Federal Realty Investment Trust 2026 Q3 Earnings Call

Good morning. Thank you for joining us today for Federal Realty's Third Quarter 2026 Earnings Conference Call. Joining me on the call are Don Wood, Federal's Chief Executive Officer, Dan Guglielmone, Chief Financial Officer, Wendy Seher, Eastern Region President and Chief Operating Officer, and Jan Sweetnam, Chief Investment Officer, as well as other members of our executive team that are available to take your questions at the conclusion of our prepared remarks. A reminder that certain matters discussed on this call may be deemed to be forward-looking statements. Forward-looking statements include any annualized or projected information, as well as statements referring to expected or anticipated events or results, including guidance.

Although Federal Realty believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, Federal Realty's future operations and its actual performance may differ materially from the information in our forward-looking statements, and we can give no assurance that these expectations can be attained. The earnings release and supplemental reporting package that we issued this morning, our annual report filed on Form 10-K, and our other financial disclosure documents provide a more in-depth discussion of risk factors that may affect our financial condition and operational results. Given the number of participants on the call, we kindly ask that you limit yourself to one question during the Q&A portion. If you have additional questions, please requeue. With that, I'll turn the call over to Don Wood.

Thank you, Jill. Good morning, everybody. Really nice operating quarter for us, with a recorded $1.87 per share, beating our internal expectations and up nearly 6% from last year's quarter. Leasing remains strong. Occupancy grew. Same-store cash NOI growth was 4%. Just solid operating results top to bottom. We're confident that we'll close out the year on a similarly positive note, and accordingly, we've tightened and raised our guidance. What we're most excited about has been our ability to build out a formidable central region in just 18 months, most recently highlighted by our acquisition of The Summit in Birmingham, which closed on October 1st. I'm excited to help investors and analysts fully understand the economic upside, this truly generational purchase of an 870,000 square foot, 100-acre irreplaceable asset that dominates the retail landscape for nearly 100 miles. The first time this asset has ever changed hands.

I suspect that the real estate investor in each of you will be blown away. Basically, if you like Kansas City, Leawood, you're going to love The Summit. Press release and related information that we put out earlier this month covers a lot of facts about The Summit, but $508 million put to work contractually in the low 6s, near 7 on a GAAP basis, with projected NOI growth averaging more than 5% annually over the next five years, supported by strong tenant sales productivity, attractive occupancy cost ratios, and significant mark-to-market leasing upside, means that we've added a material foundational asset to the fast-growing central region.

When you include our properties in Chicago, along with Kansas City, Omaha, and now Birmingham, we've created a portfolio of nearly 2.7 million square feet of best-in-market dominant assets, with household annual incomes of $188,000 that, on average, attract 4.7 million annual visits per center. These are really important and dominant assets. A big part of our success in this geographic expansion comes from the retail tenancy of our properties like Santana Row, The Grove in Shrewsbury, and Bethesda Row, among others, strongly desiring similarly merchandised and operated assets in these dominant locations. Tenants like Free People Movement, Vuori, Cooper's Hawk, Alo, others, who've had great success in our best properties on the coasts, are coming with us to these central region properties. The opposite is also true, whereby tenants new to us in the center of the country are interested in our well-known and proven coastal properties.

It's a win-win given the quality of our portfolio, now stretching from coast to coast and in between. This thesis is why we embarked on a carefully chosen expanded geography. It's working even better than we had expected. Leawood and Omaha are leading the way, with foot traffic up 8% year to date, and we expect them to keep outrunning our original plan. More on that shortly. Previously closed asset sales, fast-growing EBITDA, and free cash flow, along with timely debt refinances earlier this year, put us in a position to act on The Summit and other accretive initiatives. Additional asset sales expected to close in the coming months will further strengthen our position.

