Federal Realty Investment Trust

Good evening and welcome to the Federal Realty Investment Trust Fourth Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Leah Brady. Please go ahead.

Good afternoon. 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's Chief Executive Officer, Dan Gee, Executive Vice President, Chief Financial Officer and Treasurer, Jan Sweetenam, Executive Vice President, Chief Investment Officer, and Wendy Sear, Executive Vice President, Eastern Region President and Chief Operating 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 within the Meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any annualized or projected information, as well as statements referring to expected or anticipated events or results, including guidance. Although Federal Realty believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, Federal Realty's teacher 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 in aid. The earnings release and 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 results of operations. Given the number of participants on the call, we kindly ask that you limit yourself to one question during the Q&A portion of 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?

Thank you, Leigh Ann. Good afternoon, everyone. Lots of records were shattered in both the fourth quarter and 2024 that bode well for 2025 and beyond, but starts with leasing. 100 comparable deals in the quarter for 649,000 square feet, had 10% more cash rent, 21% more straight line rent than the previous lease. Nearly 2.4 million square feet of comparable space for calendar 2024, at 11% more cash rent, 22% more straight line rent than the previous lease. Both the quarter and the full year set all time records for us and not by a little bit. Volume in the fourth quarter and total year beat the previous high water mark, setting COVID boosted 2021 by 9% and 14% respectively. Occupancy touched .2% on a lease basis and .1% on an occupied basis at year end, the strongest in nearly a decade. Dividends per share were raised to $4.40 per share for the record setting 57th consecutive year. 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 FFO per share at $1.73 in the quarter and 677 for the year set all time records even with the one time 4 cent charge for Jeff Berkis leaving the company. Without it, FFO per share of $1.77 in the quarter and 681 for the year grew at .9% and 4% respectively. 2024 was a very good year. Retail real estate market remains strong, driven by favorable supply demand dynamics and continued consumer spending. Our diverse portfolio spanning various property types enacted by strong resilient operators, positions as well for sustained success. The struggling retailers making headlines today have minimal impact on our portfolio. Nowhere is the quality of this portfolio more evident than 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 a new administration in Washington is certainly shaking things up on so many fronts across the broader economy, our outlook remains positive. The bottom line is 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. Our product is very much in demand and that includes the office component of our mixed use communities in San Jose, Boston and Bethesda. After years of uncertainty on the part of employers as to their future office space requirements, the back to office movement in the country is real and it's fully underway. The recognition on the part of many employers that they need more and better space coupled with our class A offering of modern fully amenitized, I do mean fully amenitized, office environments, it's no surprise that we're seeing a significant uptick in interest in tours and LOIs and in executed leases. We're especially seeing it at Santana West and 915 Meeting Street at Pike and Rose where nearly 150,000 square feet of deals have been executed or put under heavily negotiated LOIs in the last 90 days. Santana West and 915 Meeting Street are currently 82% and 91% committed under such arrangements at this point respectively. And we're optimistic that both buildings will be nearly fully leased in this calendar year. It's really good news and while the 2025 P&L won't be the beneficiary since rent haven't commenced from the majority of those tenants, that's just timing and should provide a nice bump to 26 and 27. On the development front, things are picking up too. Not only is our $90 million residential over retail project at Ballot Kinwood Shopping Center firing along on budget and a bit ahead of schedule, we've approved two other developments that you can see in our Form 8K this quarter. The first is the new build of 45 residential units of top 10,000 feet of ground floor retail in Hoboken, New Jersey. 