Federal Realty Investment Trust Q3 2021 Earnings Call Transcript

Quartr
Provided by Quartr
November 3, 2021

There are 16 speakers on the call.

Operator

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.

Operator

I will now turn the conference over to your host, Mike Ennis. Thank you. You may begin.

Speaker 1

Good afternoon. Thank you for joining us today for Federal Realty's Q3 2021 earnings conference call. Joining me on the call are John Wood, Dan Gee, Jeff Perkes, Wendy Cyr, Don Becker and Melissa Solis. They will be available to take your questions at 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 Although Federal Realty believes that expectations reflected in such forward looking statements are based on reasonable assumptions, Better 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.

Speaker 1

The earnings release and supplemental reporting package that we issued today 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 And with that, I will turn the call over to Don Wood to begin our discussion of our Q3 results. Don?

Speaker 2

Thanks, Mike. Good afternoon, everybody. By the way, that was Mike Dennis, subbing in for Leah Brady, organizing this call today as Leah just gave birth to her second So my prepared remarks today are going to sound a lot like last quarter because the recovery continues unabated and ahead of schedule.

Speaker 3

The The momentum that we took

Speaker 2

into the 2nd quarter carried through and in fact strengthened in the 3rd quarter, most evidently on the office leasing demand side at our mixed use properties. We just cut to the chase here and summarize where we are in 5 easy points. For 1, we killed it in the Q3 at $1.51 a share. Secondly, we raised our 2021 total year guidance by over 7% at the midpoint. Thirdly, we raised our 2022 guidance, The only shopping center real estate company to give 'twenty two guidance so far by the way, similarly by over 6% at the midpoint And Dan is going to talk about 2023 and 2024 also.

Speaker 2

We executed 100 and Retail leases for 430,000 feet of comparable space at 7% higher cash basis rents than the leases they replace. And we ended up the quarter with our office product fully leased up at Cobawalk, 89% leased or under executed LOI at Pike and Rose, 88% leased or under executed LOI at Assembly Row. Heck, we're even having some consequential discussions with full building users at Santana West. And then after the quarter, You might have seen last week that we signed 105,000 Square Foot Deal with Choice Hotels to be the lead tenant in the next phase at Pike and Rose. Have some serious office leasing progress for any 3 month period, never mind one in which decision makers are still unsure of their future office space needs.

Speaker 2

Sure. So there's a lot about amenity rich new construction in our markets. We'll put more meat on the bone for each of those points and others. That's where this company is as we sit here in the 1st week of November 2021. We're feeling great about our market position.

Speaker 2

With FFO at $1.51 per share, we exceeded even our most optimistic internal forecasts We're up 35% over last year's recovering Q3. We didn't anticipate the bounce back in nearly all facets Our business to be so fast and so strong even with the effects of the Delta variant surge. The quarterly positive impact of the faster Recovery meant that we collected more rent in the 3rd quarter from prior periods than we anticipated, dollars 8,000,000 collected versus a few million forecast. We had significantly less unpaid rent in the quarter than we anticipated. We collected 96% of what was due.

Speaker 2

We had far fewer tenant failures than we anticipated. And at $4,900,000 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 is 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 3 hotels in our mixed use properties are performing better than we thought that they would be at this point with occupancy at all 3 back into the mid-60s and better. And of course, we more than covered our dividend on an operating cash basis in the Q3 as we did last quarter.

Speaker 2

As a reminder, that's the dividend that was never cut during COVID. So all that means that we'll significantly raise earnings guidance 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.

Speaker 2

So 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 4.42 comparable deals for Nearly 2,000,000 square feet, not counting another couple of 100,000 feet for non comparable new development. To put that into context, That's 27% more deal volume, 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. As we've been saying all along, demand for Federal Realty properties, that's not the issue. They're in high demand from today's relevant and well capitalized restaurants and retailers that are all trying to improve their sales productivity Post COVID to better real estate locations, we've always been pickier than most in terms of the tenants we choose to curate our centers.

Speaker 2

When you couple that with the execution of the broad post COVID property improvement plans that we talked about over the last several quarters, That higher capital outlay today will result significantly higher asset value tomorrow. Places that are more fresh, more dominant, More relevant in a myriad of ways in the communities they serve for years 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. When a signed lease does not equal to RentStar And the well publicized supply chain issues affecting most U. S.

Speaker 2

Businesses will have to be managed thoughtfully and depthly In the next 18 months to move all those tenants from signed lease commitments to build out operating stores in the shortest possible timeframe at a Reasonable cost. Whether we're talking about a shortage of rooftop air conditioning units or production shortages for kitchen equipment from overseas or materials Stuck on boatswain offload, 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 long standing relationships are all tools that we're using to mitigate build out delays. At 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 3 years ago.

Speaker 2

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, maybe higher over the next couple of years, provides a visible and low risk window Strong future growth. And that's before considering the inevitable earnings growth coming from the lease up of our $1,000,000,000 Plus development and redevelopment pipeline, the cost of which are largely locked in and our very active acquisition program also will add to that. By the way, we did close on the $34,000,000 acquisition of Quinn Brook Shopping Center in Fairfax, Virginia and another off market transaction During the Q3, marking the 5th deal that we closed in 2021 and the second in Northern Virginia. Very excited about the remerchandising and rent upside at this underinvested shopping center staple in the middle of Fairfax County. I've got to believe that the visibility of this company's 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.

Speaker 2

That's about all I have for my prepared comments. Let me turn it over to Dan, who We'll 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.

