Federal Realty Investment Trust (FRT) Q2 2026 Earnings Report, Transcript and Summary

Good day. And welcome to the Federal Realty Investment Trust Second Quarter 26 Earnings Conference Call. All participants will be in listen only mode. Should you need assistance, To withdraw your question, please press *2. Please note this event is being recorded. I would now like to turn the conference over to Jill Ryann Sawyer, Senior Vice President of Investor Relations.

Thanks, Debbie. Good morning. Thank you for joining us today for Federal Realty's Second Quarter 26 Earnings Conference Call. Joining me on the call are Donald C. Wood, Federal's Chief Executive Officer Daniel Guglielmone, Chief Financial Officer Wendy A. Seher, Eastern Region president and chief operating officer and Jan W. 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. Reminder that certain matters discussed on this call may be deemed to be forward looking statements. Forward looking statements include any annualized objective 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 ks 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 1 question during the Q&A portion. If you have additional questions, please requeue. And with that, I will turn the call over to Donald C. Wood.

Well, thank you, Jill, and good morning, everybody. Strong quarter. $1.88 a share. 7% year over year growth, 96% occupancy, record leasing volume, 59th year consecutive dividend raises, another beaten raise, all validating the optimism for the rest of the year and next. Daniel will get into the specifics for modeling purposes. After roughly 4 exceptionally strong leasing years, this quarter set records. Again, here we are in the second quarter of 2026, and are reporting 124 comparable deals for a staggering 819 thousand square feet and average first year cash rent of $33.68 which is 15% higher cash rent than the prior year and 28% higher on a straight line basis. That sort of volume is record setting. And while contributions to that came from all of our markets, Southern California, and Virginia were instrumental in signing a few anchor deals that will be transformational to the properties that were done in. The first affects the market dominant 860 thousand square foot Grossmont Shopping Center in suburban San Diego. Where remerchandising this 2021 acquisition is now seriously underway. We signed our first deal ever with hugely successful outdoor retailer Bass Pro Shops, to a 20 year deal for a 161 thousand square feet replacing an underperforming Macy's and adjacent small shop tenants with a national draw unlike most others. We also signed a new 53 thousand square foot deal with AMC at Grossmont for a new state of the art theater where a shuttered smaller theater operator once was. An anchor system comprised of Bass Pro, AMC, Walmart and Target and 350 thousand square feet of other space to feed off that system. Grossmont will be among the most productive assets in Federal's portfolio once a significant redevelopment has been completed. We are looking at a $56 million comprehensive redevelopment and incremental 10% cash on cash The second affects the market dominant 500 thousand square foot Barracks Road Shopping Center in Charlottesville, Virginia. Home of the University of Virginia. Where we signed a 79 thousand square foot deal with Harris Teeter, for an expanded flagship grocery store and where additional important merchandising improvements that will be announced very shortly will further solidify Barracks Road as the preeminent shopping center in the market as it has been since we bought it some 40 years ago. As we have talked about before, these large market leading dominant retail centers not unlike most of the acquisitions we have made over the past few years, are a property type of choice in every major market we are in. They tend to provide opportunities for both continued cash flow growth and value enhancement for decades. Stay tuned for more in the quarters ahead. Opportunities for additional accretive acquisitions, net of dispositions, continue to be a laser like focus of the team and are expected to continue to improve our overall growth. We are getting close on a couple of very important deals though a bit too soon to announce on this call. Stay tuned in the weeks ahead. On the development side, let me give you a quick update on the status of our residential pipeline that, as you may remember, is only undertaken on excess land at our existing shopping centers. With little to no incremental land costs, and higher rents because of the proximity to our shopping center amenities, the math works in the right locations. Currently, we have allocated a total of $400 million for the residential development of the Blair at Ballard in Kenwood, which is already 2/3 leased and well ahead of projections for both timing and rate. By the way, that fast lease up pace has reduced the earnings dilution that normally comes. At this stage of resi development. 301 Washington Street in Hoboken, which is on time and on budget, preparing for a 1/2027 delivery. Lease up begins later this year, Early renting in inquiries spurred on by the construction progress, have been far in excess of our expectations. Lot 12 At Santana Row is well under construction. On time and on budget, for a late 2027 delivery, as many of you saw at our June Investor Day. Hope you found the work that we are doing there to be as impressive as we do. And an incremental 261 units at Willow Grove Shopping Center outside of Philadelphia for which the site has been prepared and cleared and is now fully underway. Together, this densification of our shopping center assets will add nearly 800 units and $27 million of new operating income to the portfolio once stabilized over the next few years. Our experience with residential development at our retail centric properties is a skill set developed over 25 years and is certainly a unique differentiator of our business Incremental income in the form of parking revenues, sponsorship opportunities, signage revenues, are also benefiting by the high traffic counts. At our large properties. Including not only our mixed use assets, but also the broader portfolio. More upside to come here too. We are firing on all cylinders. Leasing operations including a comprehensive technology based efficiency program We will introduce you to our Senior Vice President of Digital Innovation, at some point in the future. The hunt for special acquisitions, and a modestly sized but impactful development and redevelopment program are all working. Enhanced internal and external growth using all the tools at our disposal is the name of the game. Orders like this increase my confidence in our ability to do so. And sincere and grateful thank you to all of you that gave us your time and your attention. At our Investor Day at Santana Row, either live or on the webcast. We are a proud and talented group of real estate execs who love to share our story We hope you enjoyed it and found it useful. I believe these second quarter results help validate for you the focused path that we are on. Let me now turn it over to Wendy and then to Daniel Guglielmone to provide some additional color. Wendy?