301 Washington Street, Hoboken's main commercial facility thoroughfare houses a vacant Capital One bank pad and commensurate surface parking. The opportunity to identify this amazing piece of corner real estate works economically to a 6% to 7% unlevered yield on $45 million and a 9% IRR, thanks to more favorable construction pricing, strong retail rents and growing residential rents in this densely populated New York City suburb. We expect to break ground in a few months. 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, new shop space with upgraded service and restaurant tenants and greatly improved placemaking and parking. This $32 million investment will kick off this spring and yield an incremental 7% to 8% unlevered yield. More to come on the development front later in this year too. We remain very active on the acquisition front with prospects being studied and 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 in a few weeks. That $123.5 million purchase with a very productive whole foods anchor and a cadre of lifestyle oriented tenants will compliment our West Coast portfolio beautifully and will be managed from our Santander row headquarters. We expect to be able to talk more about that one by the end of the month. I also wanted to use the opportunity to introduce three newly promoted vice presidents to 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 longterm future. Congratulations to Sarah Ford Rogers as VP of Development working out of our assembly row office, to Bob Frans as VP of Acquisitions representing our West Coast and Arizona territories, and to Vanessa Mendoza as VP of Leasing working out of our headquarters in North Bethesda. Congratulations also to Mr. Porter Ballou who's been promoted to Senior Vice President of our Information Technology Group. 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 their real estate talents with promotions that expand their influence and responsibility within our organization. I love being able to do that. That's all I wanted to cover in prepared marks 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. Our reported Nareed FFO per share of $6.77 for the year, and $1.73 for the fourth quarter reflect the 4 cent one-time charge for Jeff's departure. Excluding the charge, our FFO growth was 4% and roughly 8% for the full year and fourth quarter respectively. POI was up .4% for the full year and .8% for the fourth quarter. We finished 2024 with momentum. Primary drivers for the solid performance in 24. First POI growth in our comparable portfolio with the primary catalyst being occupancy increases from continued strength and tenant demand as both leased and occupied metrics increased 200 and 190 basis points respectively over year-end 2023 levels. As well as solid roll over of 11% on a cash basis and sector leading contractual rent bumps of roughly .5% blended anchor and small shop. Second contributions from our redevelopment and expansion pipeline with Huntington, Darien Commons, 915 Meeting Street and Lawrence Park approaching stabilization over the year driving an incremental $12 million of POI the upper end of our range. 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 of Pembroke Gardens in Florida and Kingstown Town Center in Virginia. This was primarily offset by upward pressure on property level expense margins and higher interest expense relative to 2023. Comparable POI growth excluding prior period rent and term fees came in at .2% during the fourth quarter and averaged .4% for the year. Comparable min rents grew 4% in the fourth quarter and .4% for the year. Our residential portfolio was a source of strength in 2024. Same store residential POI growth was 5% and when including Darien Commons which continues to outperform, it was 7%. The value proposition providing a premium residential offering on top of an attractive retail amenity base is driving out performance across our targeted residential portfolio. Additionally, in 2024, we operated and opportunistically acquired almost $300 million in high quality retail assets during the year. A blended initial yields in the low to mid-sevenths and unlevered IRRs in the mid to high eights. When you include the asset that we put under contract during the fourth quarter, that's over 400 million. Hopefully more to discuss as the year progresses and continue to seek new, under managed and under capitalized properties to add to the portfolio. On the development, redevelopment and expansion front with the stabilization of a number of redevelopment projects to close out the year, including Darien Commons in Connecticut and