Speaker 2

A $1.51 per share of FFO represented a 7% sequential gain over a strong second quarter, 35% above 3Q last year and was $0.23 above our expectations, which 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 $8,000,000 of prior period collection, Leasing is what continues to command Center Stage for yet another quarter at Federal. Momentum that started during the second half of twenty twenty Continues with a 5th 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 the nearly 200 basis point gain in the Q2, overall small shop is up 260 basis points year over year.

Speaker 2

Leasing momentum continues to be driven by strength in our lifestyle portfolio as we sign leases with such relevant tenants of tomorrow, Names such as Fuhlbergs, Jenny Cain, American Giant, Herman Miller, Peloton, GlossLab, Purple, another Farrity location, another light Nike location, our 4th this year And restaurants such as SALT Line, Molto, Sprezzatura, Astra Beer Hall, Gregory's Coffee and Van Lewen, 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 Hotel deals with Don Hyland. 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 $6,100,000 in the Q3 of last A headwind of a minus 4.2%.

Speaker 2

Without it, our comparable metric would have been 20%. Our remaining spend on our $1,200,000,000 in process development pipeline stands 215,000,000 with another 50,000,000 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 ks, a complete repositioning of Huntington Shopping Center on Long Island, An $80,000,000 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 on to the balance sheet and an update on liquidity and leverage.

Speaker 2

With $125,000,000 of mortgage debt having We have no debt maturing until mid-twenty 23. We continue to be opportunistic Selling tactical amounts of common equity for our ATM program under forward sales agreement. And as a result, we maintain Ample available liquidity of $1,450,000,000 as of quarterend, comprised of our undrawn $1,000,000,000 revolver, Roughly $180,000,000 of cash $270,000,000 of equity to be issued under forward agreements. Additionally, our leverage metrics continue to show marked improvement. Pro form a for our 2021 acquisitions and forward equity Under contract, our run rate for net debt to EBITDA is down to 6.0 times.

Speaker 2

Pro form a 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 are almost there. Finally, let's turn to guidance.

Speaker 2

Given the strong recovery we are experiencing in 2021, we will be meaningfully increasing guidance This year 2022, taking 2021 up 7.4% from a prior range of 5.05 $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. And while maybe premature, preliminary targets from our model show FFO growth in 2023 2024 in the 5% to 10% range. The drivers behind improved outlook for 2021. 1st, significantly stronger 3rd quarter than previously expected.

Speaker 2

And this should continue in the 4th quarter as we increase our 4th quarter estimate 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 Q3, 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 and A will be higher in the 4th quarter as well given higher compensation expense. In addition, we forecast issuing Driven by strength across all facets of our business, stronger occupancy growth driven by the continued momentum in leasing activity, Contributions from our in process $1,200,000,000 development pipeline, a full year contribution for 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 multiyear path of outsized growth.

Speaker 2

The first driver of growth, Occupancy and leasing, which I would like to break into 2 components. First, what deals are already executed. With physical occupancy at 90.2% and our lease rate at 92.8%, our signed not open spread 260 basis points for our in place portfolio. This represents roughly $25,000,000 of incremental total rent. The second component, What leasing demand will drive going forward?

Speaker 2

Given the strength of our leasing pipeline, getting back to 95% leased, A level we were at just 3 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 $12,000,000 of total rent upside when executed. Please note, for every 100 basis points of occupancy gain, we see roughly $10,000,000 in additional total rent on average. The 3rd driver of growth, our development pipeline. That $1,200,000,000 of spend will throw off just Over $10,000,000 of POI in 2021 or about 1%.

Speaker 2

With a stabilized projected yield in the mid to low six It should produce $70,000,000 to $75,000,000 of POI when stabilized. This $60,000,000 to $65,000,000 of incremental POI Should begin to deliver more fully in 2022, but will also be a meaningful driver of POI growth in 2023 End 2024. Please note, as we did before COVID, next quarter, we plan to re include in our 8 ks supplement The disclosure detailing the ramp up of POI for each of the projects in our pipeline. The 4th driver of growth in 2022, Acquisitions. As Don mentioned, the closing of Twinbrook Shopping Center, our 5th off market deal of the year brings our consolidated investment to 4 40,000,000 or 360,000,000 on a pro rata basis.

Speaker 2

With a blended going in yield of 5.5 Plus 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 are expecting 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.

Speaker 2

Keep in mind for every 100 basis points of collection percentage improvement, it represents almost $9,000,000 annually. Please note that similar to last quarter, there is no benefit 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, hotel investments and percentage rent gives us a clear and transparent path of growth not only in 2022 So beyond 2023 2024. We couldn't be happier with our market position and expect to have sector leading FFO growth over the next few years. And with that, operator, please open the line for questions.

Operator

Thank you. At this time, we will be conducting a question and answer session. Our first question is from Alexander Goldfarb of Piper Sandler. Please state your question.

Speaker 4

Hey, good evening there, Don. So, one, great to see that you already are putting out 'twenty three and 'twenty four guidance. So I mean, I guess it's going to be the standard thing. You're going to sandbag those and next quarter we'll see those numbers raise as well. But The bigger question here, Don, is what is actually going on at the properties, at the operations Everywhere that the recovery is so strong and the tenant demand is so strong, meaning a number of years ago, tenants were still coming to your centers, taking They could see the consumers shopping at your properties.

Speaker 4

What is going on now that it's supercharged? Is it just merely that these tenants don't have the Brett, of the online shopping, I mean, it's just been incredible. And I know I've asked this question before, but the pace of demand across retail this quarter It's just mind blowing and it just really begs the question, were these really retailers really just holding back before Or is it really fleshing out of the bad credit that's allowed you guys to have better space to rent to people who are willing to pay higher rents?

