fast casuals and the sit down restaurants, which are in total doing well. Um in terms of traffic um April and May were up, traffic was up and uh June was down for whatever reason. Uh but overall traffic is been up. The first part of the quarter end July remains solid.
The next question is from Craig mailman with City. Please go ahead.
Hey guys. Um, just want to go back to the kind of Acquisitions and what you guys potentially in the hopper with.
Um, on the buy side, versus the 400 million that Dan talked about on the sell side, it sounds like it dollars. You said there's a creation kind of immediately. I'm just kind of trying to get at at you know what, the irr accretion that you guys are playing at over time and how long that that takes to play out and how much cash.
Is there any are there any other moving parts that would kind of help us understand? Maybe, you know, first half versus second half and I and, and did you guys put in the release anywhere? A comparable POI number for the first half. Um, so that we can sort of back into the second half and kind of understand you know maybe how the movements and comparable numbers are shaping out over the the course of the Year. Thank you.
Yeah. Now just on the comparable number. I mean the first half of the year was kind of on average. The first half was kind of in the in the mid to Upper 3s.
We expect the uh second half of the year to be roughly in the mid-30s. We had a strong first quarter uh a little bit weaker first quarter, a very strong second quarter and we expect to be kind of right in the the Fairway of our 3 and a quarter to 4% uh
Uh, in early Q4 and in late Q3, got to really wait more into the fourth quarter percentage. Rent, uh, rent commencements, uh, and recognizing rent at Santana West, particular PWC.
Um, you know, we should see, uh, some additional parking ramp as well as, uh, you know, expected benefits potentially from interest rates. Um, would there really only offset being kind of, potentially from a seasonal perspective. Maybe some snow expense higher than you would see in the third quarter, but see, um, you know, good Cadence in the second half of the Year relative to the first half with it really being somewhat, uh, you know, driven by real momentum in the fourth quarter.
The next question is from Michael Goldsmith with the UBS. Please go ahead.
Good. Good afternoon. Thanks a lot for taking my question. Don appreciate that. You outlined the characteristics of the new markets that you're looking at and recognize that you want. Don't want to disclose the property. But are there examples of specific cities or markets that you would be interested in and cities or markets that you wouldn't be interested in just to give us a better sense of what the portfolio could look for. And is there any incremental GNA or expense associated with moving into some of these new markets? Thanks.
Thanks, Michael. Yes, there are and none that I will tell you, uh, and not to be a wise guy about that, but but we are in the middle of of evaluating, we are being shown properties. Uh in other places. As I said, we're trying to get tied up on, uh, a couple more and I really
While I would like to, I don't want to do that. I need you to to to stick with me on the characteristics here of uh of the assets uh, a bit more. The uh, the in terms of incremental, uh, GNA and the company. No, not at this point. And and that is because there will be uh, local management. Uh, you know, teams that are that are running them at the same uh, percentages effectively that are existing properties, get run at and we're using existing expertise at the corporate level. Frankly, the highest level, the highest levels at at corporate uh, to make sure that the leasing merchandising changes to the properties that will will create that growth are are done by frankly our best and most talented people. So that's where we are. That's what we're doing. I'll I'll give you more as time goes on. That's for sure.
The next question is from Samir Canal with Bank of America. Please go ahead.
Hi, good afternoon everybody. Um, I guess, Wendy, I mean you had talked about, you know, you you gave some um, highlights on on the leasing front. Um, maybe talk about the mix of tenants looking for space, you know, the 640,000 square feet. I mean that's very, that's an impressive number. And then you talked about another 1 and a half million square feet behind that.
So I help us understand as you're talking, these tenants, I mean, at this point it does anybody even bring up tariffs and expenses or costs at this point. But just trying to get the uh, the mix of tenants and kind of what conversations are like. Thanks.