Lawrence Park in Philly, our in-process pipeline now stands at approximately 785 million with just $230 million remaining to spend. With the addition of a residential over retail project in Hoboken and the retail redevelopment at Endora in Philly, we continue to mine opportunities across our portfolio and deploy capital creatively on an external basis to drive future FFO growth. Additional opportunities are under consideration which likely will be added to the pipeline over the course of 25 and into 26. Now to the balance sheet and an update on our liquidity position. Our financial flexibility continues to expand as improvement in our leverage metrics accelerated over the course of 2024. Leaning on opportunistic equity issuance on our ATM program to fund creative acquisitions, targeted asset sales and a growing free cashflow component which has allowed us to improve our leverage metrics meaningfully. Fourth quarter annualized adjusted net debt to EBITDA stands at 5.5 times down from six times as reported on this call last year. That time we forecasted this metric to hit our targeted level of five and a half times in 2025. We've been able to get it done in 2024. Fixed charge coverage now stands at 3.8 times up from three and a half times at this time last year. We expect this metric to continue to improve toward our four times target over the course of the balance over the course of 25. 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. Plus we have no material debt maturities this year. Now onto guidance. For 2025 we are introducing an FFO per share forecast of $7.10 to $7.22 per share. This represents about .8% growth at the midpoint of $7.16 and roughly five and 7% at the low and high ends of the range. This is driven by comparable POI growth of three to 4%, three and a half percent at the midpoint. Add an additional 40 basis points to that range when you exclude COVID error prior period rents and term fees. This assumes occupancy levels continue to grow from the current level of .1% at 1231 up towards 95% by year end 2025. Although expect a step back in the first quarter due to the typical seasonality pullback post holidays. We will have net drag of roughly 10 to 11 cents from one Santa's Quest as we cease capitalization of interest expense at the property in the second quarter. This is simply a timing delay. The full benefit 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 as we begin to then recognize rents. Having said that, we do expect 14 to 15 cents of benefit from revenues earned through new market tax credits associated with our Freedom Plaza shopping center. The combination of these tax credit revenues at plus 14 to 15 cents with net timing drag in 25 from Santana West of minus 10 to 11 cents and the Y and down of COVID error prior period rents of minus three to four cents fully offset each other, which normalizes our 2025 near redefined FFO growth. And we expect positive FFO growth off this base into 2026. Other assumptions to our 2025 guidance include one incremental POI contributions from our development and expansion pipeline of three and a half, three to five, three to five million and capitalized interest for 2025 estimated at 12 to 14 million down from 20 million in 2024. Both of these two assumptions reflect the aforementioned timing impact from Santana West. We forecast 175 to 225 million of spend this year on redevelopment and expansions at our existing properties. GNA is forecast in the 45 to $48 million range for the year. Term fees will be four to 5 million, largely in line with 2024. The aforementioned $3 million of lower prior period collections, as we expect a de minimis amount in 2025. We have assumed a total credit reserve of roughly 75 to 100 basis points in 25, given limited exposure to bankrupt tenants, but more in line with historical averages and a normalized cycle of tenant risk in the retailing sector. As is our custom, this guidance does not reflect any acquisitions or dispositions in 2025, except the $123.5 million Northern California acquisition under contract, which we expect to close later this month. We will adjust likely upwards for all other acquisitions and dispositions as we go. Please see a summary of this detailed guidance in our 8K on page 27 of our supplement. With respect to quarterly FFO cadence for 2025, the first quarter will start with a range of 167 to 170, second quarter, 171 to 174, third quarter, 190 to 193, and the fourth quarter at 182 to 185. Cadence for comparable growth will start slow in the first quarter, in the mid twos, and improve sequentially over the course of the year. With that operator, please open the line for questions.

