Greetings. Welcome to the Federal Realty Investment Trust Third Quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Mike Ennes. Thank you. You may begin.

Good afternoon. Thank you for joining us today for Federal Realty's third quarter 2021 earnings conference call. Joining me on the call are Don Wood, Dan G, Jeff Berkes, Wendy Seher, Dawn Becker, and Melissa Solis. They will be 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 that 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. We can give no assurance that these expectations can be attained. The earnings release and supplemental reporting package that we issued today on 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 results of operations. We kindly ask that you limit your questions to one question and a follow-up during the Q&A portion of our call. If you have additional questions, please feel free to jump back in the queue. And with that, I will turn the call over to Don Wood to begin our discussion of our third quarter results. Don.

Thanks, Mike. Good afternoon, everybody. By the way, that was Mike Ennes stepping in for Leah Brady. We're going to do this call today as Leah just gave birth to her second child last week, a boy named Weston. Mom and baby are doing great. If you get the chance, please reach out by email to congratulate her. My prepared remarks today are going to sound a lot like last quarter because the recovery continues on updated and ahead of schedule. The momentum that we took into the second quarter carried through and, in fact, strengthened in the third quarter, most evidently on the office leasing demand side at our mixed-use properties. I'll just cut to the chase here and summarize where we are in five easy points. For one, we excelled in the third quarter at $1.51 a share. Secondly, we raised our 2021 total year guidance by over 7% at the midpoint. Thirdly, we raised our '22 guidance, the only shopping center real estate company to give '22 guidance so far, similarly by over 6% at the midpoint. Dan is going to talk about 2023 and 2024 also. We executed 119 retail leases for 430,000 square feet of comparable space at 7% higher cash basis rents than the leases they replaced. We ended up the quarter with our office product fully leased up at CocoWalk, 89% leased or under executed LOI at Pike & Rose, 88% leased or under executed LOI at Assembly Row. We're even having some consequential discussions with full building users at Santana West. After the quarter, you might have seen last week that we signed a 105,000 square foot deal with Choice Hotels to be the leading tenant in the next phase at Pike & Rose. Some serious office leasing progress for any three-month period, never mind one, during which decision-makers are still unsure of their future office space needs. This says a lot about many rich new constructions in our markets. We'll put more meat on the bone for each of those points and others. That's where this company is. We sit here in the first week of November 2021, and we're feeling great about our market position. With FFO of $1.51 per share, we exceeded even our most optimistic internal forecasts, we're up 35% over last year's recovering third quarter. We didn't anticipate the bounce back in nearly all facets of our business to be so fast and so strong, even with the effects of the Delta variant surge. The quarterly positive impact of the past recovery meant that we collected more rent in the third quarter from prior periods than we anticipated, $8 million collected versus a couple of million forecasts. We had significantly less unpaid rent in the quarter than we anticipated. We collected 96% of what was due. We had far fewer tenant failures than we anticipated. And at $4.9 million, we had far higher percentage rent from COVID-modified and unmodified leases than we had anticipated. We also had less dilution from our new residential construction in Assembly Row. Because our lease-up is well ahead of schedule at this point, nearly half the new residential building is already leased. Even the three hotels in our mixed-use properties are performing better than we thought they would be at this point, with occupancy in all three back into the mid-60s and better. And of course, we more than covered our dividend on an operating cash basis in the third quarter, as we did last quarter. As a reminder, that's the dividend that was never cut during COVID. All that means that we'll significantly raise earnings guidance and take a peek at the out years too. As we've said all along, visibility to our 2022 earnings was ironically better than 2021. That's proven to be the case. Dan will talk through guidance details in a few minutes. On the retail leasing side, we continue to see strong demand across the board and see that continuing for the foreseeable future. Over the last four quarters, we've done 442 comparable deals for nearly 2 million square feet, not counting another couple of 100,000 square feet for non-comparable new development. To put that into context, that's 27% more deal volume and 25% more square footage than the annual average over the last decade, a decade that itself was very strong for us from a retail leasing standpoint. We've been saying all along, demand for Federal Realty properties is not the issue. They are in high demand from today's relevant and well-capitalized restaurants and retailers that are all trying to improve their sales productivity post-COVID through better real estate locations. We've always been pickier than most in terms of the tenants we choose to curate our centers. When you couple that with the execution of the broad post-COVID property improvement plans that we've talked about over the last several quarters, that higher capital outlay today will result in significantly higher asset value tomorrow. Places that are fresher, more dominant, and more relevant in a myriad of ways in the communities they serve for years and years to come. The value of our real estate net of capital is going up. And the prospects appear to be better than they were before COVID. But assigned lease design for our rent store and the well-publicized supply chain issues affecting most U.S. businesses will have to be managed thoughtfully and definitely in the next 18 months to move all those trends from signed lease commitments to build-out operating stores in the shortest possible timeframe, at a reasonable cost. Although we're talking about a shortage of rooftop air conditioning units, production shortages, kitchen equipment from overseas, or material stuck on boats offshore, supply chain issues are broad and to some extent unpredictable. As a company, we're all over it, and we have been for months. Early ordering, stockpiling, problem solving, and leveraging longstanding relationships are all tools that we're using to mitigate fill-out delays. At the quarter's end, our portfolio was 92.8% leased and 90.2% occupied, both improvements over last quarter and the quarter before that. But a long way from being 95% leased, which we were just three years ago. The earnings upside from not only getting rent started in all the leasing we've done to date, but the continuation of occupancy gains to historic levels and maybe higher over the next couple of years provides a visible and low-risk window as a strong future growth. This is before considering the inevitable earnings growth coming from the lease-up of our billion-dollar-plus development and redevelopment pipeline, the cost of which are largely locked in, and our very active acquisition program will also add to that. By the way, we did close on the $34 million acquisition of Twinbrooke Shopping Centre in Fairfax, Virginia, in another off-market transaction during the third quarter, marking the fifth deal that we closed in 2021 and the second in Northern Virginia. Very excited about the remerchandising and rent upside at this under-invested shopping center stable in the middle of Fairfax County. I've got to believe that the visibility of this company is bottom line earnings growth. Coming out of COVID is on a risk-adjusted basis, one of the, if not the, most transparent in the sector. That's about all I have for my prepared comments. Let me turn it over to Dan, who will be happy to entertain your questions after that.

