Good day, and welcome to the Federal Realty Investment Trust Third Quarter of 2024 Earnings Call. All participants will be in a listen-only mode for the duration of the call. On today's call, we ask that you please limit yourself to only one question during Q&A. You may re-prompt if you have additional questions. Also, please be aware that today's call is being recorded. I would now like to turn the call over to Leah Brady. Please go ahead.

Good afternoon. Thank you for joining us today for Federal Realty's third quarter 2024 earnings conference call. Joining me on the call are Don Wood, Federal's Chief Executive Officer, Jeff Berkus, President and Chief Operating Officer, Dan Gee, Executive Vice President, Chief Financial Officer and Treasurer, Jan Sweetnam, Executive Vice President, Chief Investment Officer, and Wendy Seher, Executive Vice President, Eastern Region President, as well as other members of our executive team who 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 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 packets 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 results of operations. Given the number of participants on the call, we do kindly ask that you limit yourself to one question during the Q&A portion of our call. If you have additional questions, please requeue. And with that, I will turn the call over to Don Wood to begin our discussion of our third quarter results. Don?

Thank you, Leah, and good afternoon, everyone. It's a really solid quarter for us, with a continuation of incredibly productive leasing, some strong occupancy gains, and an all-time record quarterly FFO per share at $1.71. The leasing productivity continues to outpace even our own elevated goals, with 126 leases for comparable space this quarter, totaling 581,000 square feet, making it 11 of the past 15 quarters since the beginning of 2021 with comparable leasing productivity above a half a million square feet. As a frame of reference, the 15 quarters immediately preceding the last 15 averaged 413,000 square feet. There's no better indicator of demand for your product than that—somewhere between 25% and 35% more volume consistently over nearly four years. This quarter's comparable leases were written on average at $35 a foot in the first year of the new lease, 14% better than the rent paid in the last year of the old lease. Those numbers include 98% of our deals, so they are truly representative of the entire company's results. What makes them particularly impressive is that the rent on many of the previous leases has likely been growing at around 3% over the last five to 10 years, and there’s still room to increase the new rent to start the next five to 10 years near cycle. It's actually 26% more on a straight-line basis because of those very important contractual bumps. We're also demonstrating a strong commitment to efficiently managing tenant leasing capital with net effective straight-line rollover after capital of 16%. The weighted average contractual bumps inherent in all the leases done this quarter, small shop and anchors combined, was 2.4%, even better than the weighted average contractual bumps in place in our entire portfolio of 2.25%. Very likely the best portfolio-wide bumps of any large shopping center company and by a considerable margin. All that leasing had better translate to higher occupancy, and as you would expect, that continues to be the case. We ended the third quarter with a portfolio 95.9% leased and 94% occupied, up 60 and 90 basis points from the end of last quarter. We still have room to grow on both the anchor and small shop side where we ended up the quarter at 93.1% leased. When we look toward the future, the open air retail market remains supply constrained, and from what we're seeing, our consumer continues to spend. I don't know how many of you saw the October 11th Bloomberg article entitled, 'U.S. Consumer Spending is Increasingly Driven by Richer Households,' but it's worth a read. The article chronicles the findings of a Fed study that has found an increasingly divergent spending pattern between the affluent customer, the ones who frequent Federal Realty shopping centers, and the less affluent. There was nothing at all surprising in those findings from our perspective as it's been the thesis of our business plan for decades, and it's particularly relevant as inevitable cracks begin to show in consumer spending patterns. One of my favorite lines from that article states that higher income households are enjoying a wealth effect from gains in housing and stock markets, and also receive more interest and investment income during periods of higher interest rates, all providing a stimulus for a sustained level of spending. Whatever happens with consumer spending over the next year or two, it's reasonable to think that Federal will compare favorably. Separately, our apartment business is particularly strong, about 3,000 units concentrated at the big mixed-use properties in Darien. Year-to-date, our residential operating income on our stabilized residential properties is up 5.5% versus last year, 8.2% when including the new Darien Connecticut product. The Darien project, by the way, is impressive, with apartments fully leased and a waiting list to get in, and unusually high initial retention rates, with retailers and restaurants continuing to open. For those of you that live up in that neck of the woods, check out the work we've done with that very successful development. Transaction activity during the quarter was limited to the previously disclosed $60 million acquisition of Pinole Vista Crossing in Pinole, California, although after the quarter in October, we're deep into negotiations for a couple of other market-dominant shopping centers. Due diligence is underway, and assuming all goes as expected, we hope to close on one or both of those over the next few months. Stay tuned. Additionally, I know a number of you were able to see Virginia Gateway, the 665,000-square-foot regional retail hub on 110 acres in Gainesville, Virginia, on one of the several tours over the past several weeks. For those who haven't, just a couple of data points. First of all, our acquisition timing was excellent, as our going-in cap rate of seven and a quarter likely couldn't be duplicated today for such a dominant asset. It would probably trade 50 to 75 basis points inside of that. Secondly, it looks like our leasing underwriting assumptions were too conservative and are following in the same vein as our earlier acquisitions. For example, we've done 22 deals at Kingstown Shopping Center in Alexandria, Virginia, since our 2022 acquisition, at an average 25% higher rent than projected. Similarly, at Pembroke Gardens in Florida, we've also done 22 deals since our 2022 acquisition, at an average of 16% higher rent than projected. While it has only been a few months, Virginia Gateway seems to be trending the same way. We believe this pricing power reflects not only a supply-constrained market but also our reputation with retailers who want to be in our properties because they know we'll make them better places for their businesses to thrive. In any event, these assets will likely generate cash-on-cash returns and IRRs materially greater than what our investment committee approved at the time the deals were made. In other news, productive activity toward lease-up at Santana West and 915 Meeting Street at Pike and Rose continues, with those buildings expected to be 70% and 90% leased respectively by year-end. Construction is well underway and so far, on time and on budget, at Ballet-Kenwood Shopping Center on our 217-unit residential over retail development that we expect to yield 7% once completed and fully leased up. We're also making progress on some of the residential development opportunities we have at our existing assets through the combination of selective value engineering, more aggressive construction pricing, and higher forecasted rent growth. This company-wide effort to add apartment product to our best shopping centers is an important element for sustained growth in the years to come. Stay tuned. Well, that's all I wanted to cover in prepared remarks this afternoon, so I'll turn it over to Dan to provide more granularity before opening up to your questions, and go Yankees tonight.