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 you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. Please limit yourself to one question. If you have further questions, you may reenter the question queue. At this time, we will pause momentarily to assemble a roster. The first question comes from Juan Tanavrea with BMO Capital Markets. Please go ahead.

Hi, good morning, or good afternoon, sorry. Just hoping you could talk a little bit about the tax credits the first time, at least I remember hearing about it. And I guess why include it in FFO? I think the 10K mentions offsetting incremental cost of 1.6 million, is that being incorporated in the net number you talked about in the guidance page? Just hoping for a little bit more color in general around that.

Yeah, that's fine. Yeah, that reflects the net number. And so the net number that we report nets out those expenses. Now the tax credits, historically, the federal government has had programs to incentivize development in up and coming gentrifying communities. And Freedom Plaza, formerly known as Jordan Downs, but Freedom Plaza in East LA was one of those developments. That development qualified, and we earned those special tax credits, we monetized those credits to the sales to a bank. We earned the revenues associated with that project in a series of extremely complex transactions. And we expect to, I guess, fulfill all the required contingencies associated with them and be able to recognize the earned revenues later this year. And that's the approach we've taken. More detail on that is on page F31. You wanna see it, it's been disclosed previously, but on F31 in our 10K.

The next question comes from Dory Keston with Wells Fargo. Please go ahead.

Thanks, good evening. You've talked about the acceleration and transaction volume expected for the last few quarters. Are you seeing that uptick in what you're underwriting today and can you give us some current thoughts on funding for acquisitions near term just outside of the undrawn forward equity?

Sure, do me a favor, Dan, start with how to fund it and let's go to Jan after that with some market conversation.

Sure, sure. We've positioned the balance sheet as good as it's been in the last six or seven years pre-COVID with significant financial flexibility and capacity on our balance sheet, the undrawn line of credit plus access to the whole breadth of capital markets that we've availed ourselves to over our history. And I think that we're really, really well positioned to take on the opportunities we're seeing out there. And we'll use all the tools in our toolbox and Arizona quiver in terms of allowing us to opportunistically and creatively finance the opportunities we see in the market. Jan, can you pick it up?

Yeah, you bet. Hi, Dory, Jan. Look, we've never been busier looking at underwriting acquisitions. And in fact, as soon as we get off this call, we'll be talking about some other ones. It has been so busy. There's a lot of product on the marketplace at this time on the one hand. On the other hand, competition's gotten a little stiffer. There are more people looking at the larger type of assets that we've been pursuing. And again, we try to go after great locations, of course, but larger assets that matter in their markets and matter to us in terms of being sizable enough where we can really create some value with leasing, merchandising, and if applicable, enhancing the sense of place, which we think the asset that Don had mentioned earlier in Northern California is a perfect example of that. So we think there's a lot of activity that we're gonna see. We're gonna be bidding on all kinds of assets, but obviously we don't know what price it's gonna take and does it match our return hurdles and our ability to grow the earnings on the asset. And so we'll see. We would expect it to be a pretty active year.

The next question comes from Steve Sacqua with Evercore. Please go ahead.

Yeah, thanks. Good afternoon. Don, I guess with the portfolio over 96% lease, I'm just curious how the leasing discussions are changing kind of both internally and externally with the retailers and how are you thinking about kind of pricing space as you move forward?

No, Steve, it's, it's a good time to be in this business, man. And there's no doubt that for the property, the spaces that are very desirable, it's very common to have more than one real opportunity or real tenant in there. We try to get it not only in the rent, which we obviously always do, we try to get it in the bumps, which is really important. And most important is in control. And so when you come down to those, 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 the lack of sales kickouts and things like that so that we have more control. We are having more success with that. And so, and you and I have talked about this for years, I guess, well, I always think that these leases, our contracts are among the strongest in the space. I have no way to determine that for sure, but I know we fight hard for not just the rent, but also those control provisions. And those are, we're having more and more success with that because we are at 96% leased. Now, having said that, I don't believe 100% leased in a portfolio is something that is attainable, nor do I believe it's something that should be attainable because to the extent you're doing that, that you're probably leaving money on the table and all space is not created equal, some that's better than some that's worse. But I still think, and Dan kind of put it to it pretty well before that at 94.1 on the occupied basis, I think it's pretty darn likely that we're gonna be able to get up toward 95. Things can always happen, obviously, but that that can continue to go, and the same with the 96 for a bit more. But you know, me and this company is about using all those hours on the quiver. So as important as that is, so is redevelopment, so is development, so is acquisitions, all parts of the business. So you should see, in short, you should see strong contracts, stronger contracts as we go through this period of the cycle.

The next question comes from Jeff Spector with Bank of America. Please go ahead.

Great, thank you. If I can ask a follow-up on acquisitions, Jan, you talked about seeing more assets and Don, when we saw you in November, Avery, you talked about your strategy, and I think you said possibly looking at more markets. So I'm just curious, is it, you're seeing more opportunities because you are looking at more markets? And for example, I mean, an asset traded in Cleveland, Ohio today, is that, I'm just curious, is that something that you even looked at? Like is that, does that fit the new strategy? Thank you.