Thank you, Donald. This quarter, our leasing platform once again delivered record volume, signing 819 thousand square feet, the most comparable square footage in a single quarter in company history. Rent spreads for these deals were 15% over prior in place rents, and that 15% is not a 1 quarter story. In fact, the trailing 12-month comparable rollover sits at 17%, the highest in any 12-month period in more than 10 years. This tells you everything you need to know about the desirability for high quality shopping center. What I am most proud of this quarter is occupancy. Despite the timing of expected anchor transitions, the strength of our small shop leasing held occupancy neutral to last quarter. We delivered over 100 thousand square feet of net small shop occupancy this quarter increasing our occupied rate by 100 basis points in just 3 months. Our small shop portfolio is now 93.9% leased, and 92.3% occupied, levels we have not seen since 2007. Put that alongside a record leasing quarter and you get a clear picture. The demand for our centers is not slowing down. The natural question is how much upside is left and I would say more, much more. At these occupancy levels, we can drive small shop rents in the double digit range on average something we have done consistently for the past 3 years. Our current pipeline, which is always a good indicator of leasing momentum, remains strong with over 1.5 million square feet of space in lease negotiation. In addition to our pipeline, we have fully executed leases that will contribute an additional $31 million in revenue, delivering over the next 18 months. Just as important, our high leased rate lets us prelease well in advance of vacancy. This translates to less downtime from 1 tenant to the next a metric we are focused on quarter after quarter with clear progress being made as highlighted by our 100 basis point jump in small shop occupancy this quarter. Foot traffic across the portfolio is up, reinforcing the health of our consumer. And the collections remain strong across the portfolio. Our retail redevelopment pipeline is delivering the same story. In Philadelphia, Giant just opened a brand new prototypical 45 thousand square foot grocery store in our Andorra shopping center with small shop leasing rents coming in 16% over underwriting. And Andorra is just 1 example. We have another half a dozen centers in various stages of reinvestment with many more in the pipeline. Historically, these reinvestments have produced 10% plus returns on average with a single objective: drive productivity and rents at our centers making our existing portfolio a continuous source of multiyear growth. And finally, our business development platform that we highlighted at Investor Day had a standout quarter, with our incremental income initiatives on track to be up 20% for the year over the prior year comparable pool. That is extraordinary given the fact that our occupancy continues to climb and improves, this program is much more than leasing temporary space. It is a sustainable source of revenue unique to our property set of large dominant and or mixed use assets. Parking revenue alone, which is very unique to our portfolio, is expected to be up almost $3 million year over year. Driven by higher rates, events, activations and partnerships. The true line across all of it is the same. Dominant durable, high quality real estate creates value And in this K-shaped economy, our centers are thriving. Now let me turn it over to Daniel Guglielmone to dive into the numbers.