Thank you. Samir. Um, in terms of the Tariff discussion, we continue to talk to the to the retailers, of course. Um, and I think that that shock in April has settled down a bit and that the outside gold posts of where it's going to settle in have been established. And there's been some small, uh, small steps on, getting some clarity on the subject. Uh, but we, we still have a long way to go, but remember that, when retailers are talking to us, they're, they're making long-term real estate decisions. And so, the, and they're looking for the best real estate. So, in many ways the different, um, headwinds that they face, whether its tariffs or others, these long-term decisions become more and more critical that they get the best real estate. They have the best production. And that way, they will be able to withstand
Ever, C, cyclical things happen in a market, uh, with, uh, being kind of housed in the best real estate. So that's been that's been, uh, productive and and Still Remains kind of full steam ahead with the retailers.
On the second quarter leasing um it was really all over the place in terms of um a fair amount of renewals a lot of anchor. Um
A lot of anchor activity. And I think you'll see that again in the third quarter, and um, you know, a lot of great names that we're talking about, whether it's free people, very broad-based Burlington Club, Pilates, sweet greens, we've done our first or second Wonder deal. So very, very robust.
We don't, obviously wait. Till you know, a tenants lease is up to, to try to secure that income stream for years in the many years forward. So the notion of what we call blend and extends things that effectively allow us to go in and renew leases sooner rather than that last period of time to do it is something that we always focus on and that's where the steadiness of the cash flow stream. It's, which is, which is why we do that, obviously.
Retailers are very open to that because today they don't want to lose their spot. They don't want to be in that position where where from a market perspective, they're not represented. They need to expand the supply. Demand issue has been well chronicled, and that still exists. So a lot of that leasing that you see for us is very proactive based to assure that cash flow stream stays in place.
the next question is from Cooper Clarke with Wells Fargo, please go ahead
Great. Thanks for taking the question. I wanted to touch on development. Um, I'm curious if you could provide color on where some of your future development pipelines is today in terms of expected yields versus where they would need to be to start construction from an underwriting perspective, just wondering how much development could ramp up under the right environment as we think about a competitive transaction Market.
That's a great question Cooper. And if you are in our board meeting yesterday, I could have handed you the schedule. But again, I'm not going to do that. What effectively it does do what you can count on is 2 parts of development. For US 1 very significant retail Redevelopment plays that that Wendy described in Andorra for example and other places throughout the portfolio that still is, is the best use if you will of of capital from from and initial return perspective and what it does to the overall, uh, shopping center. But we are real estate people. And so
in development today on the residential side because of the exit cap rates that are significantly lower than they would be on on retail or other uses on, on shopping centers, we have developed the ability to develop and to to build residential product projects that that
Very nicely.
In the future years, that will continue, uh, to be able to add to our overall accretion. And by the way, can be used to monetize once they're stable to provide more fuel. So it's a balance of those 2 pieces. Uh, from a, from a development perspective. Obviously as interest rates come down, should they that? That part of this business is likely to ramp up. It will make numbers work, Bunch Bunch better.
Um, but they can still work today when we've got an advantage on the land basis. No land basis in a couple of places and a retail destination that's already provided a wonderful place to de-risk, if you will, that incremental residential development.
Yeah. And I think
those, those
Opportunities are all.
For existing portfolio. So it's, you know, that also furthers the de-risking from a residential perspective. We're targeting 7, we're getting close to 7 or better, depending upon the market, and then the red and the retail redevelopments and so forth, High single digits, and ideally into the low double digits. If we can achieve them.
The next question is from Mike Mueller with JP Morgan. Please go ahead.
Yeah. Hi. I'm Don. I appreciate you don't want to say too much on the topic, but I guess how broad are the opportunities that you're looking at in the new markets? If, if we're looking at a map of the major cities between the coasts, is it generally more like, you can, you can find a few centers in most cities or is it going to be a lot more targeted than that in terms of cities?