In addition, given the weakness in our share price over the past three months, we saw another great investment the same time we were acquiring The Summit and repurchased nearly 870,000 shares at an average price of less than 109 bucks in September and October at an accretive yield. Just like The Summit, we believe that buying our own shares at these levels is one of the best uses of our capital that, of course, we do in balance. We're in a position of strength to do it, with a strong balance sheet, significant liquidity, and a large pool of identified potential dispositions. We're well-positioned to take advantage of any dislocation in the market caused by higher rates. We feel great about our business plan despite a higher interest rate environment.

In terms of overall leasing and operations in our coastal markets, all I can say is consumer resilience is inspiring. Higher fuel and other costs appear to be here to stay, and while not perfect, are best hedged by good-paying jobs. If history is any indication, I believe it is in real estate. High-quality dominant assets in affluent suburbs are the likeliest to continue to support that resilient consumer's mindset. On the retailer side, demand remains strong, new supply remains limited, and supports our pricing power and future growth. Let me turn it over to Wendy to provide more color on that.

Thanks, Don. We closed the quarter with strong leasing momentum, with a 14% cash rent spread on comparable deals. This represents 117 leases with an incremental $2.6 million of revenue. These deals pushed our lease rate to 96.5%, up 40 basis points from last quarter, and up 110 basis points, excuse me, over last quarter. Equally encouraging is the composition of this quarter's deal was led by the new leases over renewals, a clear signal of the demand for our centers. Anchor leasing, as we projected, continues to drive our lease rate growth up 60 basis points quarter-over-quarter, and we should continue to see that increase into the fourth quarter. Our overall lease rate is the highest we've seen since 2007, and that includes our small shop lease rate, which sits at 94.1% up 20 basis points from last quarter, and we're not done.

Physical occupancy stands at 93.8%, which means roughly 270 basis points of signed, not occupied leases are still to commence. As those stores open and start paying rent, they're built-in growth that bodes well for 2027. Looking ahead, our leasing pipeline remains robust with over 130 deals, representing roughly 1.3 million square feet of leasing, driving future growth with rollover expected to be in the double-digit range. The biggest highlight since we last spoke, by far, was our acquisition of The Summit, adding 870,000 square feet of new raw material and 116 tenants to our portfolio. To give you a sense of the demand for this center, during underwriting, we connected with 40 retailers that told us that they wanted to be there. Since we closed, 35 additional retailers have called us directly, inbound calls, expressing strong interest in the property, and it's only been 30 days since we closed.

Several of those retailers are new to our platform, which provides us a unique opportunity to grow our network of retailer relationships to benefit the rest of our shopping centers. Retailers who recently opened and are opening in short order include such names as Brandy Melville, Reformation, LoveShackFancy, and Garage, as well as Boden, Free People, and L.L.Bean. This center represents a true example of best-in-class retailers with a long list of demand behind the current lineup. With roughly 30% of our leases rolling over the next five years at The Summit, we have the opportunity to capture mark-to-market leasing spreads in the mid- to high-teen range. Very exciting. As Don mentioned, our recent acquisitions in Leawood, Kansas, and Omaha continue to provide strong opportunities as well. The longer we own and operate these centers, the more confident we are.

We now project our initial five-year CAGR at more than 5% at Leawood, which is up 50 basis points from our underwriting, and more than 6% in Omaha, up roughly 200 basis points. As you might imagine, we are excited to apply the same playbook at The Summit, where we are currently forecasting over 5% CAGR. Stepping back for a moment, we know that the headlines on higher gas prices and inflation have people questioning the strength of the consumer. What we see in our centers is different. Traffic is up 3% year-over-year. Our consumer is more affluent than most Americans, with a median household income in our submarkets nearly 50% above the U.S. median. That gives them more room to absorb higher costs, and they remain resilient. Retailers follow that consumer, and that is what is driving the demand we are seeing for our centers.

From the long list of retailers lining up behind The Summit to the depth of our pipeline across the portfolio, durable real estate matters. Now let me turn it over to Dan to dive into the numbers.