Jan,

go ahead. You want me? Yeah, yeah, so Jeff, I think it's twofold. I think overall there are simply more assets available on the marketplace today than there were six or nine months ago. And I think with debt costs being higher for longer, I think there's just certain sellers that capitulated and just can't wait any longer. And certainly we're looking at some assets where loans are now due in October or November, and people need to transact. And so overall, I just think there's simply a lot more available. And then you put on top of that, yeah, there are 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 looked at that and for a set of reasons, it just didn't quite fit what we were looking for, but that would be a market that we wouldn't have looked at going to before, but we would now.

Yeah, I don't have anything to add to that, and that's what I would have said.

The next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.

Good afternoon down there. Don, you mentioned, and you were pretty forceful in your comments about the credit quality of the portfolio and a lot of the retail bankruptcies haven't impacted you guys. Just sort of curious, your overall watch list and your confidence that your tenancy is in a good credit position. I know you have that range out there, but I don't know if that range is just a generic range or if there's some problem, children, if you will, that that range is there to solve or to be there for this year.

Yeah, good question, Alex. With the near term concerns that are in the market with the Joanns, the party cities, the big lots, so forth, we just don't have much exposure to. We have no big lots, one party city, two Joanns. Soon they'll leave. That's reflected in our forecast. Container Store, they affirmed every single one of their leases, stayed in place for very little concession. Look, most of the stuff we're concerned about is maybe longer term or medium term. And look, 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 point credit reserve is appropriate. We have nothing specific there and nothing that I can really kind of use a buildup to get to with regards to, but I think it's a prudent level for us to have given the volatility that we see in the economy today.

The next question comes from Craig Melman, the City. Please go ahead.

Hey everyone. There's some bigger mixed use deals in the market. Just kind of curious what the appetite or capacity is to do several hundred million dollar deal and is now the right time to potentially look to JV, some of the bigger high profile assets that you guys own.

Yeah, that's a good question, Craig. And let me do the easy part first. We do have the appetite and we do have the capacity. For, you know, it's not necessarily that it's a, these are big or bigger mixed use assets. The question just like a small asset comes down to what's the IRR and what can you get to? And so there's really not a difference from my perspective at least in, you know, liking a particular format over and above the other, as long as it's a retail based asset, because it really comes down to how has that previous owner managed it? How has he or she gotten to the rents? How have they, how much capital has been deferred? And how much does it need? All the same things you look at in every project. I like them. And, you know, there's, you know the couple that are in the market today, 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 asset out there, you can be sure we're looking at it because we like 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, on a big one, that could make some sense to be able to do that way. Always like to, as you would expect from us, take a balanced approach to, you know, how we manage that balance sheet. And there certainly seems to be joint venture money that's available out there to partner up. And that is, so that's certainly a possibility on the bigger stuff. But the bigger thing is do the numbers work overall on that particular property that we're looking at?

The next question comes from Handel Sengust with Mizuho. Please go ahead.

Hey guys, I wanted to ask about, just talk about tariffs. I'm just curious how your conversations potentially with some of your tenants might be going. Thoughts on 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 tenants. Thanks.

Yeah, I'm gonna start in Wendy. I know you and I have talked about it. So maybe add on if I miss anything on this, but the comment, you know, it's really interesting. The biggest thing from a tenant perspective that's different than necessarily you would think, Handel, or I would think is that they're more nonplussed by this generally than the news. Because they've been dealing with the notion of tariffs, where it's gone, certainly in the first Trump administration, certainly in limited respects during COVID, et cetera. Lots of retailers have diversified their sources of where they source goods from. So, you know, it's interesting. Maybe with respect to, you know, tenants that kind of serve the less affluent consumer, buying stuff from China and are unable to pass it on, maybe, you know, the dollar concepts, that could possibly be something that it's harder because it always, at the end of the day, it's a tax. And so when you sit and think about it, who pays the tax? And in better real estate, in the better areas, that tax to the extent it's there is more likely to be able to be absorbed by the consumer. And that's harder to do, just like we've been talking about for the past couple of years with, you know, lower income properties and portfolios. You know, aside from that, every single business has their own way to operate and to prepare and protect themselves. In the conversations we've been having, they certainly seem to be doing that. Wendy, am I missing anything here?

