Federal Realty Investment Trust

Good afternoon and welcome to the Federal Realty Investment Trust second quarter 2025 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 Jill Sawyer, Senior Vice President, Investor Relations. Please go ahead.

Thanks, Gary. Good afternoon. Thank you for joining us today for Federal Realty's second quarter 2025 earnings conference calls. Joining me on the call are John Wood, Federal's Chief Executive Officer, Dan Guglielmini, Chief Financial Officer, Wendy Sears, Eastern Region President and Chief Operating Officer, and Jan Swedenom, 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. Forward-looking statements include any annualized or projected information, as well as statements referring to expected or anticipated events or results, including guidance. Although Federal Realty believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, Federal Realty's future operations and its actual performance may differ materially from the information in our forward-looking statements, and we can give no assurance that these expectations can be attained. The earnings release and supplemental reporting package that we issued tonight, our annual report filed on Form 10-K, 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 one 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. This is a really active quarter led by beat and raise results near record leasing, a big and important acquisition, a couple of fully priced dispositions, and some innovative and value-enhancing dealmaking. 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 $1.76 per share exceeded consensus and prior year FFO, resulting in the beat and raise that Dan will discuss in a few minutes. Comparable property-level operating income grew at 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 continue 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, Wendy's going to speak about our Leawood, Kansas acquisitions 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. Our acquisition criteria leans into all of our core strengths developed over the last 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 difference in the property's growth rate. Every property we acquire has to be in a bullseye location, measured by income demos, trade area reach, retailer desirability, and economic constraints that assure it retains its best location status protected from new supply. The only change we're making to this criteria relates to 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 COVID. 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 shopper, 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 have increased substantially. We hope to have two more acquisitions of size completed by year end. There will be no diminution in the quality of Federal's portfolio as a result of the wider playing field. In fact, it will be enhanced. with a laser-like focus on greater growth prospects and greater geographic diversity. It's a 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 two 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 are sheltering the game 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. They're assets that while part of our broader shopping center and 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 Levare at Santana Row, a high-quality, stand-alone residential asset that sits a block off the row on the periphery of the neighborhood. Levare has no retail beneath it and was sold for $74 million in June at a sub-five cap. Across from it, you'll see the larger residential building that we called Missora. Similar situation, and we plan to market it for sale in the coming months. At Pike and Rose, That can mean PALS, a standalone luxury residential building one block behind the main shopping street, and a congressional plaza shopping center where we have the stories apartments that sit behind it. We could also sell those. These are all high-quality assets that we've built over the last 25 years that are ripe 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 amenitized product. Probably not right yet, but we're open to recycling that capital here with the right buyer and valuation when the time comes. The luxury of having this optionality is a unique piece in the whole 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 and a way to extract maximum value from our larger shopping center and mixed-use properties. Now, of course, opportunities are not as robust as they were in a lower interest rate environment, hence 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 rate. 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. Expect to see our residential project in Ballot Kinwood, Pennsylvania start leasing up next year in 2026 and Hoboken, New Jersey in 2027. We just broke ground on 258 apartments and Lot 12 in Santana Row, and 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 through the power of Federal Realty's 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 we'll all face in 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 it over to Wendy and then Dan and the on-the-ground detail.