Thank you, Wendy. Hello, everyone. Our FFO per share of $1.88 for the second quarter reflects 7% growth versus last year, and highlights another exceptionally strong quarter operationally. This result came in $0.03 above the midpoint of our guidance range highlighting a business plan that is delivering across all of its components. Drivers for the outperformance this quarter include: $0.03 from higher rental income and recoveries, $0.02 from stronger percentage rent parking revenues, incremental income initiatives Wendy just referenced almost $0.01 from better term fees than we had forecast, as well as another $0.05 further benefit from our capital recycling activity. This was essentially offset by $0.015 from a onetime investment write off $0.01 from straight line write offs, and $0.01 higher G&A than we had originally forecast. Net, a $0.03 beat on the shoulders of $0.05 of better than expected rents, recoveries and incremental income. Adjusted comparable growth our cash basis comparable growth metric, was 4.2% for the quarter, and stands at 4.6% year to date. Our GAAP metric was 2.8% for 2Q and 3.7% year to date. Both outperforming the expectations we set out on our call in May. Also, results of the drivers that we just highlighted. Dashpaces revenues increased 3.6% for the quarter, and all of these metrics all of these variations of same store metrics were ahead of our expectations. Highlighting the solid first half of the year. Now let's turn to our balance sheet. With the exception of $30 million maturing in August, at a 7.5% interest rate we currently have no debt maturing until mid-27. While sitting with $1.2 billion of liquidity at quarter end. We continue to see strong free cash flow after dividends and maintenance capital, forecasting over $100 million for this year with that figure heading towards 150 million by 2028 as we convert straight line rent to cash paying rent. If you will recall, we outlined these figures at our Investor Day in May. This will also have a positive impact on AFFO, through 2028 and beyond. During the second quarter, we closed on another $66 million of retail asset sales bringing the year to date 2026 total to $225 million at a blended 5% cap rate. When combining 2025 and year to date 2026 asset sales, our total stands at $540 million at a blended initial cash yield of 5.4% And note that the estimated foregone unleveraged IRRs on this pool blends to an average of less than 7%. With no assumed terminal cap rate compression. All metrics which reflect a very, very attractively priced source of capital. Through this active and disciplined asset recycling program, our debt rent metrics remain solid. Second quarter annualized net debt to EBITDA has improved to 5.4 times, and fixed charge coverage stands solid at 3.9x. Now on to guidance. As a result of another solid FFO beat for 2Q on the heels of a robust first quarter, along with an encouraging outlook for the balance of the year, we are raising guidance for both NAREIT and core FFO to $7.48 to $7.56 per share. At the $7.52 midpoint, this increase represents 6.5% growth for core FFO when compared to 2025. With the range being roughly 6-7% at the low and high end of the range, respectively. Drivers for the guidance increase include our comparable GAAP based POI growth outlook improving to 3.25 to 3.5% from the previous 3.8% to 3.5 Our cash comparable growth or adjusted comparable per our disclosure is expected to be 75 basis points higher so a range of roughly 4% to 4.5%. that is a 35- to 40-basis-point Small shop momentum helped us maintain our occupied rate during the second quarter, and we continue to forecast a spike in our overall occupied rate to the mid- to upper-94% range by the end of the year, powered by leases that have already been signed. We continue to see stronger than expected contribution from the $750 million of dominant high quality properties acquired in 2025. And our outlook on term fees also moves higher. To 10 million to 11 million as the second quarter fees were roughly 600 to $700 thousand higher than our forecast with better visibility into the second half of the year. This roughly $2 million increase is offset by the $2 million rise in our forecasted G&A as we make investments in our digital innovation and business development teams. Incremental development POI is up $500 thousand to 14.5 to 15.5 million as we deliver space to tenants ahead of forecast. And we are keeping our credit reserve as is at 60 to 85 basis points rental income as we effectively run near the midpoint year to date. And lastly, we have adjusted our interest rate outlook to reflect more conservative current market expectations. Additional guidance assumptions remain unchanged and are outlined on page 27 of the 8 ks. This updated guidance also reflects the $66 million of asset sales completed during the quarter with the foregone yields in that mid to upper 5% range. Please also note that we issued $61 million of equity during the quarter for our ATM program, further enhancing our capital base. We continue to be active on capital recycling. With additional acquisition and disposition opportunities targeted for the second half of the year and we will adjust guidance for those likely upwards as we go. To summarize, our guidance increase is driven by the following puts and takes. $0.03 of forecasted operational outperformance driven by parking, percentage rent and incremental income and stronger occupancy than we forecast. Plus $0.02 from term fees. Offset by $0.02 of higher G&A if the aforementioned investments in digital innovation business development, and $0.01 to $0.02 a more conservative interest rate outlook. With respect to our expectations quarterly FFO cadence over the remainder of 2026, We have set the third quarter at $1.82 to $1.86 per share, and the fourth quarter at $1.91 to $1.95 per share. Primarily driven by the aforementioned contractual occupancy growth. As a result of the strong year to date, and our bullish outlook, federal will continue to lead the REIT sector as its only dividend king. A distinction of 50-plus consecutive years of annual dividend growth. As we once again increased our dividend for 59th consecutive year to $1.16 per share per quarter or $4.64 annually. You have heard me say since I joined the company a decade ago, for every year I have been alive, Federal Realty has increased its annual dividend. Think about that. Since 1.97 thousand at roughly a 6.5% cap, that is a record the federal team continues to be tremendously proud of. With that, operator, please open the line for questions.