Speaker 2

Yes. Well, first of all, Alex, it's good to know that you're very predictable in terms of the first part of your statement, certainly not a question. But the in terms of the bigger in terms of the question you're asking, it's a whole bunch of things. It's not just one thing. But certainly the notion of the amount of time that a lot of people, certainly in our markets, have not been out And have been at home and have restrictions one way or the other.

Speaker 2

I got to tell you, as you know, that gets old. And so you are I think you're seeing a revised and a rejuvenized, if you will, love for socialization. I can tell you Any restaurant, certainly in New York, that you would see you would be you can't even get a reservation. And we're seeing that same throughout our properties. So people want to be out.

Speaker 2

Tenants are upgrading their space And having the ability, obviously, I'm talking about our portfolio primarily, but having the ability to get into better real estate In a portfolio that was as low as 89%, 89 some odd percent leased, that's as rare as it gets for Fed. And so the ability to actually have a chance to upgrade is a huge driver As we've been talking about all the way through. So from a consumer perspective, you've certainly got the demand. From a real estate perspective and a tenant perspective, Just certainly have a demand. And then the other side of it is and this surprised me, you can call it sandbagging or what, Whatever.

Speaker 2

But it surprised me that we have not lost more tenants over the past 6 or 8 months in 2021. The notion of tenants holding on to their properties and finding a way to make it through and not wanting to lose Their superior positions in real estate was greater than we expected. So the combination of not losing them, Having availability from the 89% coming back book and the strong consumer demand, you put those three things together and I think you've got the bulk of the answer To your question. And we as I say, we don't see a change to that at this point. It's continuing strong in In an automated way.

Speaker 4

Okay. And then the second is on office. You had a win with Choice Hotels. I think you mentioned Santana West. We all hear the low return to office numbers and yet all the office companies talk about the really strong leasing that's going on.

Speaker 4

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 that you're having today? Is it just 1 or 2? Or you think you could easily announce 4, 5, 6 buildings to go?

Speaker 2

No, Alex. It's the Choice Building. It's 1. So for us, first of all, just get it all perspective, right? There is assembly row with office, Pike and Rose with office potential opportunities and it's Santana Row.

Speaker 2

In all three markets, The demand is there. The Santana West is a different kettle of fish because it's one big building that we're looking for 1 big tenant To take the whole thing, at assembly, the what has happened to the building that was Puma Adjust BOOM UP forever has been astonishing in the past period of time. There you may see us able to announce another building next year. We're working it hard right now. But to your point, that demand It could mean that there's faster route to the next building.

Speaker 2

In terms of Pike and Rose, we certainly didn't Expect to be announcing another office building here as you know building we just moved into here. We were the only tenants In here on August 10, 2020. So the notion that this building is 90% or 89%, whatever it is, percent leased and Our conversations with Choice, who originally started about this building, was such that we could not accommodate them, so that we needed, If we wanted to do that deal to start another building, it's astonishing. And I don't think this is even handed throughout the country. Obviously, There's a whole question of what happens to office space as in terms of needs going forward over the next But I know if you're in an amenity rich environments with new buildings in places like where you are, I know you're in the catwalk seat because I'm seeing it in terms of the deals we're doing.

Speaker 2

So one, maybe 2 buildings over the next year.

Speaker 4

Okay. Thank you, Don.

Operator

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

Speaker 4

Great. Thanks. I guess the acquisitions in your acquisition pipeline, Are these still deals that you originated in 2020 or are the deals that you struck up since 2021 started? And how are you dealing with More competitive cap rates.

Speaker 2

Yes. So everything we've announced to this day were pre COVID negotiated deals or deals that started in Negotiation pre COVID often got renegotiated during COVID and allowed us to close to me 5 of the Best acquisitions we've ever done at this company. Now going forward, you bet it's different because it's snapback in a big way. I'm going to let Jeff kind of give you his perspective of where that road leads. Doesn't mean we can't find them, but it's certainly harder Then it was to be able to get those 5 deals done during COVID.

Speaker 2

David? Yes. Craig,

Speaker 5

as you probably know, the market, Like Don said, it snapped back very quickly and is very active. Deals, institutional quality, grocery anchor 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 horizon we're excited about. And maybe next quarter or 2, we'll be able to Just talk more about it, but the markets picked up very, very significantly and we're obviously happy to see that.

Speaker 5

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.

Speaker 2

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 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 pull That continue the growth and frankly, any acquisitions are the cherry on the top Of an already very robust growth profile.

Speaker 4

Great. And then just on the other arm of Maybe you could talk about Huntington. And do you already have an anchor lined up To take the newly constructed anchor and small shop space?

Speaker 2

So, yes, let's talk about Huntington. First of all, I think Simon did an amazing job, amazing job at the adjacent Walt Whitman Mall To Huntington, they just did a great job bringing the entire profile of that product up to what that market frankly deserves. That, 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 business. And so the notion of being able, therefore, to go and lock in Whole Foods As our anchor, which we have, is a game changer.

Speaker 2

And so now the future of Huntington, which will Marry up very nicely to a brand new Walt Whitman Mall adjacent to it with a Whole Foods anchored center on that A piece of land, I mean, it's gold. So give us a couple of years to get it built out and done And that will be another avenue for future growth for federal.

Speaker 4

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

Speaker 2

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

Speaker 4

Thank you.

Operator

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

Speaker 6

Great. Thank you. I just had another one on the new office Plans for Pike and Rose. 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

Speaker 2

It's a good question, Katie. And so we are Pretty darn 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 yield the 6 and potentially better on the building. The building will be Close to $200,000,000 to build, hopefully not that high, but somewhere around that spot. And so what it does and that's a fully loaded 6 to the extent you can talk about incremental, it will be higher.

Speaker 2

So we're really just thrilled to be able 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 amenity base already here.

