Federal Realty Investment Trust — 2024 Q1

Yes. Look, we have -- as I've mentioned kind of throughout the beginning of the year, we've got upwards of $300 million to $400 million of assets that we currently have under consideration for sale, kind of the initial cap rates or yields on those assets are kind of in the low 6s. And if we include maybe a couple more assets there, it probably dips below 6% on an initial yield basis. So attractive, and more importantly, in our view, the long-term IRRs are very attractive relative to where we feel we can deploy capital in the acquisition market.

You want to take that?

I mean, we did have a very strong quarter on small shop leasing, and we were able to move the needle, I think, 70 basis points. So very pleased with that with what the team has been able to pull together. It's really broad-based when you look at kind of the deals that we're making for the quarter in the small shops in terms of national, regional and local, the categories that we're seeing, as you may guess, our restaurants in nature, we have full-service restaurants less of the fast food because it's typically not the demographic that we're attracting in some of our centers.

Yes, Dori, the only thing I would add to that and really just to make the point that Wendy made, it's broad-based. As you know, we own all different kinds of open-air shopping centers and really across the board and certainly including the mixed-use stuff, we've had a very strong broad-based demand on shop space.

And just to add further, the rent bumps on the small shop right in the 3% range, on average. And more importantly, we've done exceptionally well on anchors, where it's across the board. And I think that's a differentiator. That's not appreciated. And so -- and add into that, which Don alluded to, we get 3% or better on the office, which brought our blended up into the mid-2s across the almost 800,000 square feet of leasing that we did in the quarter. Really, really pleased with that.

Yes. Look, I think we -- our credit reserve, we kept it kind of where it is this quarter. And so we're hopeful that that's something that we can do better on and so forth. Look, it's early in the year, and it's one quarter behind us. Typically, we don't move guidance up even when we beat in a quarter. And so look, we'll look to be -- see how the rest of the year unfolds. And hopefully, we can be up towards that upper end and we'll see how second and third quarter does.

Yes, Michael, this is Don. From my perspective, there is capital pressure from retailers to build out stores, but that's something, frankly, I think we've been talking about for 10 years. I don't see a difference over the past couple of years with respect to that. In fact, frankly, I think we've been pretty successful in limiting capital necessary.

Yes, you know that Cisco bought Splunk. They -- and I say just closed within a month or 2 ago. And what they're -- they've assumed the lease so immediately, our credit, which I thought was pretty good with Splunk is a whole lot better with Cisco for the remainder term of that lease. They have not given us any indication at all in terms of what's their long-term plans are, other than in their visits of Santana Row, it wouldn't surprise you to know that they love the place. And frankly, have made that comment while they were there touring at their new space. So what happens after 2027, I think, effect is when we're in, we'll remain to be seen. But I view that, that acquisition is a real positive for us.

Alex, it's Jeff. The acquisitions market is interesting right now. There's probably a lot of people that would like to sell or have to sell. But wish the Fed would provide some clarity on where rates are going and [indiscernible] office sidelines. That said, we really leaned into the acquisitions market over the last 6 months or so. And as Don indicated on his opening remarks, we've had some great success over the last few months.

Alex, you asked a very interesting question in there about how we underwrite and what the actual results will be once that underwriting effectively happens, and it's been something that I can tell you, I personally look at very hard because over the past several years, we have very much exceeded the leasing underwriting that we've done in the acquisitions that we've made.

Yes, Craig, that's a great question. And the answer is in the middle. No, you should not be thinking about our acquisitions turning into the next Assembly Row or Santana Row or Pike & Rose.

Ki Bin, let me make sure I've got what you're really asking. I can tell you that, first of all, and I wanted to make this point on the development side of our business, there will be a development cycle again. And so the notion of us not -- while yes, we're turning down the dial on construction starts. Effectively, we are as active and even more active in terms of entitling and in terms of design of future development projects on our existing properties.

So I just wanted to kind of add a little bit of color to that. We've always been sort of very strict about how we want to be able to control the property from a merchandising standpoint, from a redevelopment standpoint. So we've always highlighted that with our negotiations in this marketplace now with really demand exceeding supply, we can lean in on that a little bit further in terms of getting some of those controls that we absolutely need.

And Ki Bin, if I'm not answering your question, we're not answering your question, please give us a follow afterwards. I'd love to be happy to go through it more.

Yes. Look, I think we've given guidance on 2024, and I think that we're keeping that kind of constant. I think all the leasing that we're doing is not going to impact anything in 2024, some of the recent leasing. And I think I really -- we need to see how additional leasing gets done and really kind of how the timing of possession, timing of build-out and so forth before we can I think, give any color with regards to 2025. And so more to come on that later in the year.

And the only thing I would say to you, Mike, on that is the [indiscernible] 3 out of 4 from the Yankees. Congratulations for the first place on May 2. More to come, just like '25.

This is Ravi Vaidya on the line for Haendel. I just wanted to ask about the TIs. I noticed that for the new leases, there were about $10 higher foot this quarter than last. Is there anything in particular with regarding any of the recent bankruptcy backfills or anything any other activity with leasing that may have driven that?

Yes. Look, it is a little bit of a volatile number with the number of new leases that get signed per quarter. Now generally, it's somewhat in line with kind of the last -- maybe not in the last 4 quarters, but certainly the last 6 or 8. I wouldn't read anything into that, except just the general mix. And I don't think that is a trend actually. Our view is that it's probably even coming down more so than heading the other direction. This quarter, notwithstanding.

Gosh, Floris, you've got so much there to unpack. I'm going to give you a few things that eloquently you said that, and then I'm going to ask Wendy to jump in here.

I think I would echo what you just said. The only thing that I will say that I get excited about is when I hear someone say you've got X amount of small shops coming up near term because what we found from a historic standpoint is if we can just get to the real estate, we do better. So, so I think it's a very positive thing that we're getting to it soon.

Yes. Look, this was a joint venture that started back in 2015, 2016. It was to redevelop CocoWalk, it was hugely, hugely successful in terms of what we accomplished there in terms of trend forming that asset into what it is today and the returns that we achieve we had mechanisms in the joint venture to buy out our partner where they buy us out. And we bought them out, and we think, a very attractive yield for us.

So we'd love to add life sciences to Assembly Row or maybe even Pike & Rose. The math doesn't work today. It just doesn't work today. So the -- you certainly know what's in that industry. You certainly know what's happening in terms of supply in Somerville, Massachusetts, for example, and even here in Montgomery County.

Yes. And I think the previous question with regards to comparable alluded to, when we think about it, we have a tough comp in the second quarter of 2023. Second quarter of 2023, we had all of our Bed Bath in possession, rent paying, [ SOFR 1 ] plus, obviously, we had the headwinds. We had really a more optimal balance sheet. We refinanced our debt in the second quarter of last year, $275 million at 2.75%. So some of those headwinds are really what's driving, I think, the more moderate growth year-over-year in the second quarter.

Looking forward to seeing many of you in the next few weeks. Thanks for joining us today.