Thank you, Don. Good afternoon, everyone. It feels really good to be here discussing another quarter where we blew away expectations. $1.51 per share of FFO represented a 7% sequential gain over a strong second quarter, 35% above 3Q last year, and $0.23 above our expectations, which represents an 18% beat. As Don highlighted, the outperformance was broad-based, with upside coming from continued progress on collections, occupancy, and leasing gains, better-than-forecasted contributions from hotel, parking, and percentage rent, faster lease-up at our developments, and another accretive off-market transaction. While collections climbed higher to 96% in the current period, up from 94% last quarter, plus another $8 million of prior-period collections, leasing is what continues to command center stage for yet another quarter at Federal. Momentum that started during the second half of 2020 continues with a fifth consecutive quarter of well-above-average leasing volumes across the portfolio. We saw our occupied percentage surge 60 basis points in the quarter, from 89.6% to 90.2%. Other strong leasing metrics to note: our small shop lease occupancy metric continued its climb upward, as it grew another 40 basis points to 86.1%, coming on top of nearly a 200 basis point gain in the second quarter. Overall, small shop leasing is up 260 basis points year-over-year. Leasing momentum continues to be driven by our lifestyle portfolio, as we signed leases with such relevant tenants as Jenni Kayne, American Giant, Herman Miller, Peloton, La Colombe, Purple, another Parity location, and another Nike location, our fourth this year. And restaurants such as Slotline, Moto, Astro Beer Hall, Gregory's Coffee, and Van Loon, just to name a few. Some of these names, you may not be familiar with, but trust me, you will. Office leasing continues to be a bright spot, with 224,000 square feet of leases signed during the quarter and subsequent to quarter-end, including the investment-grade rated Choice Hotels deal. Comparable property growth, again, while not particularly relevant this year, continued its resurgence up 16%. Please note for those that keep track, as we expected, term fees in the quarter were down significantly to $500,000 versus $6.1 million in the same quarter last year, a headwind of -4.2%; without it, our comparable metric would have been 20%. Our remaining spend on our $1.2 billion in-process development pipeline stands at $215 million, with another $50 million remaining on our property improvement initiatives across the portfolio. You may have noticed that we added a new project to our redevelopment schedule in our 8-K, a complete repositioning of Huntington Shopping Center, an $80 million project which will transform a physically obsolete power center on a great piece of land into a remerchandised Whole Foods-anchored center. The project is expected to achieve an incremental yield of 7%. Now, onto the balance sheet and an update on liquidity and leverage. For the $125 million of mortgage debt that has been repaid over the last 60 days, we have no debt maturing until mid-2023. We continue to be opportunistic, selling tactical amounts of common equity for our ATM program on our forward sales agreements. As a result, we maintained ample available liquidity of $1.45 billion as of quarter-end, comprised of our undrawn $1 billion revolver, roughly $180 million in cash, and $270 million of equity to be issued from our forward agreements. Additionally, our leverage metrics continue to show marked improvement. Pro forma for our 2021 acquisitions over equity under contract, our run-rate for net debt to EBITDA is down to 6.0 times. Pro forma for leases signed yet not open, the figure is 5.8 times. Fixed charge coverage is back up to 3.9 times. Our targeted leverage ratios remain in the low-to-mid 5 times for net debt-to-EBITDA and above 4x for fixed charge coverage. We're almost there. Finally, let's turn to guidance. Given the strong recovery we are experiencing in 2021, we will be meaningfully increasing guidance again for both this year and 2022. Taking 2021 up 7.4% from a prior range of $5.05 to $5.15 to $5.45 to $5.50 per share. This implies 21% year-over-year growth versus 2020 at the midpoint. And are taking 2022 up 6.5% from a prior range of $5.30 to $5.50 for