Speaker 6

Okay, great. And then just on the results and we saw a big pop in straight line this quarter. I'm curious if you started converting any of your cash basis tenant Back to accrual this quarter. And how should we think about the run rate of the straight line going into 2022? It's probably going to be lumpy.

Speaker 2

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

Speaker 6

Okay, great. Thanks.

Operator

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

Speaker 7

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?

Speaker 7

And if so, does that bode well for a snapback in demand clearly for the laggard in the coming quarters? Or would you describe demand as leasing demand as Relatively balanced across the big three.

Speaker 2

I would say it's balanced now. And all three of them, They got hurt a lot more than obviously than the essential based properties throughout the portfolio. And so those 3 still are not back to where they're going to be or where we want them at all. So yes, there is outside growth at those properties because as you know, I mean the office leasing is just one component of what we're seeing. At them, you can imagine what it's doing to the retail side in terms of the leasing that's coming to fill space that hasn't been there before.

Speaker 2

So that growth will continue And we'll take all of 2022 and probably into 2023 where you'll continue to see That outsides growth from those 3 properties. They're special properties, man. That is where people want to be. It's also, as you can imagine, where people want to live. And so I think we're like 97% leased at our at the residential component of Those assets, certainly, we have some restrictions in the jurisdictions that they're in on the ability to Increased rents in the case of Montgomery County and evict in the case of Somerville, Massachusetts.

Speaker 2

But overall, when you sit and you think about those, they were the places of choice. And so we see some real good long term growth on that component Of those mixed use properties also.

Speaker 7

Okay, great. And just back to the off market COVID era acquisitions, especially the 4, big ones prior to Twinbrook or even including Twinbrook. With private markets, which we've discussed being competitive and cap rates compressing, where do you feel those 4 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?

Speaker 2

Significant. And Jeff and I argue about this. It's all conjecture, right? Who knows? But when you look at what things are trading at all the way through, I'm thinking 15%, Maybe 20% more, big numbers.

Speaker 7

Great, guys. Thanks.

Operator

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

Speaker 2

Hey, good evening. So Dan, I apologize as

Speaker 3

I know you covered some of this already. Could you please just outline the one time items in Q3 results or Change

Speaker 8

is expected into Q4. And then what are

Speaker 3

the base assumptions that underlie future guidance? And especially Could

Speaker 8

you just touch on the expected cadence of occupancy recovery that would be appreciated? Thank you.

Speaker 2

Sure. I mean The big items for next quarter is, as I mentioned, higher expenses at the property level, repairs and maintenance, demo, Other expenses, I don't expect prior period rent to be as strong, consistently a bit poor Forecasters of prior period rent, I think at some point that's going to fall off and I think this quarter feels like it probably is the quarter that happened. I think we will be issuing we plan to be issuing about $150,000,000 to $200,000,000 of equity in the quarter, which will cause some drag. And then G and A is expected to be a bit higher Due to compensation expenses. So those are the main drivers that take us off of the 151 that we had this quarter.

Speaker 2

And then in terms of cadence of occupancy, I think next year, like by year end, we should see continued growth in our Our occupancy percentage from the 90.2% where it is today, probably somewhere between 90.5% 91%, In that range and then over the course, we'll be somewhere I think we should get into the 92s by year end 2022. So somewhere between 92% 93% is probably somewhere in that range is the cadence on occupancy. Great. Thanks. And then thinking about lease structure kind of post pandemic, have there been any changes in lease terms or needs From retailers and office tenants, can you talk to them today?

Speaker 9

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 and also participate in some cases in a percentage override. So no, I think that we're in a strong position to continue to negotiate strong contracts for the future.

Speaker 1

And on the

Speaker 5

office side, have you seen any changes?

Speaker 2

Yes, activity. No, I like the way Wendy put it, Greg, they're real deals. And so, yes, there's a lot of capital. There's a lot of capital on all deals today and That is a trend that continues, but the rent pays for it. And so when you look at it net of capital, these are good deals.

Speaker 8

Thank you.

Operator

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

Speaker 10

Hi, thanks for the time. Just curious On a couple of the hot topic items, 1, inflation and 2, supply chain issues, What impacts they're having? Do you expect the supply chain issues to have the leased versus occupied spread Right now, further before contracts given maybe some delays in getting permits and or Parks, you mentioned HVAC units. I'm just curious on how you see inflation impacting the profitability Of your tenants in particular, I'm curious about your thoughts on the grocers.

Speaker 2

Yes. No, there's a lot to unpack And certainly, as I tried to hit in the prepared remarks, I mean, the supply chain issues are so broad Yes, they got to be managed really tightly and there is absolutely risk there. And so when You take a you go from lease to actually getting a tenant opened. We had better be proactive and we have been Extremely proactive about whether it be allowing for a larger lead time, whether it be moving ahead with work Effectively, before everything is all tied up, a big one and Wendy mentions this all the time and that's how I know it must be pervasive is using our relationships With our tenants to be able to divide up work for who has the best leverage in a situation to get the appropriate supplies or To trade some things out has been really effective. So I am certainly not expecting us to I have significant delays throughout the year.

Speaker 2

There will certainly be examples where we do. There will be other examples where we'll be. But it does but your point is important. It is a it has to be a very proactive and Creative way to deal with something that is in some respects uncontrollable. So we'll see how that plays out.

Speaker 2

So far so good. And on the costs, really good thing that the biggest piece of our development pipeline is already locked in. And as even as I sit here in 909 Rose, our office building here, this building was built With 2018 money and Even though there's been a delay, it's taken longer to effectively get it leased up. Now that it has, those deals are really good deals on 2018 money. And so this will work out just fine, same way at Santa Ana, same way up in assembly.