And I'd like to give them a bit more. What can you say? Yeah, no, I mean, there are several handfuls of markets that we think that there, there's an opportunity for a, an acquisition of a dominant shopping center where we can add the value that we've been talking about in terms of merchandising and working the asset and, and using our leverage along the way. So there's still plenty of, uh, room that we're seeing. As Don said, there's a couple that we're working on right now, uh, behind that, there's a couple other ones that we're underwriting. They may or may not work for us. We'll see. I would expect in the fourth quarter. There will be a couple more that we'll be looking at. So it's like there's some real legs to, uh, to the, you know, the supply out there.
And I guess Mike, the only thing other thing to say is they are largely larger assets. And so so to the extent we can do 4 or 5 per year.
Um that's what we'd like to do. Now with respect to Kansas City. For example, we would follow up just as we have in Phoenix and in other markets with other potential assets there even if if they're grocery anchored or smaller ones to the extent, they they are the great things that are there that can supplement this big dominant asset. So there's a combination of a few of these things that's happening that are happening right now. Uh, and again, there'll be more to say, as in in the next quarter, and the 1 after that,
The next question is from handleson, justy with missou. Please go ahead.
Hi, there. This is Robbie. Vandy on the line, from Belle. Hope you guys are doing well. Uh, can you offer an update on the sign versus occupied Pipeline with a total rent? That's embedded in this Pipeline, and when can we start to see the commencement and recognition of that rent? Thank you.
Sure sure um yeah, we have 2 components of our uh, of our Sno um in the comparable portfolio. Uh you've got about 20 million
Uh, you've got another 19 million coming from the 2B delivered.
Or or non-com portfolio for a total of about 39 million.
Uh, of total rent, uh, largely that should be coming on and combined, uh, about 50% of it should. Come on, uh, the balance of this year.
Uh, another 40% starting in in 26 and the balance, uh, in in 27.
Um, we can get into more detail if you want to take it offline with regards to kind of uh, some more of the detail between the comparable and and the non-comparable components of that.
The next question is from Key. Ben Kim with truist. Please go ahead.
Hi, good afternoon. Um, sorry if I missed this but is the
Town Center acquisition in that 7% cap rate range that you're talking about and is that anything unique about that pricing given that wpg sold it.
Uh, thank you.
Yes, keep in. That's uh that's about right. Uh, that's what you should be considering. And and I guess, all I would say about that the asset is since wpg PG for example, has been, uh, has been in liquidation mode and has not been investing, uh, in that asset. There is a backlog. If you will of of good deals, great deals to do there to the extent, the retailer believes the landlord, um, will invest in the property and, and create the environment necessary for them to do. Well, that's why but Wendy was talking about was, was effectively creating the market there that uh should increase rents pretty darn significantly over time. This is and we can we're going to get we're going to get people out there uh in October. Not sure how many yet or how we're going to do it, but we're going to get people out there, you're going to see. It is crystal clear the
Retail location, uh, on the Kansas side of the Kansas City Market, not even close.
The next question. Excuse me. The next question is from Paulina. Rojas with Green Street. Please go ahead.
Good afternoon. My question is, how, how competitive is the bidding process for properties? In this new geographies that you are evaluating
Um, while the demographics are strong, uh, some of these markets.
Probably including new cancers uh have traditionally been less actively targeted for institutional investors. So I I wonder if you're seeing lighter competition or if interest has already picked up more broadly.
Got more, broadly. So I I we tends to be that we're competing with fewer people on these larger Assets in these markets than we would be if you were competing for a grocery anchored Shopping Center in Orange County California by way of example, so that that Dynamic seems like it's still in place. So it's not that it's easy, it's not that it's not competitive at all, but we are not competing with a deep list of a bid sheet of 15 or 20 bidders on the property Paulina.
The next question is from Tayo okusa with Deutsche Bank. Please go ahead.
Uh yes. Good afternoon everyone.
Just curious how large you think multi family can get in Europe portfolio especially as you kind of think about you know, going into these new markets. I mean a lot of new markets don't have mixed use but just kind of curious. As we kind of think going forward, how large multi can be.