a revised range of $5.65 to $5.85 per share. While it may be premature, preliminary targets from our model show FFO growth in 2023 and 2024 in the 5% to 10% range. The drivers behind the improved outlook for 2021 stem first from a significantly stronger third quarter than previously expected. This should continue in the fourth quarter as we increase our fourth quarter estimate to $1.36 to $1.41 per share, a 10% improvement versus previous guidance, but down from this quarter. While we again collected more rent than expected from prior periods in the third quarter, we don't expect that to repeat. Repairs and maintenance, demo, and other expenses are all expected at elevated levels as we continue to drive the quality of our existing portfolio, and G&A will be higher in the fourth quarter as well, given higher compensation expenses. In addition, we forecast issuing $150 million to $200 million in common equity under our forward agreements before year-end. For 2022, the improvement in outlook is driven by strength across all facets of our business from occupancy growth driven by the continued momentum of leasing activity, contributions from our in-process $1.2 billion development pipeline, full-year contributions from all of our 2021 acquisitions, and higher collections as we return to pre-COVID levels. Let me try to add some color to each of these areas to provide greater transparency to a multi-year path of outsized growth. The first driver of growth is occupancy and leasing, which I would like to break into two components. First, what deals are already executed? With physical occupancy at 90.2% and our lease rate at 92.8%, the signed not open spread for our in-place portfolio represents roughly $25 million of incremental total rent. The second component, what leasing demand will drive going forward? Given the strength of our leasing pipeline, getting back to 95% leased, a level we were at just three years ago, is certainly achievable. If you look at our current pipeline of new leasing activity for currently unoccupied space, this could add another approximately 115 basis points to the current lease percentage or $12 million of total rent upside when executed. Please note, for every 100 basis points of occupancy gain, we see roughly $10 million in additional total rent on average. The third driver of growth is our development pipeline. At $1.2 billion of spend, we'll throw off just over $10 million of POI in 2021 for about 1%. The stabilized projected yield in the mid to low 6% range should produce $70 million to $75 million of POI when stabilized. The $60 million to $65 million of incremental POI should begin to deliver more fully in 2022, but will also be a meaningful driver of POI growth in 2023 and 2024. Please note that, as we did before COVID, next quarter, we plan to reinclude in our 8-K supplement the disclosure detailing the ramp-up of POI for each of the projects in our pipeline. The fourth driver of growth in 2022 is acquisitions. As Don mentioned, the closing of Twinbrooke Shopping Centre, our fifth off-market deal of the year, brings our consolidated investment to $440 million, plus $360 million on a pro-rata basis with a blended going-in yield of 5.5%. With a full-year of contribution, these purchases are very accretive. Lastly, collections. Current period collections for 2021 are forecasted to finish at 95% on average for the entire year. We expect that to be higher in 2022 with pre-COVID levels returning in 2023. This is expected to more than offset any falloff in prior rent collection next year. Keep in mind, for every 100 basis points improvement in collection percentage, that represents almost $9 million annually. Please note that similar to last quarter, there are no benefits assumed to our guidance in either 2021 or 2022 from switching tenants from cash back to accrual basis accounting. The combination of these primary drivers of growth, supplemented by forecasted upside in other parts of our business such as parking, tenant investments, and percentage rent, gives us a clear and transparent path of growth, not only in 2022, but beyond into 2023 and 2024. We couldn't be happier with our market position and expect to have sector-leading FFO growth over the next few years. With that, Operator, please open the line for questions.