Speaker 2

On the new stuff, We got to lock in early, best we can, lock in price escalation. We got to leverage buying power with bulk purchases. We have Sole source alternate suppliers, it's all part of a very proactive and tightly Controlled Development Organization. I think we're really good at.

Speaker 10

Thanks for that. And then just my follow-up would just be On cap rates for acquisitions you're looking at, you kind of mentioned in the release that you're aggressively looking for opportunities. Should we think of those as opportunities for kind of those mid to high 4s for stabilized assets? Or are you targeting more Redevelopment opportunities that maybe have some potential to for you guys to add value with your platform and or leasing expertise. So Just curious on how we should be kind of thinking about that going forward?

Speaker 2

I think you really need to think about it from an IRR perspective, Because going in cap rates today are so you don't even know what the NOI or the POI that's being capped is When people talk about cap rates the way they are, because of the disruptions of COVID, because of the assumptions Being made about releasing and things like that. You have to dig deeper when somebody gives you a cap rate. So from our perspective, we don't say no to something at a 4 or say yes to something at a 6 based on that cap rate. We are looking Where we can create value in that real estate and honestly looking at IRR with IRR assumptions. So to the extent our IRR It is over and above 150 basis points of our cost of capital as we define it.

Speaker 2

We like that deal. Sometimes 100 basis points over, sometimes 200 basis points over. But we look at IRR in a very honest, sober way Because I think if you only think about it from a cap rate perspective, you kind of miss the opportunities in the boat.

Speaker 10

Thank you.

Operator

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

Speaker 11

Good evening, Don and Dan. Thanks a lot for taking my question. Your occupied percentage grew 50, 60 basis points sequentially, but Leased occupancy grew a bit less than that sequentially. So can you help bridge the gap between all the strong commentary about what you're seeing in retail leasing and kind of 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?

Speaker 2

Yes. With regards to the lease percentage being a little slower, it was actually reversed the last quarter where our lease percentage was up significantly, like 90 basis points, something like that. Look, it's Quarter to quarter, look for the trends. We see trends continuing upwards on our lease percentage Quarter over quarter, some quarters may be a little slower. We had some tenants left.

Speaker 2

We took some space back. There were some issues that came up this quarter that Put a little bit of a damper on our lease percentage momentum, but we would expect given the leasing activity that we have And the leasing activity in unoccupied space that we see, we should see that should resume to a better than The basis point increase that you saw this quarter. I think one thing to comment on is that our occupied percentage grew 60 basis points. I don't think we had any impact. We got rent started, and it was, I think, a strong quarter for that in terms of getting tenants in, Getting them rent paying and that's going to ebb and flow from quarter to quarter.

Speaker 2

Don't look at any one particular quarter. Look at the trends over time. And I think you see looking backwards, the trends have been very positive. And I think that going forward, we should expect that as well.

Speaker 11

That's really helpful. And then a longer term question. Don, you've talked a lot about reaching $7 a share In FFO, over the past several calls, this updated guidance of if you take the high end of 'twenty two numbers and You get 10% growth in 2023 and 2024, you're going to get there. So what has to go right in order For you to get there kind of by the end of 2024? Yes.

Speaker 2

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 said, that's kind of an onoff switch Or hopefully it's an on off switch because it's a we're looking for a single tenant end user in the building, at least the majority of the building. So the Timing of that creates variability in that trajectory. And the second thing is, I am very confident this is going to be a 95% leased portfolio.

Speaker 2

The trajectory of that 95, We have to see. So to the extent it's quicker, we'll get to 7 faster. To the extent it's slower, We'll get it to it slower. But basically, what we're seeing happening now, the continuation of that We'll get you there. I hope that's helpful.

Speaker 11

Thank you very much.

Operator

Our next question is from Haendel St. Juste of Mizuho. Please proceed with your question.

Speaker 8

Hey, there. So

Speaker 3

I guess my first question is on capital allocation. You talked a lot about the cap rate Compression the market, seeing grocer deals in the 4.5%, 5%. I guess I'm curious how you think about incremental dispositions in the face of this strength to fund some of your Growth pursuits and how that maybe you're thinking about your stock as currency within Platt cap here in the high 4% range.

Speaker 5

Yes. On the disposition side of things, we do what we always do and And if there's assets that aren't keeping up with the growth that we 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 and it's generally $100,000,000 or so every year and we're in that process right now.

Speaker 2

And you know, Haendel, just to make your point, we expect stock risk 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 or you know we take a balanced approach. So you should expect some dispositions and taking advantage of the market That is there today. As Danny said, you should expect some of the forward contracts that we've taken to be Issued all on a modest basis, all with a balanced approach so that I'm not surprising you with Way to fund this company, but with that, we're using all the tools we've got available.

Speaker 3

Okay. And then I don't know if I missed this, but you talked about the $25,000,000 of signed but not leased rent. Did you talk about what proportion of that Will likely hit or is embedded in your 2022 guidance?

Speaker 2

A big chunk of that number We'll hit in 'twenty two. I would say that 90% of the income from those leases Will happen in the Q4 and over the balance of 2022. Okay. So in terms of cadence.

Speaker 3

I hear you. Percentage rents, if I could sneak one more here. I guess, how they performed in the quarter versus expectations, saw a big Pickup versus prior quarters and thoughts on that into year end here?

Speaker 2

Yes. No, it's Strong and significantly better than we thought. There's 2 components to it. First is there are there's percentage rent on deals That were not adjusted during COVID. They have natural or unnatural breakpoints depending on how the contract is written and sales have been high.

Speaker 2

So just there's a natural component to percentage rent that is better than others. And then as I think we've talked about in the past, there were there have been Some of our COVID deals effectively traded out fixed rent for a low breakpoint percentage rent So that we were sharing the recovery, if you will, with the prospective tenant. The recovery has been stronger. And so percentage rent on those COVID adjusted deals were higher. So I think what do we have $4,900,000 in the quarter?