Thank you, Don, and good afternoon, everyone. Our reported FFO per share of $1.71 for 3Q came in just above the midpoint of our quarterly guidance range of $1.66 to $1.75. The fact that this is our highest quarter of FFO per share ever provides further evidence of the strength in our underlying operating fundamentals across our portfolio. Primary drivers for the strong performance include stronger occupancy, which is driving rental income higher, and lower G&A costs, which were offset by lower term fees than we forecasted and higher property-level expenses. Comparable growth excluding the impact of COVID-era prior-period rent and term fees was 2.9% on a GAAP basis. On a cash basis, it is 3.4%. Both numbers are essentially in line with our expectations for the period. Meanwhile, comparable minimum rents were up 3.3% on a GAAP basis and 3.8% on a cash basis. Solid results driven by continued leasing demand and surging occupancy. Now, let me jump to the balance sheet and provide an update on our capital position. We stand with over $1.4 billion of available liquidity from our undrawn $1.25 billion credit facility, forward equity raised, and net cash on hand. This liquidity stands against redevelopment and expansion spend remaining of only $180 million from our roughly $850 million in-process redevelopment and expansion pipeline. We remained active through the ATM program during the quarter, issuing over $145 million of common stock at a blended price of $113.27. These proceeds were utilized to partially fund the $287 million of investments year-to-date. In addition, we sold an incremental $82 million on a forward basis at roughly $116 million per share, putting us in a strong position to fund a future acquisition pipeline that looks very promising. As a result, our leverage metrics continue to improve. Third quarter annualized net debt to EBITDA on a consolidated basis pro forma for the forward equity raised is 5.5 times, essentially at the upper end of our mid-5 times target level, several quarters earlier than we originally forecasted. Fixed charge coverage increased to 3.7 times for the quarter, and that metric should continue to climb given the strong momentum in rental income and occupancy growth. These metrics, combined with our significant liquidity, leave us with substantial dry powder to drive growth through external investment for acquisitions and/or new development and expansion projects. Now let's head to guidance. With three quarters of the year behind us and tenant demand continuing at a stronger pace than expected, we are raising our 2024 FFO guidance at the midpoint to $6.81, with the range tightened and refined upwards to $6.76 to $6.86. This revision implies FFO per share growth for 2024 of 4% at the midpoint. It also assumes FFO per share for the fourth quarter of $1.77 with a range of $1.72 to $1.82 per share. Comparable growth for the fourth quarter should be roughly 4%. This upward revision in guidance is driven by stronger underlying rent growth than forecast as occupancy metrics have outperformed our expectations. With respect to other assumptions, we've revised our outlook for term fees to $4 million to $5 million down from $4 million to $6 million. While leasing progress continues both at 1 Santana West and 915 Meeting Street, none of this incremental activity is expected to impact our forecast for the balance of 2024. We will see that impact in 2025 and 2026, with more information to come on that overall outlook in February when we introduce formal guidance for 2025. Our capitalized interest expense forecast for 2024 has been refined to $19 million to $21 million, up from $18 million to $21 million. We are maintaining our expected credit reserve for the year at 70 to 90 basis points. Year-to-date through the third quarter, we are at roughly 80 basis points. All other guidance assumptions are outlined on page 27 in our 8-K. Now, before we go to Q&A, let me provide some preliminary insight for our 2025 outlook. First, prior-period rents from COVID-era deferral agreements will wind down to essentially zero in 2025 from $3 million in 2024. Second, as tenants are reluctant to give back space in the current environment, term fees should be light for a second consecutive year, essentially flat to 2024. Capitalized interest will fall to the mid-teens as we place more of our significant $850 million development pipeline into service over the year. We expect our credit reserve to normalize for 2025, considering the expectation of a moderating economy. Using our historical average of roughly 100 basis points as a placeholder for now, while currently, we do not see any significant near-term risks in the watchlist. On the positive side, as outlined previously in our remarks, occupancy growth should continue upwards, likely towards 95% over the course of the year. Additionally, rent growth from sector-leading contractual bumps and strength in rollover should continue, as well as upside from recent acquisitions and contributions from the delivery of space in the redevelopment pipeline. All of these will more than offset any headwinds and fuel continued momentum in our bottom line FFO per share growth into 2025. And with that, operator, you can open the line for questions.