We will now begin the question and answer session. Keys. If at any time your question has been addressed and you would like to, with We ask that you limit questions to 1. You can then reenter the queue for any follow-up questions. At this time, we will pause momentarily to assemble our roster. The first is from Michael Goldsmith with UBS. Please go ahead.

Good morning. Thanks a lot for taking my question. You had previously spoken about NOI growth accelerating in the second half of the year after the lower second quarter results. Is that still the case? And then can you provide some color on what is driving that? Is that occupancy growth? Is it increasing rent growth or any other factors? Thanks.

Yeah. I think consistent with what we shared kind of on the May call, the second and third quarter, we will continue to have some occupancy churn in the third quarter. So that will keep a lid on things until an acceleration in the fourth quarter which we really will not see the benefit of probably until next year. as those tenants get open and operating and rent-paying. But, yeah, yeah, it is consistent with kind of, I think, what we shared with you at Investor Day and on the make whole.

Yeah, Michael, I would just add to that. Think about the anchor progress that we have been making and the timing of the openings of those stores, very heavily weighted to 4Q, which should bring occupancy of the anchor side up into the 98 plus percent range after that.

The next question is from Alexander Goldfarb with Piper Sandler. Please go ahead.

Hey, morning down there, Donald. the robustness of the leasing and obviously against the economy and everything else that we see, that is in the macro, do you get a sense that all the tenants are leasing you know, on full offense, or do you feel like increasingly tenants are leasing because they have to because there is not enough space left, and therefore, they feel more compelled to lease. I am just trying to understand the robustness if it is all 100% offense for growth or some of the tenants are increasingly feeling like they need to take the space because if they do not, there will not be anything left for them out there, as space winnows.

Yeah. I think that is a great question, Alexander. And as usual, the answer is a balance of both. And, you know, it is hard to paint with this big broad brush of the reason people lease what they are trying to do. Clearly, in large measure, business plans are long term in nature. Expansion plans are long term in nature. And, accordingly, the offensive nature of growing your portfolio is the driver. Having said that, it is no secret to anybody. That because there is been no new supply, that is been added over the last 15 or 20 years, at this point. That making sure that retailers are in the places they need to be And that does include, you know, anytime a great piece of real estate comes available, there is always ample demand for that space. And so I do not know if you define that as defensive or you define that as part of the offensive strategy of the company. I personally do not care. it is about making sure great space is you know, that the demand for that space exists and exceeds the supply. That is the case. it is been the case, and everything we see suggests that should continue to be the case. So offense is the real answer to your question.

The next question is from Haendel St-Juste with Mizuho. Please go ahead.

Thank you. Close enough. But good morning. Hey, Donald. So I wanted to ask you about acquisitions. You guys obviously been more active the last couple years. there is a lot more that we are hearing is on the market Today for various reasons. So I guess I am curious if you could add some color on your broadly, your appetite here, kind of maybe what inning are we in, kind of the sort of the portfolio moves you have been making in recycling some assets? Are you seeing more deals that are passing your screening And maybe some color on target returns and if equity could play a role here. Thanks.

Yeah. No. it is a great question. it is a great question. I would love to turn that over to Jan W. Sweetnam to make sure that you get a full fulsome answer to that question. Hey, Jan. You there?

Yeah. I am on the West Coast. I am here. I think we are-- Hi, Haendel. that is a loaded question. So I will do my best to try to get through it. And let me just sort of start with what are we seeing and how big the pipeline is. And so in Investor Day, we were looking at about a $1.4 billion of that, you know, we thought were interesting and you know, provided some of the large centers that we are looking at for the returns and all that. And, you know, kinda as we go through it in terms of what sort of come out of that out of that pipeline because it just did not fit for us. Couple of assets that we are working on down-- you know, Donald referenced a little bit earlier and kind of what is come in. The pipeline is still pretty robust. And in fact, a little bit bigger than $1.4 billion today. So I think the deal flow is looking and feeling really good for us. As we progress through the balance of the year. And so our appetite is still very strong. To acquire assets look, it is gotten a little bit more competitive out there. Cap rates have come down a little bit. In particular, for the best of the best properties. But, look, this cuts both ways as we are recycling capital and lower cap rates to make our acquisitions more expensive. But they make our dispositions more valuable. But turning to acquisitions, yeah, it is it is more competitive. And I will give an example where there are a couple of properties that we like, They are really good properties, with good mark to market, on the in place rents. But they are set to trade at cap rates lower than 5%. Breathtaking, really, in a steep climb to get to 8% unlevered IRR, and we just we just could not get there. it is it is competitive, but we remain optimistic there are properties where we can deliver our returns. We will look at opportunities in the sixes, you know, 6% cap rates. And maybe even a little a little bit less than a 6% cap rate if the growth is really good. 4 to 5% CAGRs over the first, you know, 5 years should get us to better than 8% tenured un unlevered IRRs. But as, you know, Donald said, look just a little bit earlier, it is about you know, is there material unmet demand and the ability to push rents and get to spaces in a reasonable time frame. that is that is what is gonna drive those CAGRs, and, that is how we drive revenue. And as we look at opportunities, Wendy and her team are laser focused on understanding the demand and our ability to drive rent or not. Yeah.