Speaker 2

When you think about $5,000,000 will it be $5,000,000 times 4, dollars 20,000,000 for the year? No, it won't. This was It was a really good quarter and some of those deals in percentage rent will convert back 2 fixed rent deals. So just by the very nature of the contract, it won't be as strong in that particular Number going forward. But I hope that's helpful.

Speaker 2

In either case, it's because sales were higher than we thought they would be.

Speaker 3

Understood, understood. And certainly appreciate the color on the sales the adjustments you made in the leases. Is that going to be for the next year, 2 years or when do they go back to more traditional leasing?

Speaker 2

Most of them are done in 2022. I think 1 or 2 will make their way into 2023.

Speaker 12

Got it. Thank you. Thank you.

Operator

Our next question is from Ki Bin Kim of Truist. Please proceed with your question.

Speaker 12

Thanks, Don. Good evening. Just going back to your acquisitions, your Basis value per square foot was pretty low and I know that was negotiated during COVID, but even if you kind of market to market, it's still pretty low basis. So I was just curious, I know you could mention IRR, but what's the real estate strategy behind your acquisition?

Speaker 5

Hey, Kita, it's Jeff. It's a little different, of course, or maybe a lot different than a couple This is on the group of properties that we bought, but you know us and you know us well, and we're always looking to highest and best use of the real estate, right? So in a couple of those centers, it's relatively simple, cleaning them up and doing a better job on leasing, Including in one case potentially having a better grocery anchor. There is some Opportunities

Speaker 2

at a couple of

Speaker 5

the properties for sure. And then, gross bond is a little bit of a Blank slate that we need to think through and figure out what we're going to do with all the leases of that property coming up in 2025 and we're in that process. Yes, the goal there is to narrow the options by the end of the year and have some clear direction at some point in 2022, but we're not quite there yet. But as you know, our view is always buy the best piece of land we can buy in terms of location and Population density incomes, road network, all that good stuff. And then put on that piece of land what the market demands and Generate as much rent as possible.

Speaker 5

And that's why we bought those deals. They all have those characteristics. And it's a little bit different at each one, but that's what we'll be doing. But you are right. And at least some good growth.

Speaker 5

We're really happy with the growth profile and what we've bought in the last

Speaker 2

You are right, Ki Bin, to look at one of the components we look at and that's price breaker,

Speaker 12

Because at the end of the

Speaker 2

day, what you get in at will help determine what it is that you can make work in terms of highest and best use. And so when you look at something like Grosmont, price per acre is really important to us because we're not sure of exactly which way we can go. But because of the price we got in at, we've got multiple ways to go. And that's when you really think about creating value, It really often comes down to the flexibility, because you always have an idea and then often something gets in the way of that idea, What are your choices? And so I don't want to say that price breakers is not important.

Speaker 2

It's really important. And obviously, when you get the highest and best use, you try to figure out what your IRR will be as you go through. That going in price is probably the most important factor to determining what it is that you can do.

Speaker 12

Yes. Thanks for that color. And it is interesting because you're seeing different REITs take different strategies and It will be dumb to say just low basis is good. Obviously, you want to do smart deals and put smart capital to work. But it is something I noticed that Your basis is just low on a lot of these deals.

Speaker 12

So anyway, second question on development, what is the likelihood of adding a 4th Project to your big three. And does the fact that just the cost to develop is so high and if you do it you started, then you're basically kind of locking in a higher rent than you need to justify it. Does that hold you back from adding up 4th grand project?

Speaker 2

Well, so I would say the chance of adding a big 4 a 4th project are less than fifty-fifty. They're not 0. They're not even 20%, but it's less than fifty-fifty. And there's a number of reasons for that. The single biggest reason Everything has to be looked at through a risk adjusted prism.

Speaker 2

And when you look at the big three, it's funny because We've been doing the big three for so long, everybody looks and says, okay, what's the next one? But if you worked here And you try to figure out where you want to put capital incrementally to create the most value, time and time again, it will come down to the big three, Because we're not close to being done. And so the notion of adding incremental buildings to Santana Row, Pike and Rose And Assembly Row just kills the comparison with starting another Mixed use property that will take 2 decades to do. So it always comes down to capital allocation And where your alternatives are and what the smartest thing to do is. And that I think the mistake that Some investors and analysts make are underestimating the level of growth in capital that is still yet to come At the big three, some 10, 15, the case of Santana, 20 years later.

Speaker 12

Got it. Thank you for color.

Operator

Our next question is from Paulina Rojas Schmidt of Green Street, please proceed with your question.

Speaker 13

Good evening. Your tenant collectability impact Includes $5,000,000 in rent abatements. I'm curious, what type of tenants are still receiving these abatements? Then how much longer do you think they will need it? And 3, are these really rent abatements or these on deferrals that you are writing off?

Speaker 2

Yes. I mean deferrals that you write off are abatements. But I mean, different parts of the debate, the deals that Don Alluded to where we restructured and we lowered the rent for a period of time, and then would participate through participating rent Based on sales, effectively, whatever diminution from the contractual rents to the new floor rent It's considered an abatement. To the extent that you write off previously negotiated deferrals, that's an abatement. Really, where the abatements are occurring, restaurants, we still have that because a lot of our deals That were restructured like that because of the limits on their capacity constraints during COVID and so forth.

Speaker 2

But Walina, I want to say one thing about that right now. You asked the question, How long do you think they'll need it? That's irrelevant because these are deals that were cut. They were cut in the middle of COVID. They were cut to expire with expiration dates at some point either in 2021 or in 2022 and a couple just because of good negotiating got us to 2023.