Thank you. At this time, we will be conducting a question and answer session. As a reminder, we ask that you limit yourselves to one question and one follow-up per person. One moment, please while we pull the questions. Our first question is from Alexander Goldfarb of Piper Sandler. Please state your question.

Good evening, Don. It's impressive that you're already providing guidance for '23 and '24. I assume you'll set conservative estimates that will likely be adjusted upward next quarter. However, the more pressing question is what's happening with asset properties across your operations that has contributed to such a strong recovery and high tenant demand. A few years ago, tenants were still to some extent utilizing your spaces, observing consumers shopping at your properties. What has changed now to create this heightened demand? Is it simply that these tenants no longer face the competition of online shopping? It's remarkable, and I know I've asked this before, but the level of demand in retail this quarter is astonishing. It raises the question of whether these retailers were just holding back previously, or if the exit of weaker credit tenants has provided you with better opportunities to lease space to those willing to pay higher rents.

First of all Alex, it's good to know that you are very predictable in terms of the first part of your statements not being a question. Regarding the larger question, it's a complex situation with multiple factors involved. Many people, particularly in our markets, have stayed home due to various restrictions, and that can become tiresome. There's a noticeable increase in the desire for socialization. In New York, for instance, it's nearly impossible to get a reservation at restaurants, and we're experiencing similar trends across our properties. People want to go out, and tenants are upgrading their spaces. I am primarily referring to our portfolio, but the chance to access better real estate is quite rare, especially considering it was previously only 89% leased. This opportunity to upgrade is a significant motivating factor, as we've mentioned before. From a consumer standpoint, the demand is definitely present. From the real estate and tenant perspective, that demand is there as well. Surprisingly, we haven't lost many tenants over the past six to eight months in 2021. The resilience of tenants in maintaining their properties and not wanting to lose their advantageous real estate positions has been greater than we anticipated. Therefore, combining the retention of tenants, the rebound of availability from the previous low leasing rates, and the robust consumer demand, you have a significant part of the answer to your question. We do not foresee any changes at this moment; the continuous strength in this area is innovative.

Okay. And then the second is on Office, you had a win with Choice Hotels and I think you mentioned Santana West. We all hear the low return of office numbers, and yet all the office companies talk about the really strong leasing that's going on. Clearly, you're seeing that in demand for your different mixed-use projects. So, as you look out over the next 12 months, how many new office projects do you think you could start based on the conversations you’re having today? Is it just 1 or 2? Or do you think you can easily balance 4, 5, or 6 buildings to go?

No, no. No, Alex. It's one. For us, first of all, just get it all in perspective. There is Assembly Row with office, Pike & Rose with office potential opportunities, and Santana Row. In all three markets, the demand is there. Santana West is a different kettle of fish because it's one big building that we're looking for one big tenant to take the whole thing. At Assembly, the building that was Puma has been astonishing in the past period of time. There, we may see us able to announce another building next year. We're working hard right now. But to your point, that demand could mean that there's a faster route to the next building. In terms of Pike & Rose, we certainly didn't expect to be announcing another office building here. As you know, we were the only tenants in here on August 10th of 2020. The notion that this building is 90% leased and our conversations with Choice, who originally started about this building, were such that we could not accommodate them. We needed, if we wanted to do that deal, to start another building. It's astonishing. I don't think this is even handled throughout the country. Obviously, there's a question of what happens to office spaces in terms of needs going forward over the next decade. But I know if you're in an amenity-rich environment with new buildings in places like where we are, you are in the catbird seat. Because I'm seeing it in terms of the deals we're doing. So, one, maybe two buildings over the next year.

Our next question is from Craig Schmidt of Bank of America. Please proceed with your question.

Great, thanks. The acquisitions in your pipeline, are these still deals that you originated in 2020, or are they deals that you struck up since '21 started? And how are you doing with the more competitive cap rates?

Yeah, everything we've announced to this date were pre-COVID negotiated deals, or deals that started in their negotiation pre-COVID often got renegotiated during COVID, which allowed us to close five of the best acquisitions we've ever done at this Company. Now, going forward, you bet it's different since it's back in a big way. I'm going to let Jeff give you his perspective of where that road leads. Doesn't mean we can't find them, but it's certainly harder than it was to be able to get those five deals done during COVID, did it?

Yes. Craig, as you probably know the market, like Don said, has snapped back very quickly. Deals are institutional quality, first-rank deals in the markets where we do business, are now 4.5 to 5 cap deals. So, very aggressive pricing. We have a pretty strong pipeline. Our acquisitions teams are busy. Nothing real material to talk about yet, but we've got some stuff on the Verizon we're excited about, and maybe next quarter or two we will be able to talk more about it. But the market just picked up very, very significantly, and we're obviously happy to see that, but being disciplined and differentiating ourselves by trying to get stuff before it comes to market and put our money into assets that we think we have a reasonable chance to redevelop and grow the income stream over time.