We will now begin the question-and-answer session. At this time, we will take our first question, which will come from Andrew Reale with Bank of America. Please go ahead.

Occupancy and lease rate both took a nice jump sequentially, both on the anchor and shop side. Could you just speak to the drivers of that velocity? Any particular tenant categories standing out, commencement happening quicker than expected? Anything else that surprised you to the upside?

Yes, Andrew, let me start. And Wendy, who's in a different office, I want her to add to this to the extent there's something to say. It's a really good time to be in this business, and that comes from a number of things. Obviously, the demand is there, and in many cases, it's more than one or two or three tenants looking for space. So that provides the ability to push rents. Importantly, not only the rent but the other terms in the lease, including what controls the landlord and what controls the tenant with respect to getting the space open. We've been able to improve the time it takes between signing a lease and the day rent starts significantly throughout 2024, which I expect will continue. This shortened process is very helpful. From a category perspective, there's no doubt that whether we're talking about a grocery-anchored shopping center that's well located, a mixed-use property that's well located, or a larger regional shopping center with some boxes, there's a very broad coalition of demand, and that's reflected in the returns.

And our next question will come from Juan Sanabria with BMO Capital Markets. Please go ahead.

Let's go Yankees. You made a comment about acquisitions having a couple of opportunities at the end of the year. Could you just talk to what kind of assets they are, the quantum of dollars we're talking about, and if you've already seen some cap rate expansion or contraction in some of those opportunities relative to where we were in the summer?

Juan, I will say a couple of things about it, but I don't want to say too much because I want the deals done, if you know what I mean. First, we do tend to look for bigger assets, as you know. The ones I'm referring to are larger assets in excess of $100 million each, for example. So there are things that move the needle for us. There is a little window now. It's an interesting time where we're seeing some good product that is being talked about that hopefully we can close on. We're looking at assets in the mid-sixes, some in the 7% range with the required growth. Most importantly, we require IRRs that make sense relative to our cost of capital. When you can take a look at deals and see IRRs in the upper eights, even 9%, those deals look very attractive to us.

And our next question will come from Alexander Goldfarb with Piper Sandler. Please go ahead.

Just getting to external investment, when we were down with you guys last month, you were talking about development and how you might be able to restart at locations like Pike and Rose. Given that incremental developments would be highly accretive considering the critical mass already established. At the same time, acquisitions provide current income, but you have to deal with existing in-place leases and the time it takes to manage the property. How do you balance the two and how close do you think you are to announcing a new development versus focusing more on acquisitions in the near term?