Speaker 2

They actually don't need it any longer and that's why you see percentage rent the way you see it, offsetting that Abatement and it was smart that we were able to switch off an abatement for a fixed rent for Percentage rent because we are getting pay is just in a different line than you see it there. So I just want to make sure you know these are Contracts that were agreed to previously that have sunset dates on them, the end of this year, some in 'twenty two and a couple in 'twenty Yes. So that number will burn down over the course of 2022.

Speaker 13

That's very helpful. I wasn't fully aware of that. And then are you able to share the same property NOI growth implied in your FFO guidance for next year, even if it's a wide range, it would be helpful.

Speaker 2

Yes. We're going to provide that detailed comprehensive Yes. Assumptions in our guidance for next year, just guessing, it's probably in and around 3% for next year. This year, while we don't think it's relevant, should come in, in double digits, low double digits Blended for the year. But I think this year, it's somewhat irrelevant.

Speaker 2

Next year, we'll give you a detailed Assumption on same comparable property growth on the February call.

Speaker 13

Thank you very much.

Operator

Our next question is from Mike Mueller of JPMorgan. Please proceed with your question.

Speaker 8

Yes, hi. A couple of quick ones here. How much quarterly hotel and parking NOI are you guys getting today? And what do you see as a more normalized level for that?

Speaker 2

Hang on, Mike, they're scrambling.

Speaker 8

Yes.

Speaker 2

Well, you're scrambling. Let's go one question at a time. I'm not you're going to help me out here. It's roughly the run rate right now, parking income is about 2.5 $1,000,000 a quarter and kind of given that should stay that's probably at about 70% to 75% Of a stabilized run rate. And then hotels are not going to contribute this year.

Speaker 2

And Yes. So we should see that. It's only gravy as they increase. We've seen this in the last couple of months kind of a real resurgence And our occupancy levels at the 3 hotels that we have, so we're really optimistic that they'll start to contribute in 2022 And certainly in 2023 and 2024 portfolio.

Speaker 8

Got it. Okay. And then Dan, when you were talking about Prior period rents not recurring. Was that a comment when you're talking about 2021 guidance and 2022, You're not booking anything at the same level as to what you saw in 2023 or you just kind of have 0 in for prior period on everything going forward?

Speaker 2

No, I don't have 0. No, I'll give some guidance on 22 in February. This year, we've been pretty consistently in the 7 $10,000,000 range started out high in the Q3 of last year and it's been about $7,000,000 to $8,000,000 the last three quarters. I don't think we can sustain that. So that should start coming down just based upon what's outstanding in terms of our billed accounts receivable.

Speaker 2

And so it should come down pretty meaningfully, certainly in 2022 from The levels we've had this year.

Speaker 10

Got it.

Speaker 8

Okay. That's helpful. Thank you.

Operator

Our next question is from Linda Tsai of Jefferies. Please proceed with your question.

Speaker 14

Hi. I I just have one question. Do you have any big picture thoughts on how companies are utilizing office space differently coming out of COVID based on what you're seeing in your Own portfolio and any anecdotes to share?

Speaker 2

Linda, all I would say is, and I just did An interview for the Washington Business Journal around the Choice deal. And the we are seeing Pretty consistently in our places and again it's a small sample size, but most people are looking for less space And from where they are to where they're going. And I guess I'm not saying anything so Eye opening there, but it's been pretty consistent. And equally consistent is Obviously, the ones we're talking to are putting a very high value on the amenity based environment in buildings that are brand new. And so when you put those two things together, we're not getting frankly the rent pressure, partly because I think It's the total rent that they're paying is not more than they were paying before because they're taking less space.

Speaker 2

And so interestingly, the biggest component of where they're going and almost all have some kind of a Hybrid work model associated with it that partly allows them to take less space, but They're unyielding with respect to what amenity base means and the frankly newness of the building.

Speaker 14

Do they also want shorter lease terms too?

Speaker 2

No. No, in no cases, frankly.

Speaker 13

Thank you.

Speaker 2

But again, just remember Linda, you're not talking to a guy with a lot of office knowledge throughout the We're talking about really San Jose, California here in outside of Washington, D. C. And outside of Boston and that's it.

Speaker 14

Great. Thanks.

Operator

Our next question is from Tamy Fik of Wells Fargo Securities. Please proceed with your question.

Speaker 15

Thank you. Good evening. I guess I was wondering in terms of the acquisitions in the pipeline, I'm just wondering if you could talk about where you are looking to expand geographically going forward, particularly given the recent acquisitions in Phoenix? And then maybe as a follow-up, do you think that there is an advantage to geographic portfolio concentrations in your business or given that you have been pretty concentrated historically? Thank

Speaker 5

you. Yes. Let me try and start with the end of your question first, Tammy. I don't get all of it. Tell me what I missed.

Speaker 5

Look, we've said a number of times, We really like the markets that we're in, and we see great benefit from having a concentration in each of those markets. We think that helps

Speaker 2

us see

Speaker 5

more deals on the acquisition side of our business going forward, and it certainly puts us in a much Better position when we're talking to tenants. Every one of our leasing people would tell you that. Being concentrated in the market is important. So certainly, now that we're in the Greater Phoenix metropolitan area, we're going to want to grow in Greater Phoenix and get that same concentration that we have Our other target markets,

Speaker 2

so expect to see that.