Yeah. And I will just jump in here. it is really, as you said, it is all about revenue growth. And getting comfortable with our mark to market underwriting assumptions. And so when we go through this due diligence process, it is not calling a couple tenants. We go very deep As you know, we are format agnostic, and we have various different form properties that we own. So we have a really wide lens of retailers that we do business with. But really, the secret sauce of our due diligence is those relationships and the tenants who are not in that particular shopping center and getting that unfiltered honest, in-depth feedback that helps us with not only underwriting, but what is working at the property, what is not working, is the property on their list for expansion? Why is it not on their list? Is it lower on the list? If we owned it, would it be higher on the list? And we saw that example in Kansas City. I mean, we have just bought that property a year ago. We have already done over 20 deals and we were making chess moves before with tenants before we even bought the property. So that is why Aloe just opened, and is under construction. So and, Daniel, you are getting a long answer on this 1. But lastly, I think it is important to mention our operating platform. We know how to operate properties efficiently. We know how to scale management and local operators along with that. And when you are setting up in a situation that might have fixed TAM like Kansas City and Annapolis, that goes straight to our bottom line. Very productive.

The next question is from Greg McGinniss with Scotiabank. Please go ahead.

Hey. Good morning. So you finished acquiring the entire Kingstowne assemblage. it is not in the redevelopment pipeline. So is this a simple lease-up strategy and doing more in the same space? Or is there a different long term plan there? And then not to get you too far over your skis, but on the potential 2 deals that you talked about, Donald, are those considered kind of market dominant centers in new markets or more of a clustering opportunity? Thanks.

Thanks, Greg. Couple of things to talk about. First, expect that Kingstowne-- that is just good-- that is just good real estate acquisitions. That is a piece of land in the middle of our 2 shopping centers. That are effectively there that are certainly better off in our hands than anybody else's hands. It is a stay-the-course strategy effectively. For the for the near term. But because of where they are and some of the due diligence that we did with respect to alternatives, should there be an issue with the current tenancy. We got a good plan. So, you know, in some respects, that is defensive to fill out the nice square of the 2 shopping centers there. But also offensive because of what we think we have got going on there. Look, on I on the on the properties we are looking at, I cannot talk to you about it until we are all done. With respect to those. I will tell you that you know, I think we have been pretty darn clear over the last year that we would like to be in 3 to 5 new markets. We have also been pretty darn clear that filling in existing markets remains a priority. it is a combination of both of those things. While I will not comment on 2 particular properties that I referenced. that is the business plan of the company. that is what we are doing. And trying to, you know, trying to continue that program. Frankly, having more success than, you know, at the beginning of the year that I thought we would have. So things have changed. I like John's answer on the fulsome nature of all of that stuff that is available. And I hope to provide better news, even, or more complete news, if you will, as the rest of the year continues.

The next question is from Andrew Reale with Bank of America. Please go ahead.

Hi. Good morning. Thanks for taking my question. Maybe just to hit on the guidance, could you provide maybe just a little more color on some of the tenants driving the term fee higher this year? And then on the higher G&A, Daniel, I know you mentioned that might be investments in digital initiatives. So maybe you could just speak a bit more about those. Thanks.

Thanks, Andrew. Let me tell you about 1 particular term fee issue that I really kind of wanted to get this out there. And why it is so important to us. I cannot give you the specifics, obviously, for the in terms of the tenancy. But imagine you have got a really strong lease at a good shopping center. Where that tenant is obligated to have a go dark right. That they can go out, go dark, have an obligation to pay rent forever. And it is a very important component, obviously, to the long term lease. They are paying rent and continue to pay rent regularly. However, when you have a really good shopping center, you should be able to backfill. And backfill hopefully with a better tenant a tenant that does more for the shopping center that pays at least that amount of rent and hopefully more And so while we were accepting the ongoing rent of this particular tenant, the ability to release it were there. So we have got a new tenant coming in a new tenant paying a better rent, a new tenant that will be better for the shopping center, and, by the way, the old tenant is paying us 7 years of rent. The math works all day long. So the notion of and that is $3 million. That was a $3 million term fee. that is why that the change in the assumption for the year, I will take that all day long and hope that somehow that is included in the understanding of what our business is and the strength of our leases. Daniel, you may have more on guidance. But, Andrew, thanks for asking that. Because I really do want you to understand the math and the reason for doing deals with high credit tenants that have the ability to either continue to pay or because the lease is really strong, when we have another tenant to be able to backfill, cutting a deal right then and there. So that we can double dip. that is what we are doing. Double dip.