No, I think you hit all the major points. I would also say that since COVID, you know, the retailers that are savvy have been really working to increase their margins. And they've been doing a good job of it. And as Don said, tariffs are not new to them. And they've figured out how to continue to navigate this. And I haven't heard, and I've had several -on-one conversations, I haven't heard anybody say that it was anything other than another challenge with their business at times.

The next question comes from Michael Goldsmith with UBS. Please go ahead.

Good afternoon. Thanks a lot for taking my question. Dan, COMP POI in 2024 of 3.4%, you're guiding to 2025 of three to 4% with a headwind of 40 basis points from the collection of private programs. So it points to a fundamental acceleration. Am I thinking about that right? And what's driving that acceleration that you're expecting in the upcoming year?

Thanks. Yeah, I appreciate that. Good question, Michael. Yeah, now the three to 4% is after the headwind of prior period rent. So you could think about it as 3.4 to 4.4. So yes, there is some acceleration. And it's really driven largely by occupancy. And the strength of the occupancy we experienced over this year, the past year in 24, where we see occupancy, where we see the puck going in 2025, I think that that's really the biggest driver of continued acceleration in our comparable portfolio.

The next question comes from Mike Muller with JB Morgan. Please go ahead.

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 seemed to be last year?

You know, I don't know if it's time yet to say there's a pivot. I would say that, you know, as I've talked about in past calls, the ability to make numbers work certainly is enhanced in places where we already own the land. And so the notion of having land that has little or no cost like the Ballack Inwood asset that we're under construction with, I mean, that helps a ton. Land cost is 15, 20, 23% or so of a total project. That's a heck of a head start. The 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, to the extent that changes, that changes. But right now we're able to make a couple of these projects work. I think we're pretty close to a couple more that hopefully we get to later in the year. But it's not yet equilibrium, if you will, acquisitions versus development. But while, you know, a year or two ago it was all acquisitions, if anything, and no development at all, certainly there is a start, if you will, to the potential development cycle.

The next question comes from Greg McGinnis with Scotiabank. Please go ahead.

Hey, good afternoon. I just wanted to clarify the commentary on Santana West. That 12 to 14 cents 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 of a, we're taking the hit in 2025. I'm shutting off capitalized interest and then getting the benefit of all the rent starts. So it's a missed timing. So yes, it will be net of the capitalized interest that we see in 2025, having been burned off and then flows right to the bottom line, the 12 to 14 cents that we mentioned, primarily in 2026.

The next question comes from Keeben Kim with Truist. Please go ahead.

Thank you, good afternoon. 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 development yields and what kind of compression you might see going forward. Thank you.

Thank you, Ben. As soon as we are able to fully design a project, we certainly start with respect to moving toward a GMP. And certainly that takes time. We are basically there on the Hoboken project we just announced. By the way, that's a concrete building. Don't expect any issues with respect to the costs there. We've got some other things coming up that'll be more lumber for it as the primary cost. You can't get it locked down until you have a completely designed project. And we're not effectively warehousing materials in order to lock down money early. So as you're asking one of the questions that's tied to the whole last three weeks, if you will, of the Trump presidency and where that's gonna lead, there's a lot on notes as to whether that's actually gonna be impacting construction costs, deal costs, tariff related. As the year goes on, as the years 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.

The next question comes from Floris Van Digicombe with Compass Point. Please go ahead.