And Craig, the only thing I just want to add to that is it's a different perspective when you're trying to do what Jeff is talking about here when you also have the development pipeline that's already been spent creating inevitable future growth. Jeff mentioned acquisitions when you also have a portfolio that was hit harder during COVID and therefore has more room to grow to get back to a stabilized occupancy. So, there are other levers, if you will, to flow to continue the growth. Any acquisitions are the cherry on top of an already very robust growth profile.

Right. And then just on the other arm of external growth, maybe you could talk about Huntington. Do you already have an anchor lined up to take the newly constructed anchor and small shops space?

Yeah, let's talk about Huntington. First of all, I think Simon did an amazing job at the adjacent Walt Whitman Mall to Huntington. They did a great job bringing the entire profile of that product up to what that market frankly deserves. But we would have liked to have done something similar at Huntington, but we have leases in place which are restricted. Well, COVID took care of that, didn't it? The notion of being able to lock in Whole Foods as our anchor, which we have, is a game changer. The future of Huntington will marry up nicely with a brand-new Whitman Mall adjacent to it, with a Whole Foods-anchored center on that piece of land, I mean, it's gold. Give us a couple of years to get it built out and done, and that'll be another avenue for future growth for Federal.

Yes. It seems like you're laying the groundwork for an extended period of above-average growth, given that this would open in 2024.

It certainly feels like it, Greg; it certainly feels like.

Our next question is from Katy McConnell of Citi. Please proceed with your question.

Thank you. I just had another one on the new office plans for Pike & Rose. I'm wondering if you can provide some context around what you're expecting from a cost perspective? And just based on leasing progress to date, would you expect somewhere close to the office portion of Phase 3?

It's a good question, Katie. We're pretty good shape in locking up our costs, but we're not all the way there yet. Basically, at the end of the day, we should be able to achieve a fixed yield, and potentially better on the building. The building will be close to $200 million to build, hopefully not that high, but somewhere around that spot. What it does, and that's a fully loaded six, to the extent you talked about incremental will be higher. We're thrilled to take what we've done and capitalize on it. I couldn't imagine starting that in a place that wasn't already very established with the amenities already here.

Okay. Great. And then just on the results, we saw a big confident straight-line this quarter. I'm curious if you've started converting any of your cash basis tenants back to accrual this quarter? And how should we think about the run rate straight line going into 2022? It's probably going to be lumpy.

It will be lumpy, but it should grow with all the office leasing that we're doing. The big driver was boomer this quarter, which is still in a free rent period. But as we do more and more office leasing, that's going to push our straight-line rent increasing, and that should increase next quarter and into 2022. There are no changes to how we're assessing cash to accrual.

Our next question is from Derek Johnston of Deutsche Bank. Please proceed with your question.

Hi, good evening, everyone. How are you doing?

Hi, Derek.

Have any of the big three master mixed-use developments recovered more briskly? Are there any leading or notable laggards? If so, does that bode well for a snap-back in demand clearly for the laggard in the coming quarters, or would you describe leasing demand as being relatively balanced across the big three?

I would. I would say it's balanced now. All three of them got hurt a lot more obviously than the essential base properties throughout the portfolio. Those three still are not back to where they are going to be or where we want them at all. Yes, there is outside growth at those properties because, as you know, the office leasing is just one component of what we're seeing. You can imagine what it's doing to the retail side in terms of the leasing that's coming to fill space that hadn't been there before. That growth will continue, and we will take all of 2022 and 2023, where you'll continue to see that outsized growth from those three properties. They are special properties now. That's where people want to be. It's also, as you can imagine, where people want to live. We are like 97% leased at the residential component of those assets. Certainly, we have some restrictions in the jurisdictions that they're in on the ability to increase rents in the case of Montgomery County, and evict in the case of Somerville and Massachusetts. But overall, when you sit and think about those, they were the places of choice. We see some real good long-term growth on that component of those mixed-use properties also.

Oh, okay great. And just back to the off-market COVID era acquisitions, especially the four big ones prior to Twinbrooke or even including Twinbrooke. With private markets, which we've discussed, being competitive and cap rates compressing, where do you feel those four assets would trade if they were being marketed today versus in the throes of the pandemic or how much value do you think has already been harvested in your view?

Significant. Jeff and I argue about this because it's all conjecture, right? Who knows? But when you look at what things are trading at, I'm thinking 15%, maybe 20% more? Big numbers.

Our next question is from Greg McGinnis of Scotiabank. Please proceed with your question.

Hey, good evening. So, Dan, and I apologize, I know you've covered some of this already. Could you please just outline the one-time items in Q3 results or changes expected into Q4? And then what are the base assumptions that underlie future guidance? Especially if you could just touch on the expected cadence of occupancy recovery, that'd be pretty appreciated. Thank you.

