Federal Realty Investment Trust Q1 FY2025 earnings call

Economic and Tenant Base

• Don Wood mentioned the historical correlation between uncertain economic times and real estate performance surrounded by an affluent customer base. Federal Realty has a diverse tenant base; largest tenant by ABR is TJX at 2.6% of base rent, and number two is grocer Ahold at 1.9%. Tenants' cost of occupancy is about 9% of sales.

Wendy Seher's Remarks

• First quarter performance was strong with comparable portfolio leased at 95.9%. Executed 91 retail leases, 430,000 square feet, including lifetime fitness deal at Santana Row. Leasing volume normalized, rent rollover was 6% for the quarter but expected to be mid-teens in next couple of quarters. Tenant demand remains strong with no meaningful impact from uncertain economic environment.

Dan Guglielmone's Remarks

• NAREIT FFO per share at $1.70 was top end of guidance range. Revenues and POI up year-over-year. Refinanced $600 million term loan to $750 million, improving liquidity. Leverage metrics remained in line with forecast, targeting improving net debt to EBITDA to inside 5.5 times. Asset disposition efforts ongoing with over $250 million of assets in market.

In the first quarter, the comparable portfolio ended at 95.9% leased, 160 basis points higher than last year's first quarter. Comparable lease rate dropped only 20 basis points quarter-over-quarter. Reported NAREIT FFO per share for the first quarter was $1.70, at the top end of the guidance range, representing almost 4% growth on a per share basis. Revenues were up 6% and POI was up almost 5% year-over-year.

• Raised FFO per share forecast to $7.11 to $7.23. Affirmed 2025 comparable POI growth forecast of 3% to 4% (midpoint 3.5%). Adjusted G&A forecast down slightly to $45 million to $47 million. Updated quarterly FFO cadence with second quarter at $170 million to $174 million, third quarter at $189 million to $193 million, fourth quarter at $182 million to $186 million.
• Expect revenues from new market tax credits to be recognized in third quarter, but may be earlier in second quarter.

• Tariff announcements and related capital markets uncertainties have affected buyers' ability to underwrite and evaluate acquisition opportunities.
• Uncertainty in construction costs due to tariffs impacts redevelopment and residential development plans.
• Volatility in the stock market and economic environment poses risks to financial condition and operational results.

Q: Jeff Spector of Bank of America asked Wendy to clarify comment around mix of deals executed in the quarter and roll in coming quarters.

A: Wendy Seher said it's mostly timing, some deals hit after first quarter versus in first quarter, it's noise, first quarter was good solid quarter with widespread deals signed. Donald Wood added if cutoff was April 10th instead of March 31st, it would have seemed like record quarter.

Q: Michael Goldsmith at UBS asked about acceleration of same-store NOI through balance of year to hit guidance range.

A: Donald Wood said biggest driver is continued gains in occupancy over the year, fully expected weaker first quarter but occupancy will be big driver.

Q: Michael Griffin at Evercore ISI asked about concessions in the quarter.

A: Dan Guglielmone said it's driven by one deal with lifetime fitness, Donald Wood added it's a good strong deal with concession for an entire building, and they're proud of leveraging supply demand dynamic to get TIs low.

Q: Craig Mailman at Citi asked about distance in market and use of proceeds.

A: Dan Guglielmone said currently 250 in market, 150 under contract, proceeds can be used for buybacks or other capital allocation. Donald Wood added debt to EBITDA is in comfortable range, proceeds from asset sales available for capital allocation.

Q: Juan Sanabria at BMO Capital Markets asked about performance in DC.

A: Donald Wood said winter time was soft everywhere, spring time traffic up, expects sales to follow, and DC is a dynamic marketplace with various industries.

Q: Connor Mitchell with Piper Sandler asked about acquisitions and larger centers trend.

A: Donald Wood said they always looked at larger centers, deals getting done now were in works for months, and there's lack of predictability in underwriting due to uncertainty.

Q: Ravi Vaidya at Mizuho asked about acquisition pipeline and changes in transaction markets.

A: Donald Wood said not commenting on specific deals, Jan Sweetnam added transaction market still strong but flow of new deals since April 2nd has slowed down a bit, cap rates flat, but plenty of opportunities.

Q: Greg McGinniss with Scotiabank asked about underwriting changes impact on redevelopments.

A: Dan Guglielmone said absence of understanding construction costs due to tariffs creates lack of predictability for residential developments, and underwriting for acquisitions involves looking at downward scenarios and considering impact on IRRs in first couple of years.

Q: Mike Mueller at JPMorgan asked about segments impacted if consumer hits wall.

A: Dan Guglielmone said it doesn't come down to segments but to health of operator, occupancy ratio, and Donald Wood added consumers in their markets are resilient due to high household incomes.

Q: Linda Tsai at Jefferies asked about lower bad debt.

A: Dan Guglielmone said it was a combination of lower concern with bankrupt tenants, being able to keep tenants longer, and better than underwritten rent collection.

Q: Greg McGinniss followed up on impact of underwriting changes on redevelopments.

A: Dan Guglielmone elaborated on construction cost uncertainty due to tariffs affecting redevelopment and residential development, and underwriting considerations for acquisitions