Thanks, Alex, for the question. You've set it up well because your question validates our notion that having multiple strategies—having the ability to develop, to redevelop, and to buy at scale while intensifying the use of a shopping center—are critical skill sets we maintain. The new buildings we are looking at are largely skewed toward residential because adding apartments to high-quality shopping centers creates a mix of uses that allows for better rent generally compared to a more generic property type. Construction costs are no longer generally rising and, in certain markets, are coming down, mostly from the profit margin that contractors are requiring and strong value engineering. Additionally, outlooks for rent growth look better than I would have thought a year ago. We have not yet reached a decision to announce the next development, but over the next quarter or two, I hope to add one or two additional projects like that. That said, whether it's development, redevelopment, or acquisition, each competes for our available capital. The ability to deploy our capital in a number of different ways is a significant advantage in my view.

And our next question will come from Michael Goldsmith with UBS. Please go ahead.

Dan, the implied guidance range is pretty wide at $0.10. I think last year at this time it was more narrow at $0.08. Is there just a wider range of outcomes where we sit today versus maybe prior years as we head into the fourth quarter?

Yes. We wrestled with that. I don't think there's anything to read into it. There is probably a little bit of variability heading into the final quarter, but nothing more than that. I think we were at $0.18 at the end of the second quarter. Narrowing it to $0.10 feels reasonably appropriate; however, things can happen in a quarter, and we've left that a little wider.

And our next question will come from Craig Mailman with Citi. Please go ahead.

Dan, I know you mentioned there's nothing on the watchlist. Should we just assume that 100 basis points for next year? Is that just in the retail portfolio? Is there anything in the office portfolio, particularly concerning bluebird bio that we've talked about in the past? Anything specifically to worry about as we head into next year?

Yes, look, they're on our watchlist; and when I say near term, near term spans the fourth quarter into 2025. bluebird, for example, has enough runway with the security structure in place to reassure us into 2026. Outside of that, our credit quality, with one or two exceptions, is really strong. We hold high-quality household name tenants. Aside from bluebird bio, we are very comfortable with the balance of the office portfolio. We may have Buy Buy Baby back in the near future but likely no more than a few quarters. The stores don't generate much rent, and we already have backfills lined up.

And our next question will come from Greg McGinniss with Scotiabank. Please go ahead.

The leasing has obviously gone very well. Occupancy is up more than expected. I’m just trying to understand the maintain same-store NOI guidance, though, and whether there are any offsetting factors we should be considering.

Yes, keep in mind occupancy is a point in time. It reflects the last day of the quarter and doesn't reflect the weighted average occupancy over the period. During the third quarter, a lot of our activity on move-ins occurred post-Labor Day. Thus, the weighted average occupancy wasn't close, really, to 94%. We had some expenses hit during the quarter. Though temporary, they impacted the comparable piece, leading to higher expenses. Therefore, we were conservative on the same-store guide. We expect a strong fourth quarter due to the pickup in occupancy.

And our next question will come from Steve Sakwa with Evercore ISI. Please go ahead.

Don and Wendy, could you talk a little bit about the pricing environment and how the conversations are going with retailers, both on the small shop side and the big box? Given where your lease percentage sits, how are those conversations evolving in your favor?

Wendy, would you mind taking that?

Sure, Steve. We continue to see, as everyone has suggested, that demand is exceeding supply, no question. I always look at it as it relates to the health ratio and the amount of sales that a tenant could do and how we can drive that. For instance, in the restaurant category or QSR category over our mixed-use properties, we have full-service restaurants doing over $900 a foot on average, $1,100 a foot on average in our QSRs. So, we have room to grow some healthy rents there. Our other properties are also performing very strongly, averaging over $900 a foot in our QSRs and $600 in our full-service restaurants. This is enabling us to push rents. Additionally, our economic drivers and rent rollover negotiations are very favorable, leading to greater bumps in our contractual agreements. We're succeeding in limiting the controls that retailers may have gained in previous deals that we no longer find viable for specific locations, further contributing positively to our performance.

And our next question will come from Floris van Dijkum with Compass Point. Please go ahead.

Don, I'm rooting for the Yanks, but things don't look great. My question is on your recent stock sales, where you sold your forward shares at $115 or just over $115 a share, which is excess of your NAV. You have a green light to grow externally. Given you indicated you’ve got two larger deals in the works, are you considering stepping up your pace, or is it challenging to find acquisitions? Can you elaborate on the environment, as well as your ability to pursue OPU transactions given the current market conditions?

Thanks, Floris. I’m going to turn this over to Jan Sweetnam and Jeff to address the acquisitions, but let me clarify a point. I don't accept the premise that we are above our NAV at the price we issued. When we look at the share price, we are pleased with the trade compared to what we are doing with that capital. However, I disagree with the notion that this company is trading at NAV. Let me turn it over to Jan and Jeff.