Sure. The biggest items for the next quarter, as I mentioned, are higher expenses at the property level for repairs and maintenance, demo, and other expenses. I don't expect prior period rent to be as strong consistently; I think I have been poor forecasters of prior period rents. At some point, that's going to fall off. This quarter feels like it probably is the quarter that has happened. We will be issuing, and we plan to be issuing about $150 million to $200 million of equity in the quarter, which will cause some drag. G&A is expected to be a bit higher due to compensation expenses. So those are the main drivers that take us all to focal $1.51 that we had this quarter. So, in terms of cadence of occupancy, I think next year, by year-end, we should see continued growth in our occupancy percentage from 90.2% where it is today, probably somewhere between 90.5% and 91%, in that range. Over the course, I think we should get into the 92s by year-end 2022. So somewhere between 92% and 93% is where I see the cadence on occupancy.

Okay, great, thanks. Thinking about lease structure post-pandemic, have there been any changes in these terms or needs from retailers and office tenants as we talk to them today?

On the retail side, Greg, I don't see any changes. I did when we were in the middle of COVID, and as we're coming out, I see that we're in a strong position to negotiate what I call real deals. In some cases, we participate in a percentage override. So, no, I think that we're in a strong position to continue to negotiate strong contracts for the future.

And on the office side, have you seen any changes?

Yeah, activity. No, I like the way Wendy put it, Greg, they are real deals. So, yeah, there's a lot of capital; there is a lot of capital on all deals today, and that is a trend that continues, but the rent pays for it. When you look at it net of capital, these are good deals.

Thank you.

Our next question is from Juan Sanabria of BMO Capital Markets. Please proceed with your question.

Hi. Thanks for the time. Just curious about a couple of hot topic items. One, inflation and two supply-chain issues. What impacts are they having? Do you expect the supply chain issues to have the least versus occupied spread right now? Further, regarding contracts given maybe some delays in getting permits and/or parts, you mentioned HVAC units, and I'm just curious about how you see inflation impacting the profitability of your tenants, particularly your thoughts on the grocers.

There's a lot to explore here. As I mentioned in the prepared remarks, the supply chain challenges are extensive and need to be managed very carefully, and there is significant risk involved. When transitioning from leasing to having a tenant in place, we need to be proactive. We have been very active in extending lead times or starting work ahead of schedule before everything becomes constrained. A key factor, as Wendy often points out, is leveraging our relationships with tenants to divide tasks based on who has the best ability to secure the necessary supplies or make trades, which has proven effective. While I don't anticipate major delays throughout the year, there will certainly be instances where we do encounter them, but there will also be cases where we exceed timelines. It is crucial to approach this in a proactive and innovative manner, given the uncontrollable aspects involved. So far, things are going well. On the cost side, it's a positive note that a significant portion of our development pipeline is already secured. For instance, regarding 909 Rose, our office building, it was constructed using funds from 2018. Although there have been delays in leasing it, now that it’s occupied, the agreements are favorable based on 2018 pricing. The same applies to Santana and assembly projects. For new developments, it’s essential to secure pricing early to manage cost increases, utilize bulk purchasing power, and have sole-source alternate suppliers. This is all part of a very proactive and tightly controlled approach in our development organization, and I believe we excel at it.

Thank you, Don. I have a follow-up question regarding cap rates for acquisitions. You mentioned in the release that you're actively seeking opportunities. Should we consider these opportunities as being for stabilized assets in the mid to high 4s, or are you focusing more on redevelopment projects where you can add value through your platform and leasing expertise? I'm interested in how we should approach this moving forward.

You need to consider things from an IRR perspective. Current cap rates are uncertain, and it’s difficult to gauge the NOI or POI when people discuss them. Due to COVID disruptions and various leasing assumptions, it's important to analyze cap rates more thoroughly. From our viewpoint, we don’t simply reject an investment based on a 4 cap rate or approve one based on a 6 cap rate; we focus on where we can generate value in the real estate. We examine IRR with our assumptions, and we prefer deals where the IRR exceeds our cost of capital by at least 150 basis points, although sometimes we're okay with 100 or 200 basis points over. We assess our IRR realistically because if you only think in terms of cap rates, you might overlook valuable opportunities.

Good evening, Don, Dan. Thanks for taking my question. Your occupied percentage grew 50, 60 basis points sequentially, but lease occupancy grew a bit less than that sequentially. Can you help bridge the gap between all the strong commentary about what you're seeing in retail leasing and how that's reflected in your lease percentage? And then also, is 200,000 square feet to 250,000 square feet of new leases the right piece to expect going forward?