Hey, thanks, good evening. Don, you've built federal into the sort of preeminent mixed use owner developer in the shopping center sector. I think based on our numbers, you own the three most valuable mixed use projects in the strip sector. I'm curious as to, you talked a little bit about being on the war path, capital allocation, would you prefer to buy another assembly row, for example, or would you rather buy five Virginia gateways, which would be similar kind of NOI contribution, if the returns are the same, or how do you think about that, how do you think about portfolio construction in three years time? How many more of these dominant assets do you expect to have in the portfolio?

I love the question actually, Floris, but I don't fall in love with properties. 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 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, reduce the risk. It also though, means there's just a certain amount that we're willing to pay to get it. And so, you're not gonna see us in order to have all the mixed use big projects in the country, you're not gonna see us stepping out of our shoes because the numbers don't work. And at the end of the day, we are allocating capital here as best we can to provide the greatest risk adjusted return. So, when you sit and you think about that, the theoretical part of your question is theoretical. If there were five of Virginia gateways versus one assembly row,

but there never are

because 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 underwrite well on that type of project because of our 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, we're good at it. So, I hope that helps. It's not an either or. It is a best risk adjusted capital allocation strategy that will lead federal wherever federal is in the next three to five years.

The next question comes from Linda Sy with Jeffries. Please go ahead.

Yes, hi, maybe just a follow up on the transaction environment. As you look across the different formats, are there certain regions or certain retail format types where you see better opportunities in your underwriting?

It's not really, Jan, what do you think about that question that Linda has?

Yeah, it's a good question and a little hard to answer, Linda. I don't know, we like, again, we like larger centers and generally the yields have been pretty good across the board on those centers. I don't know if there's a particular type that is providing a better or worse yield. It really probably is case by case on the asset where it sits in the marketplace and what marketplace it's in. So, I think it's hard to answer that one.

Yeah, the answer is really not really,

but in

terms

of preference.

The next question comes from Amatayo Ocasania with Deutsche Bank. Please go ahead.

Yes, good afternoon, everyone. Quick question on your leases. Again, clearly at 96% occupancy, you guys are driving rents pretty nicely, but would you like to talk a little bit about from a qualitative perspective, other things you're doing with lease terms versus retailers to kind of help you guys build your business? Just kind of talk a little bit about some of those initiatives and kind of results from them.

Sure, this is Wendy, I'll jump in here. With our lease rate up so high, it really gives us the opportunity to continue to strategically focus on merchandising and growing sales. We've had a good history of if we can grow that quality of merchants together from a sales perspective, we can drive the rents better. As Don mentioned before, we've always been very diligent, I should say, on our contracts and making sure that we have the amount of opportunities and control that we need in those contracts. I would say we're even more focused on sales volume where we've had the opportunity to say, hey, we're only gonna give you so much term and if we give you an option on top of that, you need to have a certain sales performance before you can even exercise that option. So that'll give you some examples of how we're able to kind of work and kind of fine tune the overall production of our shopping centers.

So that's one example of how we're able to do that. And then we have a follow-up question from Juan Tanabria with BMO Capital Markets. Please go ahead.

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 five million of disposed properties from 2024 POI. Is that just the residual drag from assets you sold last year? And I guess what would be the outstanding acquisition benefit? I'm just a little confused about how I should interpret or use that information.

Yeah, that's the POI that's no longer that we recognized in 2024. That's no longer in our portfolio for 2025. So we sold assets last year, Santa Monica. That reflects, that and others reflects the income that we saw in 2024 that's not in our 2025 guidance. And isn't he asking about acquisitions, Ben? What was the second part of the question?

Yeah, I guess what would be the offset on the acquisition side just to have both sides of the coin?

Well, they're pretty straightforward. We acquired, I don't have that off the top of my head, but Virginia Gateway, it was acquired. Let me follow up with you offline there. That's not something I will, I need to do some calculations. Can't do in my head right now.

Sounds good, thank you.

We have a follow up question from Alexander Goldfarb with Piper Sandler, please go ahead.