Yeah. I will just add a little bit of color. I mean, you know, the anchor tenant was not leaving for credit issues. It is a strong investment grade backed tenant who made a strategic decision to exit a particular market. Okay? And this was, as I said, not a credit issue. In fact, of our $8.6 million of term fees year-to-date, over 2-thirds of it were from investment grade rated or investment grade backed tenants. And so with regards to guidance, we increased the guide for the year driven by call it, $600 thousand to $700 thousand of beat in the second quarter. Plus we have greater visibility into the second half of the year. And that implies roughly $1 million per quarter on average in Q3 and Q4. So you have that color for the balance of the year. G&A. And then lastly, G&A. Digital and Yes. Look, we are making investments with regards to guidance. We are making those investments. We expect to get strong returns. I think we will get returns immediately on some of the business development stuff. Which we are really, really excited about. And with regards to the digital innovation side, I think that is a little bit longer term in but we have got a really strong group of professionals who have joined us and, we feel really good about making these investments and that will obviously impact the G&A line item in the second half of the year.

The next question is from Juan Sanabria with BMO Capital Markets. Please go ahead.

Hi. Thanks for the time. Just maybe a question for Daniel. Same store NOI implies a bit of a decel from the first half. Into the second half. So just curious on what is driving that, if that is how we should think about it. And maybe how the builder in place occupancy should trend for the balance of the year as a subset of that.

Yes. Just with regards to we had indicated I think, previously some, you know, obviously lower numbers in the second and third quarters, and a stronger first quarter, which you saw in a stronger fourth quarter. So you should expect in the low twos on our GAAP based metric for comparable. And probably in kind of the low forest range. So blended in the low threes, and that should you know, that gets us into kind of the low threes in the second half of the year. that is what it implies. Hopefully, we can do better than that. And then the second piece was Your sound-- Yeah. Same thing. I mean, that is really occupancy is driving a lot of that and getting tenants open. And we will see kind of a nice resurgence in the fourth quarter. On that comparable metric. I feel good about the comparable metric entering 2027.

The next question is from Samir Feldman with Wells Fargo. Please go ahead.

Hi. Thank you. You have got Connor on with Samir. Can you talk about where yields are today on your entitled multifamily pipeline? How we should think about potential start activity over the next 12 to 24 months? And which locations are closest to penciling?

Yeah, Samir. I can do that a little bit. So we have got you know, what we would love to be able to do is on a cash on cash basis, be in the mid-6s to 7 or so on the residential stuff that we do. if it does not pencil, if it is below a 6 or somewhere like that, we are just not gonna do it. So when you look at where we are, what we have got opportunities for, we have got things like Pembroke, in Florida, which I would we are getting close. On seeing if we can make that 1 work. there is also an opportunity to potentially at Assembly for 1 of the sites that we have. And so those 2, I would say, are the closest to being the next stage, if you will, after Willow Grove. Now what you should remember is we have got something squared away now for 26. For 27, for 28, and effectively what will hit 29. So the notion would be in the next 12 months or so, getting that next project or 2 or 3 teed up. Those are our best guesses at the moment.

The next question is from Michael Griffin with Evercore. Please go ahead.

Great. Thanks. Jan, I want to go back to your comments around cap rate compression and just as it relates to some of the opportunities in the expansion markets. I mean, I think if I recall correctly, Town Center and Village Point were in the high sixes. So if you are talking about deals that you are finding now in the low sixes, you know, that feels like a decent amount of cap rate compression over the past year. I guess, number 1, is it increased competition that you are seeing for some of these more operationally complex assets? Or is it just a mix of kind of the more coastal core markets that you highlighted at the Investor Day that you are targeting versus the potential expansion markets?

Yeah. Hi, Michael. Good question. I think 1 of the overall factors is there is just so much more capital chasing retail right now, and so that is just created more competition for the supply of product that is out there, and that is just has pushed the has pushed the yields down. And, you know, a lot of that capital is focused on some of the best properties. That, you know, that are available in, in the marketplace. And so I just overall, whether it is in California or whether it is in Kansas City, there is there is probably more competition today than there used to be. So that is that is on the 1 hand. On the other hand, what we have seen by owning Kansas City, by owning Village Point in Omaha and really spending the time and so much more time and energy over the last couple years, in the last 12 months, in the last 6 months underwriting these assets and really talking to these retailers and seeing the performance that we have delivered and we can deliver it feels like even though the yields are a little bit lower going in, we can still drive the 8% or better IRRs. We can drive the growth out there. So from a from our perspective, even though the yields are lower, it feels sort of neutral our ability to execute, if that makes sense.