Speaker 5

I think we've mentioned on some prior calls that we are looking at a couple of new markets, Yes, doing our research, making sure we're identifying where in those markets we want to be and we're working on deals in those markets, whether they happen or not, I don't know. It's too soon to say. But don't be surprised if we pick another couple of markets To be in, to share the characteristics of the markets we're already in, which is barriers to entry and Good education and income and population density levels and properties where we think over time we can grow the income stream and add value. That's Tammy, I just

Speaker 2

want to add something to what Jeff said, which I couldn't agree with more all the way through. But you can really You cannot underestimate that when you're a player in a market, how prospective sellers or People that are not even sellers, but might be sellers, view you. How they'll come to you, how you'll see things that you wouldn't see, it's so different Then just owning 1 or 2 properties in a very wide place because obviously our business, this business is local. And the best example we have that just happened is effectively what's going on in Phoenix. I mean, We are talking the inbound questions along with our own work in Phoenix has quadrupled From what it would have been, if we had just bought 1 or 2 very small properties, By owning Camelback Colonnade, we're a player.

Speaker 2

It's well known and what you can't underestimate How that can lead to more work and certainly on the retailer side And on the operational side, you get your obvious efficiencies and disproportionate level of play. We've seen that in Washington, D. C, Suburban Maryland forever. We're now starting to see it Northern Virginia because we've made such a play there. There's no doubt in my mind that concentration is a really big plus in this business And no more so than on the acquisition side.

Speaker 15

Great. Thank you for that perspective. And then I guess Just following up on the collections question, just to be sure and clear, you expect the majority of those tenants To start paying full rent again and not get resolved through move outs, is that the right way to think about it?

Speaker 2

Can Could you repeat that again? You fluttered in and out.

Speaker 15

Sorry about that. I was just saying on the collections question, I just wanted to be sure I was clear, that you the majority of the tenants in that 4% to 4% number to start paying full rent again and not get resolved through move outs. Is that

Speaker 2

correct? I think some will be resolved. I think some will be kicked out, Right. We're down to the last 3%, 4% of tenants and we are obviously have taken a much Stronger position with them. We are not in COVID as an economy anywhere near the We were, obviously.

Speaker 2

And so to the extent those businesses can survive in the existing business and going forward, maybe they don't belong here. And so we're taking a harder line on that side. With respect to the balance, we certainly And will. So I'm not I don't the difference between 96% 99%, 3%, I don't know whether it's half and half Those choices are 2 thirds and 1 third, but it's something like that.

Speaker 15

Okay, great. Thank you.

Operator

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

Speaker 8

Why are you laughing?

Speaker 2

Hi, guys. So we started with Katie We ended with Katie McConnell, but it's not Katie McConnell. So I thought we were going around all I thought we were going around the circle again, but no, sir. What can I do for

Speaker 8

I'm not going to ask you for drivers of 2023 2024 guidance? So

Speaker 10

Don't worry about that.

Speaker 8

But you did give us 'twenty one and 'twenty two. So I really appreciate that you guys came around and provided that to the investment community. So Thank you. I want to just ask 2 questions. One, just one on Somerville.

Speaker 8

Your Mayor Joe has put out Some revised and updated plans for what he wants to see at assembly. I guess how close could we be to that next And incorporating the power center into sort of a larger project. And I know you talked about the big three, the gifts that keep on giving. It feels like this is closer now, but I want to sort of get your sense of where things stand.

Speaker 2

Yes. I don't think That the power center conversion to assembly row 9 0.0 or whatever would be at that point is imminent. So I don't want you to think about it that way. It is obvious When you sit, you think about the long term highest and best use of any piece of property given what's happened at Assembly Row And eventually, one day, there should be intensification on the power center site, but It is years years away. I don't heck, you won't pay me for 23 for Pete's sake.

Speaker 2

Never mind whatever that's going to happen at that aspect. But forgetting about that, look at the rest of Assembly Row. Look at the space between Partners Healthcare And our existing property and what happens to that. And it is we are looking very hard at life sciences there, As you can imagine. And to the extent we can get the economics to make some sense and obviously construction Also the biggest hurdle in that, but given what's happened to the adjacent properties, it's really clear to us That the assembly site in Somerville is going to be a life sciences site at some point, whether it's Just the adjacencies or whether it includes us will depend on whether we can make the numbers work or not.

Speaker 2

But that you should that is far more imminent Certainly, then the Power Center site.

Speaker 8

Okay. And then just thinking about sort of your enthusiasm, I don't want to curb your Enthusiasm at all, but I guess how do you sort of sit back? It's been a pretty strange 2 years. And so How are you able to distinguish that all the things that are happening now are not just sort of a little bit of a catch up From just being out of the market for a while and not taking what's happening right now and all the leasing activity and everyone's Excited and we're getting back out and we're having meals and dinners and bar mitzvahs and weddings. How do

Speaker 2

you not

Speaker 8

take To not get ahead of yourself in terms of where it goes?

Speaker 2

No, I love that question, man, because you're basically talking to A very conservative guide in terms of those. I worry about everything going forward all the time. In this case, the thing that gives me confidence and it's a lot of confidence is I am sure That what we own and where it is, is really valuable. And so it's kind of like the office side. We may be over office in this country now, right?

Speaker 2

We talk about being over retail forever. We may be over office, But Federal Realty isn't, because where we have that office and what is being built in terms of that If there's any office at all, it's going to be that demand is going to be at places Like this that we all feel the same way on the retail. And so where you hear confidence from me, you don't hear confidence that Everything is great in the world, it's going to stay great in the world. I just know on a relative basis, whatever is happening, we've got the right product. And that's where my confidence comes from.

Speaker 8

That makes sense. Perfect. All right. Well, thanks for the time and speak to you next week.

Speaker 2

Thanks, Mike. Talk to you soon.

Operator

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

Speaker 1

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

Speaker 2

Good day.

Operator

This concludes today's conference.

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Earnings Conference Call
Federal Realty Investment Trust Q3 2021
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