The lease percentage has shown some slower performance, but it actually improved significantly by 90 basis points in the last quarter. It's important to look at trends from quarter to quarter. We see a consistent upward trend in our lease percentage over time, even though some quarters may experience slower growth. We had a few tenants leave, and we took back some space, which impacted our momentum this quarter. However, we expect that given our leasing activity and the potential for unoccupied space, we should see better-than-average increases going forward. Additionally, while our occupied percentage did grow, it wasn't significantly impacted; we started collecting rent, resulting in a strong quarter in terms of getting tenants in and generating rental income. The performance can vary from quarter to quarter, so it's vital to focus on long-term trends. Historically, these trends have been positive, and we anticipate that continuing in the future.

That's really helpful. On a longer-term question: Don, you've talked a lot about reaching $7 a share in FFO over the past several calls, in this updated guidance. If you take the high end of '22 numbers and you get that 10% growth in '23 and '24, you're going to get there. So, what has to go right in order for you to get there by the end of 2024?

What's happening now? The single biggest thing that's going to impact the timing of the trajectory is the lease-up of the Santana West building in California. As I've said, that's an on-off switch. Or hopefully, it's an on-off switch because we're looking for a single tenant user for the building, at least the majority of the building. The timing of that creates variability in that trajectory. The second thing is, I am very confident this is going to be a 95% leased portfolio. That trajectory getting to 95%, we have to see. To the extent that is quicker, we’ll get the seventh faster; to the extent it's slower, we'll get it to lower. But basically, what we're seeing happening now, the continuation of that will get you there. I hope that's helpful.

Hey, there. I guess my first question is on capital allocation. You talked a lot about cap rate compression in the market seeing grocer deals in the 4.5%, 5%. I'm curious how you think about incremental dispositions in the face of this strength to fund some of your external growth pursuits. And how that maybe you're thinking about your stock as currency with implied cap here in the high 4% range?

On the disposition side of things, we do what we always do: we come for the portfolio and if those assets aren't keeping up with the growth that we've projected for the rest of the portfolio, we look at selling them and we're actively in that process right now. Again, nothing to talk about on this call, but we always look at peeling off a portion of the portfolio, around $100 million or so every year, and we're in that process right now.

Haendel, just to make the point, we expect stock rates to go up, and accordingly when you're looking at capital allocation, how you're going to fund our growth, whether that's with those dispositions, or whether it's with equity; we take a balanced approach. You should expect some dispositions and taking advantage of the market that is there today. As Danny said, you should expect some equity from the forward contracts that we've taken to be issued all on a modest basis, all with a balanced approach to that. I'm not surprising you with one way to fund this Company, but we are using all the tools we have available.

Hi. Thanks for the time. Just curious about a couple of hot topic items. One, inflation and two supply-chain issues. What impacts are they having? Do you expect the supply chain issues to have the least versus occupied spread right now? Further, regarding contracts given maybe some delays in getting permits and/or parts, you mentioned HVAC units, and I'm just curious about how you see inflation impacting the profitability of your tenants, particularly your thoughts on the grocers.

There's a lot to address here. As I mentioned in the prepared remarks, the supply chain issues are extensive and need to be carefully managed, presenting certain risks. When we move from leasing to having a tenant open, we must take a proactive approach, which we have been doing by allowing for a larger lead time and moving forward with work before everything is finalized. A key strategy is leveraging our relationships with tenants to distribute work efficiently based on who has the best position to secure supplies or make necessary trades. While I don't expect significant delays throughout the year, there will be instances where we encounter them, as well as situations where we can expedite the process. It's vital to approach these challenges proactively and creatively, as some aspects are beyond our control. So far, things are looking good. Regarding costs, the majority of our development pipeline is already secured. For instance, the office building at 909 Rose was constructed using funds from 2018, which means that despite the delays in getting it leased, the deals we have are favorable because they are based on that earlier financial context. Overall, I believe this will work out well.

Thank you, Don. I have a follow-up question regarding cap rates for acquisitions. In the release, you mentioned that you are actively seeking opportunities. Should we expect to see those as opportunities in the mid to high 4s for stabilized assets, or are you focusing more on redevelopment projects that could allow you to enhance value through your platform or leasing expertise? I'm interested in your perspective on this moving forward.

You really need to consider it from an IRR perspective. Current cap rates are unpredictable, and it's unclear what the NOI or POI is when discussing cap rates in today's environment. Due to COVID disruptions and the assumptions being made about leasing, it's essential to analyze cap rates more thoroughly. From our perspective, we don't automatically approve a deal at a 4 cap rate or reject one at a 6 based solely on that figure; instead, we focus on where we can create value in the real estate. We're primarily looking at IRR with reasonable assumptions. If our IRR exceeds our cost of capital by 150 basis points, we find that deal appealing. Sometimes it might be 100 or 200 basis points over. We evaluate our IRR realistically because focusing only on cap rates can cause us to overlook valuable opportunities.