You know, Griff, let me just add a couple of things to that because as I am listening to the conversation and listening to your question, 1 of the things that comes to mind here is the type of stuff we look for is really unique.

And it is not really asset by asset kind of thing. I know you would like to say, you know, all grocery anchored shopping centers, trade in a blank, you know, lifestyle type centers. Trade it a blank. But it really does not work like that like that. And so when you go back to the conversation that Donald and Wendy had before, it really does depend on our ability to underwrite IRR. Now there is a limit to going in cap rate As John said, we are not gonna be down in a place where it is dilutive. To us to get started. that is a key tenet of what it is that we do. But when you get 1 of these larger properties, that truly has been undermanaged, and truly has significant lease up that you can get to. Important. That you can get to over the next 5 years I gotta tell you, man, when it comes to a mid h IRR, the going in cap rate is less important. Not unimportant. it is gotta be accretive. But these are specialty assets. These are the biggest best assets in the communities that we are talking about there. And it is an important distinction. So you know, the notion of saying, well, it is 50 basis points tighter 75 or 25 or whatever is a it is a broad comment and not necessarily untrue, but it is on a very small sample size. Of the type of asset. And this those type of assets are very much dependent upon what the underwriting is gonna look like. Over the next 5 years. I hope that is helpful kind of putting that in perspective. These are not generally $20 million $30 million 100 thousand square foot shopping centers that are pretty generic.

The next question is from Floris van Dijkum with Ladenburg. Please go ahead.

Hey, thanks. I note you have a $200 million mortgage coming due on Bethesda Row, I think, next year, you have an option to extend that. Is that also potentially an asset you could sell a JV interest in? And can you maybe talk about your thought process potentially of, you know, partially an asset like that has fewer expansion possibilities, or is there enough growth in your view that you wanna, you know, keep a 100% interest in assets like that?

Thanks, Floris. that is a great question. When we look at how we fund our business plan, it is pretty cool to have a lot of different options. And frankly, more options than, you know, most other companies have. 1 of those things, as you just pointed out, are assets that are very important to the company. Where we have done some pretty darn good work over a lot of years. For which we do not want to lose control importantly of that. But could be a source of you know, the a very low cost of capital We need to look at that. And while, you know, the notion of you know, wholesale joint ventures on the big stuff and blah, that is not going to happen. Sharpshooting? As part of the overall capital structure and capital plan that is pretty cool. it is a pretty cool opportunity. So, yes, we will be looking at that in the coming months and years you know, as a as an incremental tool to be able to expand the business.

The next question is from Craig Mailman with Citi. Please go ahead.

Hey, good morning, everyone. Just want to go back to just bigger picture on the acquisition side of things. I mean, institutional capital just continues to push cap rates down in a space where rent growth has or the ability to push tenants has been a little bit more elusive given fragmented ownership and the importance of some of the anchors. I mean, when you are talking to brokers and they are underwriting some of these newer capital sources, Are these compressing cap rates in you know, pretty sticky interest rate environment? Indicative of just a view that rent growth is gonna accelerate across the space, or is it a hedge on inflation or just a, you know, byproduct of more accessible capital markets on the debt side? Just trying to get a sense of how anyone's making these numbers pencil on an IRR basis unless they are just accepting lower returns in this environment. Just maybe some thoughts on that.

Yeah. You just asked a macro question to which you know, my answer, I cannot help myself. I tend to get to the micro. I get to the particular asset. The particular opportunities to grow the income stream in the asset. Which I talked about. It is why that on a macro basis, to the extent, I think, a number of things that you just said, are really important. You remember, Craig, that really up until the last year or so, the it was all about the grocery anchored shopping center and that center in a bite sized $4.05 billion dollar kind of purchase price. That served as a wonderful hedge against not only inflation, but against it was a risk off move. And it makes all the sense in the world. We love those centers. that is great. There is no doubt that with more focus and money on the bigger stuff, that there is, in my view, a bit of a realization that larger assets that are privately held do require capital That capital is often not spent by the ownership, whether that is in institutional ownership or a local ownership in some form. That a company like ours or others out there can provide outsized growth with credit. You know? You put money into a shopping center, all money is not equal. You put money into a shopping center with better credit tenants, with better opportunity for growth, in highly affluent areas, that is pretty good use of capital. In there. it is always considered in the underwriting. And so it is a combination of everything that you kind of said, but there is a realization that retail real estate is more than triple net leases or grocery anchored shopping centers. That there are core plus and opportunistic opportunities that are there. That you know, people are more comfortable There are a few operators that can really extract that value. We certainly 1 of them.