Hi, Flores. The acquisition market feels like it's picking up, and our capital has performed well recently. It seems we will have an opportunity to acquire a few properties over the next few quarters as they start to roll out, starting with one or two we currently have in the pipeline. These opportunities are larger and impactful. The bidding pool tends to be smaller for assets around $100 million to $200 million, and we view these acquisitions as accretive from day one while still providing good growth prospects for us.

Hey, Flores, I agree with everything Jan has said. I still see a lot of potential sellers sitting on the fence with treasury yields around 4.25%, hoping rates will decrease, which holds them back from bringing their properties to market. However, we’re starting to see some capitulation as sellers begin to understand that meaningful decreases may not happen soon, which is bringing more product to the market. Our pipeline is fuller than it has been in a while, and we expect it to improve as long-term rate clarity develops.

And our next question will come from Dori Kesten with Wells Fargo. Please go ahead.

Don, you just said you don't believe you're trading near NAV. Where do you think your NAV should be? What do you think we on this side are missing?

Oh, Dori, I'm not going to give you a number for heaven's sake. But when you evaluate our portfolio, particularly the big four, there's a lot of development potential we've worked hard to achieve through entitlement, which creates significant long-term value. Can we start on it and fully leverage it today? No, but it does present future value—something that is substantively valuable to a real estate professional. Additionally, we have opportunities for intensification on many of our shopping centers involving residential development, which we feel isn't currently recognized. I'm confident that if we ever sell any of those assets, we would receive acknowledgment for that opportunity. So, that's what I meant.

And our next question will come from Mike Mueller with JP Morgan. Please go ahead.

This is a similar question to what was just asked. Thinking about retail-driven redevelopment and new development, given your robust leasing and rates for new leases, how close are you to shifting your focus from residential led developments back to retail?

Mike, I don't see it as a pivot per se; instead, it's about balancing competing capital opportunities. We will likely see a number of residential development opportunities alongside acquisition options. They're not mutually exclusive. Each competes for our capital allocation. I believe we will see some retail redevelopments added over the next several quarters. In our high-barrier-to-entry markets, the land values complicate single-story retail development, which is why it has not happened recently.

And our next question will come from Linda Tsai with Jeffries. Please go ahead.

Yes. Hi. How do you think about the contribution of development to earnings next year?

We have a number of projects that will contribute reasonably well next year. Huntington, for instance, will be finishing up; 915 Meeting Street will hopefully finalize the leasing process over the course of the year. We could see some drag initially as we deliver spaces and reduce our capitalized interest number as previously highlighted in our guidance. However, we will aim to match rent commencements fairly well with this. While we may not do so perfectly, we expect solid growth next year and hope to lead the sector once again.

And our next question will come from Paulina Rojas with Green Street. Please go ahead.

Your cash releasing spreads were strong this quarter. Given the strength of retailer demand and your targeted consumer, should we expect releasing spreads to increase in 2025? Can you share your thoughts on OCR versus historical patterns and the extent to which you can push rents even more aggressively moving forward?

In any one quarter, we are discussing the specifics of the deals done. In Q3, some leases came up that allowed us to push rents significantly. That's a good thing, leading to excellent rollovers at high volume. I think you'll often see the cash basis remaining strong in the high single-digit or low double-digit range. While it might not be 14% and 26% every quarter on cash basis or straight-line, it certainly reflects our ability to push rents, which is important. Regarding OCR, we don’t have sales reporting from many tenants—about a third report sales. However, based on conversations, I estimate our OCR to be around 9%, suggesting there’s room for further growth. Comparing the new leases we’re writing to the overall in-place rent indicates potential for growth. This strong leasing environment has persisted for a couple of years now, and I hope it continues into 2025.

And our next question will come from Haendel St. Juste with Mizuho. Please go ahead.

Yes, go Yanks. Don, can you elaborate on how you're thinking about dispositions versus new equity as a capital source? Given that the IRRs from many opportunities you see might exceed the returns expected from some of your lower-tier, lower-growth assets, how do you balance the merits of a capital recycling strategy against tapping the equity market?

That's a great question. We constantly evaluate the growth of lower-performing portfolio segments against what we could potentially receive for them, alongside analyzing the depth of the specific markets for those shopping centers. Each year, we sell a number of assets, the question is always how much more or less should we do based on market conditions. Ultimately, that comes down to the competition for capital usage across acquisitions, development, and ongoing portfolio management.

And with that, we will conclude our question-and-answer session. I'd like to turn the conference back over to Leah Brady for any closing remarks.

I look forward to seeing many of you over 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 your lines and have a great day.