Good evening, Don, Dan. Thanks for taking my question. Your occupied percentage grew 50, 60 basis points sequentially, but lease occupancy grew a bit less than that sequentially. Can you help bridge the gap between all the strong commentary about what you're seeing in retail leasing and how that's reflected in your lease percentage? And then also, is 200,000 square feet to 250,000 square feet of new leases the right piece to expect going forward?

The lease percentage was a bit slower this quarter, but we saw a significant increase of 90 basis points last quarter. Trends can vary from quarter to quarter, but we expect the lease percentage to continue trending upwards. Some quarters may experience slower growth due to tenants leaving and space being returned, which affected our momentum this quarter. However, based on our leasing activity and the interest in available space, we anticipate a stronger increase in lease percentage in the future. It's important to note that while our occupied percentage grew, we did not see a detrimental impact, and it was a strong quarter for onboarding new tenants. Leasing results can fluctuate, so it's essential to focus on long-term trends, which have been positive and are likely to continue.

That's really helpful. And then on a longer-term question, Don, you've talked extensively about reaching $7 a share in FFO over the past several calls, in this updated guidance. If you take the high end of the '22 numbers and project 10% growth in '23 and '24, you should get there. What has to align for you to achieve that by the end of 2024?

What's happening now. The single biggest thing that's going to impact the timing of the trajectory is the lease-up of the Santana West building in California. As I've said, that's an on-off switch. Or hopefully, it's an on-off switch because we're looking for a single tenant user for the building, at least the majority of the building. The timing of that creates variability in that trajectory. The second thing is, I am very confident this is going to be a 95% leased portfolio. That trajectory getting to 95%, we have to see. To the extent that is quicker, we’ll get you there faster; to the extent it's slower, we'll get it to lower. But basically, what we're seeing happening now, the continuation of that will lead you to our target. I hope that's helpful.

Hey, there. I guess my first question is on capital allocation. You talked a lot about the cap rate compression in the market, seeing grocer deals in the 4.5% to 5%. I guess I’m curious how you think about incremental dispositions in the face of this strength to fund some of your external growth pursuits. And how that maybe adjusts the way you’re seeing your stock as currency with an implied cap here in the high 4% range?

On the disposition side of things, we do what we always do and evaluate the portfolio. If those assets aren't keeping up with the growth we projected for the rest of the portfolio, we look at selling them, and we're actively in that process right now. Nothing to discuss on this call yet, but we always evaluate our options around shedding some portion of the portfolio, generally about $100 million each year, and we're in that process.

I just want to add here that we expect cap rates to increase, and therefore, when you’re considering capital allocation to fund our growth, whether through those dispositions or equity, we take a balanced approach. You should expect some sales and taking advantage of the current market. As Dan stated, expect some equity issues under our forward contracts on a modest basis, all while maintaining this balanced approach to funding. We’re using every option available to us.

Our next question is from Michael Goldsmith of UBS. Please proceed with your question.

Good evening, Don and Dan. Thanks for taking my question. Your occupied percentage grew 50 to 60 basis points sequentially, but lease occupancy grew less than that. Can you help bridge the gap between your strong retail leasing commentary and what it reflects in your lease percentage? Is 200,000 to 250,000 square feet the right amount going forward?

Look, the lease percentage reflecting a bit slower, last quarter was actually reversed; our lease percentage was up significantly by 90 basis points. Look for trends over quarters; trends are continuing upwards. Some quarters may slow down. We returned space from tenants, leading to a slight damper in leasing metrics. Overall, activity remains strong for unoccupied spaces, which should gradually improve occupancy percentages. Expect the momentum will likely resume to better-than-normal increases in your target size.

Really helpful. On a long-term note, the targets you provided for $7 FFO per share through $5.85 speaks to good growth. What needs to align for that trajectory through 2024?

Continued strength will link with the timely lease-up of Santana West. Key factors remain stability, proactive leasing practices, and robust portfolio management to reinforce the company's positioning through expected trends.

Hey, just on acquisitions; is that the right cap rates for stabilized assets going forward?

Exactly. The market continues to evolve; on balance, an IRR-based evaluation will determine decisions.

Thanks for your insights.

We have reached the end of the question-and-answer session. I will now turn the call back over to Mike Ennes for closing remarks.

Thanks for joining us today, and we look forward to speaking with those attending NAREIT next week. Have a good evening.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.