Hey, thanks for taking the follow up. Just going back to Jeff Spector's question on the Cleveland asset that you guys said that you took a look at and it was sort of a market that you wouldn't have thought about before, but it broadens your view. As you guys consider new markets, just sort of curious if you're sort of rethinking your traditional type scenarios like high affluent, infill, not infill, but infill suburban, or if the way that communities have changed, there's a new way that you're thinking about it. And the second part of that is everyone wants to have meaningful concentration to allow a platform. I assume that's actually difficult to foresee given the limited deal flow to see a path to acquiring enough assets, or you can actually see that even in the limited deal flow that we have right now.

Boy, you got a lot packed in there, buddy. And I love the question. It's gonna be hard to just do that with one or two cents, but let me try. First of all, a couple of great assumptions in there. The notion of whether federal will go down quality in those other assets, the answer is no, we won't do that. Now, because some of the markets we're talking about are smaller than the big coastal cities, there are, to your other point, fewer great centers. And all we're gonna be looking at is the best couple of centers in cities that are still large cities, but not as big as the coast. So yes, it does become more difficult, if you will, to own six or seven or five within a particular market, but it is not difficult for us to get our heads around the best center or best two centers in a particular market and run them separately, if you will, with a new organization that's aiming for that. So your assumptions are generally really good. There are places that we have not looked at historically that we are comfortable that with the best asset or two in those large cities, but not as large as the coast, that we could take what we do for a living, which is merchandise well to the best retailers, retailers that will 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 to go so that we can affect change there. That's the kind of stuff that we'll be going for. They will be the best one or two assets in the market. There will be affluence. There will be population density.

That's what we'll be looking for. We have a follow up question from Steve Sackler with Evercor. Please go ahead.

Thanks, Dan, could you maybe just provide a little more color? I think when you gave those ranges by quarter, it kind of implies a drop sequentially from four-queue to one-queue and maybe there's a slower build into two-queue. I realized the tax credit might pop in all in the third quarter, but maybe just help us bridge kind of the weaker first half and, you know, obviously the stronger second half.

Yeah, sure, sure. Good question. The guidance 167 to 170 is roughly down .5% from the fourth quarter FFO we reported. A big chunk of that is really a number of seasonality related numbers. First one is occupancy. First quarter, typically we see tenant move outs. We are, and I highlighted this, we will see a step down in occupancy into the mid to upper 93% range by quarter end. We see that typically every year. Expenses like snow are seasonal. It's been a rough first 40 some odd days in the northeast from a snow perspective. So we would expect that to weigh on us. Hotel income, it's small, but it adds a seasonality component. You know, parking and percentage rent. You've got cold weather impact on customer traffic as well as tenants hitting break points.

We dropped off. They can't hear us.

The speaker line is back on.

Yeah, they're dialing back in now.

Operator, can you hear us? Yes.

We live in the line?

Yes, you are.

I tick through most of the seasonality impact. That's a big impact. Covidea deferrals, they go away versus the fourth quarter to the first quarter, about a penny. We did issue shares at the end of the year, and that is a couple pennies. 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 a lot, you can see in the second quarter, it shows the improvement of the trend. And, you know, so similarly for our comparable growth, we'll show steady improvement from the first quarter through the second and peak out in the fourth quarter.

We have a follow up question from Floris Van Digicombe with Compass Point. Please go ahead.

Hey, Dan, a follow up for you. I want to talk about a different kind of snow. Your S&O pipeline of 210 basis points. Can you quantify the rental impact of that?

Yeah, total rent associated with our comparable snow, which is just what's in the comparable pool, is a little over 25 million. We also have leases signed in the non-comparable pool that take us up towards 42 million, called 41-42 million. We would expect that of the 41-42, 80% of that will be in 2025 with the balance in 2026. And that will be weighted more heavily towards the second half of the year with 55% of schedule starts in the second half of the year and 25 points of the 80 points being in the first half.

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.

I look forward to seeing everybody in the next few weeks. Thanks for joining us today.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.