The next question is from Richard Hightower with Barclays. Please go ahead.

Hey, good morning, guys. I guess, maybe a bit of a similar line of questioning, but obviously, you guys have a pretty deep menu of redevelopment projects. Going on in the portfolio. And I am wondering just kind of given the strength and underlying trends we have talked about on the call, does that sort of open up or maybe allow other assets in the portfolio to sort of pass the hurdle to spend that capital maybe in a way that you were not considering 6 months ago, a year ago? Does it change the math on that sort of expenditure as well?

I think it does, Richard. I think that is a great question. it is a great observation. The 1 thing about portfolios, particularly portfolios that have been held for a long period of time, there are periods when things work better, and there are periods in real estate when the math just does not work. Your observation is really good. And 1 of the things that is worth saying here is while inflation generally does not make it easier to, you know, go buy groceries and all the stuff that is read in the newspaper every day. It sure ai not bad for retail. And as long as it is controlled, and the ability to effectively push rents, the ability to effectively in a supply constrained marketplace, which this is and has been does open up other opportunities. We are looking hard at stuff that we have not looked at. Because the math has not worked in the past. And I would be bullish, if you will, on some of those opportunities, finding their way into the into the business plan over the next 12 months.

The next question is from Michael Mueller with JPMorgan. Please go ahead. Okay. Michael Mueller, you are now on the podium. Please go ahead.

Yeah. Oh, hi. Sorry. So I guess following up on the redevelopment question, how do you think the annual spend is going to trend over the next 3 to 5 years compared to where you are this year? Do you think we are closer to a material pivot to the upside?

We could. We could. This is Daniel. Good question. We have been kind of analyzing and at what the pipeline looks like and what we could add and what things are ready to move forward and where they are penciling. And so I think over the next, call it, 6, 12, 24 months, you could see, you know, us continue to add more and more projects whether they be resi over retail projects that Donald alluded to earlier or whether they are commercial retail oriented projects, redevelopments, that we could add to it. it is probably in the neighborhood in terms of the next 12 to 24 months that we would consider if $400 to $500 million of projects that could get started But we are gonna be disciplined, and we are only gonna pull the trigger if they make sense from a return perspective. Anything more? No.

As all of these questions are about how do we accelerate growth? Right? that is the basis of all these questions. And the 1 question that has not been asked about are our operating margins. And the notion of effectively what digital innovation, what business processes what is available over the next few years, how to get income, rent started earlier, all of these notions, I do believe that technology will make us more profitable also. So just add that to the list. Of things about, you know, about how and why there should be. Good growth. Going forward to our business.

The next question is from Paulina Alejandra Rojas-Schmidt with Green Street. Please go ahead.

Good morning. You have talked about targeting properties with really specific, characteristics, really high standards. What tends to be the hardest characteristic to meet? The 1 that makes a good center, a center good but not really quite good enough to meet your bar. And I ask because sometimes I see properties transact in affluent pockets that materially higher cap rates that you have quoted. So I wonder what the breaking point tends to be in your case. Is it perhaps that the market is not large enough? Or the lack of flexibility for densification? Or something else.

Good question. I will start. And, Wendy, you probably wanna add to this. it is about the details in the leases for the property. And so when you have a property, that has been fully you know, exploited, if you will, Even if it is in an affluent area, it works as a wonderful hedge and that is terrific from a bond-like perspective. But if there is not the growth available by remerchandising that or by adding a redevelopment component. If there is not, then it is gonna trade at a higher cap rate. And that higher cap rate if you look at just broadly, can be confusing. Well, why in this affluent area is this property trading at this? Well, because there is no growth. And at the end of the day, that is the single biggest thing is where are the leases? And that is determined upon determined in that marketplace as to what the future of that marketplace looks and how that marketplace is creating jobs, how that marketplace is creating the ability to create growth and better merchandising. And so it is hard to put this you know, big wide paintbrush on the issues that way because it is a local business. that is the single biggest driver. Is what are the in place rents and what are the opportunities for changing that cash flow stream. I do not know.

Position of that asset within that market. We target the best assets in those markets. And sometimes you may be looking at cap rates for an asset that is positioned as the third or fourth best asset in that market. That is not going to command the demand from tenants that we really look to make sure is there and that we can underwrite And so you will see us pass sometimes on assets like that we just do not see long term there being the opportunity and that is reflected, obviously, in the higher cap rate.

This concludes our question and answer session. I would like to turn the conference back over to Jill Ryann Sawyer for any closing remarks.

Thanks for joining us today, and have a great rest of the summer.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.