Yes, tail. Look, look the the as I told you. And as I think you'd really understand. We are primarily a retail company through and through. No question about it. But we do have the skill set to be able to add additional uses now with respect to multi family. When, if you've done the retail well, you should be able and, and you've you've paid for the land, effectively, because you bought a bigger place, you should be able to add multi family in markets that we're we're demand exceeds Supply, uh, obviously that
Can later be monetized and reduce the cost of capital of the entire project that you have there. That's where we are now. So I wouldn't expect the residential.
Percentage of, of residential income to, to grow very much if you will for, for overall, for the company, it's about 11%. Now, I would expect it to stay there or come down a little bit, depending on the timing of monetization of, of some of these assets, it'll always be an important part of the integration of the, the mixed-use properties. But to the extent it is peripheral
It should be able to be monetized, so keep it in your modeling. Keep it, you know, somewhere around 10% or 11% of the income stream for now.
again, if you have a question, please press star then 1
The next question is a follow-up from Greg mcginness with Scotia Bank? Please go ahead.
Mr. Mcginness your line is open on our end. Perhaps it's muted on yours.
It sure is muted on my end. My apologies. Uh, thanks for taking the follow-up. Uh, I just want to talk on the occupancy real quick. The economic occupancy where, you know, you're now targeting this kind of low 94% range, uh, by year end, that's that's come down over the last couple quarters, you know, mid 94 low 95 before that, um, given the limited exposure to the bankrupt, tenants, uh,
that some of your peers have been dealing with, I'm just curious kind of, you know, what are you seeing that? Are that is driving, you know, driving maybe that that occupancy a little bit down versus initial, expect, initial expectations. Um,
And and whether there's any other kind of tenants that you're looking at, uh, in the back half of the year or vacancies that are expected in the back, half of the year.
Yeah. Now uh good question, Greg. Um, you know, 1 of the 1 of the, you know, why we we've come down is is honestly, you know, we did acquire Del Monte.
Which is in the low 80% least, it's a big asset. So obviously, that, that impacted kind of the overall portfolio occupancy. And then it's really just just kind of a little bit of slipping of kind of rent commencements.
Um, you know, with regards to kind of some stuff slipping into, uh, 2026 in terms of, uh, rent, commencement dates, uh but nothing material. There we see some good momentum. We've got a really, really robust Pipeline and so, uh, you know, I think that still works targeting to get to up towards 95% over time. It may be over the next 12 to 18 months, but we still see some Runway, uh, in our uh, in our economic occupancy up from the current level and even beyond the 94, we're targeting at your end.
The next question is a follow-up from Alexander Gould, Farford Piper Sandler. Please go ahead.
Versus just something that, you know, is unfortunately, sorry to say, like for the annual report.
Uh, Alex.
I love that question. I can't believe, I actually didn't mention this because I'm so proud of this deal, you know?
Doing EV deals, uh, over the last 10 years, in the industry, has largely been a kind of 1-off exercise property by property. It is, it has been something where, uh, you know, the property management department would cut a deal. Uh, it would take forever to get any economics uh, from it and it didn't make any money for for most people over that period of time. I believe we put a stop to that. And what we said was we've got a valuable brand in federal realy and valuable assets that in exchange for a payment.
we will give you Mercedes and exclusive right to look at
this portfolio and determine where you would like to be and and then release those properties that you're not interested in.
And that's what makes this different. I can't talk about the amount. I can't talk about the structure effectively of the deal, but the economics hit now and that's what's so important about the difference. In the way these things are are put together. Uh we hope to do that again with the
Properties that are not included uh in the uh Mercedes deal. So there's a structural way to do these things that are economically beneficial way better than they've been over the past 10 years.
This concludes our question and answer session, I would like to turn in the conference back over to Jill Sawyer for any closing remarks.
Thanks for joining us today. Enjoy the rest of your summer, and we look forward to seeing many of you at upcoming conferences.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect