Federal Realty Investment Trust. (FRT) — Q3 2025 Transcript

Thank you, Megan. Good morning. Thank you for joining us today for Federal Realty's Third Quarter 2025 Earnings Conference Call. Before we get started, 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. Before we begin our prepared remarks, I want to note that Don Wood, our Chief Executive Officer, is temporarily away due to a recent loss of an immediate family member. Our thoughts are with Don and his family during this very difficult time. In his absence, our Chief Investment Officer, Jan Sweetnam, will be reading Don's prepared remarks. In addition to Jan, joining me on the call today are Dan Guglielmone, Chief Financial Officer; Wendy Seher, Eastern Region President and Chief Operating Officer; as well as other members of our executive and senior leadership team, including Dawn Becker, Jeff Kreshek, Stu Biel and Melissa Solis that are available to take your questions at the conclusion of our prepared remarks. And with that, I will turn the call over to Jan Sweetnam. Jan, please begin.

Thanks, Jill, and good morning, everybody. Following are Don's prepared remarks: Best leasing quarter we've ever had, ever. And that's saying something given the leasing strength over the past few years. 727,000 feet of comparable space written at $35.71, 28% more annual cash rent than the previous tenant. Two-thirds of that space was for renewals with minimal capital required. Of the remaining one-third related to new tenants, over half related to space that is currently occupied but for which a more productive tenant executed a lease a year or two or even three early in order to lock it up. There's no better evidence of the attractiveness of a shopping center to retailers than that, and it's one of the best ways in our business to assure an increasing stream of cash flows well into the future. Wendy will talk about core leasing a bit more in a few minutes. Strong comparable operating income growth of 4.4% in the quarter was equally encouraging and led to FFO per share of $1.77, despite the absence of capitalized interest and operating costs at Santana West that negatively impacted FFO per share by $0.04. That drag will begin to dissipate in this fourth quarter and in 2026 and 2027 as tenants in the 90% leased, soon to be 95% leased building continue to occupy and work through free rent periods. Operationally, this was a really strong quarter. And based on what we see thus far in October, should allow us to close out 2025 strong. In terms of development and redevelopment, residential construction in Hoboken, New Jersey and Bala Cynwyd, Pennsylvania are moving along nicely, on or under budget and on time with leasing to begin in early 2026 at Bala Cynwyd. During the third quarter, we broke ground on 258 new residential units on the last surface parking lot at Santana Row, committing capital of roughly $145 million. Those three projects, Hoboken, Bala and Santana, will require roughly $280 million of capital, all in fully amenitized and proven environments and should yield 6.5% to 7% unlevered. There's more to come in this component of our business in 2026. Current conditions suggest market value should be 150 to 200 basis points inside those returns. We're committed to realizing that value over time as we've demonstrated with the sale of Levare at Santana Row earlier this year, Pallas at Pike & Rose, which is currently under contract for sale and should close right around year-end and the current marketing of Misora at Santana Row. On the acquisition front, I really want to thank those of you that made the trip to Kansas City to join us for our investor tour of Town Center Crossing and Plaza in Leawood earlier this month, we're off to a great start there from a cash flow and value-enhancing perspective. And I just want to reemphasize the two points that I think became apparent to investors and analysts on that trip. First, that we are not sacrificing quality by expanding our geographical footprint. The growth prospects for these investments exceed both the retail and residential assets we're selling, and it is highly likely that the exit cap rates for the shopping centers we're pursuing will tighten considerably based upon our re-tenanting and redevelopment. And second, that this is not a change in strategy for Federal. Our deep and experienced team is doing what it has always done, lease it better, both from a merchandising and strength of lease contract standpoint, create a more inviting physical space that lengthens stay times and increases spending and intensify the land with more retail or residential GLA, where and whenever economically feasible. Same business plan and strategy, just on different land with the same characteristics. The affluent consumer is underserved, the centers are big and dominant and existing relevant tenants have proven that it's the place in the submarket to be. You might have also seen that we closed on the acquisition of Annapolis Town Center in the A+ location off State Route 50, which heads into D.C. and Interstate 97, which takes you to Baltimore and Annapolis, Maryland. We bought the property for $187 million at a 7% unlevered return with an anchor and shadow anchor foundation grounded by very successful retailers, Whole Foods, Lifetime Fitness and Target, we expect to be able to enhance the surrounding merchandising with better and more productive tenancy, enabling higher rents. We're very excited about this addition in our core market. Next up is another large and dominant center in a growing Midwestern submarket that we expect to close in this fourth quarter. More to come on that one soon. So that's about it from my prepared remarks. Enhanced internal and external growth using all the tools at our disposal is the name of the game. Quarters like this third of 2025 increase my confidence of doing so. Let me now turn it over to Wendy to expand on the leasing environment.

Thank you, Jan, and good morning, everybody. Exceptional performance for the quarter, highlighted by record leasing volumes that build significant forward momentum as we conclude the year and look ahead to 2026. As reflected in Don's comments, we successfully recorded a record 123 comparable deals at impressive rent spreads of 28% over in-place prior rents. Our operational metrics are in top form, evidenced by strong occupancy, healthy margins and reduced controllable expenses, all underscoring a solid financial performance. Outstanding results overall for the quarter. Occupancy in the comparable pool continues to show momentum as our occupied rate climbed 40 basis points last quarter and 20 basis points year-over-year to 94%. On an overall occupancy basis, including all of our shopping centers, we stand at 93.8% today. Keep in mind, our two recent acquisitions, Leawood and Annapolis were roughly 91% and 85% occupied at closing, therefore, impacting total overall occupancy as we head into the fourth quarter. We encourage investors to focus on our comparable occupancy metrics, which more accurately reflects the continued strength and momentum across the core portfolio. Turning to our leased rate. Our comparable leased rate stands at a very healthy 95.7%. We expect the figure to grow and show positive momentum into year-end, driven by a strong pipeline, including over 175,000 square feet of new leases currently in process for vacant space. This represents roughly 70 basis points of incremental lease rate opportunity. While the third quarter saw record leasing volume, a significant portion of this activity was for space that was currently occupied. This is a testament to the durability of the centers and reinforces future stability in our occupancy metrics, providing embedded growth even if it doesn't immediately lift the recorded rate. By pre-leasing space, we effectively reduce downtime, we smooth out quarter-to-quarter revenue and strengthen occupancy over time. This proactive approach is a major focus across our operating teams. We continue to see broad-based demand for our quality real estate with a variety of best-in-class names and categories such as Chopt, Alo, Burlington, Arhaus and Ross to name a few, and we continue to upgrade our retail lineup, including within our more recent acquisitions, Virginia Gateway, Pembroke and Leawood to be specific, which with names such as COACH and LEGO, Warby Parker and Bluemercury. We were able to drive rents and earn a return on our capital there. Merchandising and retail sales performance is our focus. LoveShackFancy just had their grand opening this past weekend at the Grove in Shrewsbury. Attracted by the addition of our small-format Bloomies concept, LoveShackFancy opened to a line out the door and had their best opening ever of their 25 locations. Merchandising matters in non-commodity centers. Our acquisition of Annapolis Town Center this quarter is a prime example of our disciplined acquisition strategy. The 479,000 square foot mixed-use retail property confirms our focus on acquiring high-quality dominant centers in affluent markets. With an 85% current occupancy rate, we expect the addition of Annapolis to provide meaningful growth with strong existing anchors like Whole Foods, Target and Life Time and featuring popular retail brands such as Sephora, RH, Pottery Barn and Anthropologie, a perfect addition to our Maryland portfolio. Expect us to provide a number of tenant announcements for Annapolis on our next call. And with that, I'll turn it over to Dan.

Thank you, Wendy, and hello, everyone. Our reported FFO per share for the third quarter was $1.77, which exceeds consensus and is at the top of our guidance range of $1.72 to $1.77. Comparable POI growth for the quarter was 4.4% on a GAAP basis and 3.7% on a cash basis, both of which surpassed our expectations due to higher-than-expected revenues in retail, residential, and parking. Consequently, we will be increasing our guidance for both 2025 FFO per share and comparable POI growth, with more details to follow later in my remarks. First, regarding our balance sheet, we maintain significant liquidity of approximately $1.3 billion at the end of the quarter, including availability on our $1.25 billion unsecured credit facility and over $100 million in cash. Despite an active capital allocation program, our balance sheet remains strong. The annualized net debt-to-EBITDA for the third quarter is robust at 5.6x, reflecting the acquisition of the Leawood assets, while our fixed charge coverage is at 3.9x. We are actively working on our capital recycling program with $400 million in assets at various stages of sale processes. We anticipate that roughly $200 million will close by the end of the year or shortly after, with another $200 million projected to close in the first half of 2026. Additionally, we have a pool of over $1 billion in noncore assets under consideration for the market in 2026 and beyond, with about $1.5 billion of that total being considered for sale—one-third of which is residential and the remaining two-thirds noncore retail. The estimated blended yields target the mid- to upper 5% cap rate range with blended unlevered IRRs around 7%, indicating very attractive capital pricing. While leverage may vary slightly from quarter to quarter due to timing differences between acquisitions and sales, we expect to maintain a long-term net debt-to-EBITDA ratio in the low to mid-5x range. In terms of flexibility, with our current leverage metrics and over $1.5 billion in asset sales being processed or considered, we are in a strong position to continue pursuing capital deployment. Regarding guidance, as previously mentioned, following our third consecutive earnings beat, we are raising our forecasted FFO per share range, excluding new market tax credits, to $7.05 to $7.11. This indicates approximately 4.6% growth on this recurring basis at the midpoint over 2024, with growth projected at around 4% to 5% at the lower and upper ends of the range respectively. Including the one-time new market tax credits, our NAREIT-defined FFO range increases to $7.20 to $7.26, reflecting a 6.8% growth at the midpoint over 2024. This growth is attributed to $0.01 of net operating outperformance for the quarter and roughly $0.01 accretion from the Annapolis acquisition, translating to an annualized impact of $0.03 to $0.04. Given the strong performance in the third quarter, we are also increasing our forecast for 2025 comparable POI growth to a range of 3.5% to 4%, with a midpoint of 3.75%. We expect occupied levels to be in the low 94% range by year-end, supported by deals signed to date and a strong pipeline of leasing activity that continues to gain momentum after a record third quarter. Retail tenant demand in our portfolio remains strong. We also have one more acquisition under contract, expected to close before year-end for approximately $150 million, though we do not anticipate it will significantly contribute to the 2025 FFO due to the timing of the closing. It’s worth noting that our total acquisitions this year, including the current contract, will exceed $750 million, with a blended initial cash yield of approximately 7% and a GAAP yield greater than 7%, alongside an initial blended occupancy rate of just 88%. These high-quality assets offer clear leasing upside, which will foster growth in 2026 and beyond. The implied FFO guidance for the fourth quarter of 2025 is $1.82 to $1.88, reflecting 7% year-over-year growth at the midpoint. While we will not be providing formal guidance for 2026 until our fourth quarter call in February, we anticipate a strong operational year ahead. We are executing from a position of strength, making strategic investments, maintaining balance sheet discipline, and positioning ourselves for another year of meaningful growth. Before I turn the call back over to the operator, please remember to keep questions to a single part, and if you have additional questions, please re-queue. Given the sensitive nature of some earlier discussions, we ask that you refrain from expressing condolences on this call, allowing us to focus on Federal Realty and its third quarter results and keep the Q&A segment efficient. Thank you. Now, operator, please open the line for questions.

Great. For the team, I guess. Dan, you talked about the dispositions and processing kind of a blended cap rate. But just curious if you can give any color on how the two main buckets, retail versus residential, compare given kind of early feedback on what may be kind of out there in the marketplace to test pricing.

Sure, sure. Look, we've got, as we mentioned, $400 million in the market now that's probably a little bit more skewed towards residential. Overall, the $1.5 billion, the one-third of the peripheral residential, two-thirds noncore retail. Pricing is going to be kind of in and around 5%, sub-5% for what we're selling on the residential, and it will be in and around 6%, low 6s, sometimes high 5s on a blended basis on the retail. And so blended, we should be in the mid to upper 5s overall. So I think a nice positive spread to where we're deploying the capital in and around the high 6s, low 7s on a cash basis and GAAP yields above that.

Dan, you mentioned that you're not going to provide formal guidance for 2026, but you did discuss some factors like Annapolis and the benefits expected next year, as well as capitalized interest in Santana. Can you elaborate on any one-time issues or other topics that you've already mentioned for 2026? This will help us understand the company's trajectory and what earnings growth next year might look like based on your previous comments.

Thank you, Michael, for the question. Regarding one-time events, the significant one-time occurrence really pertains to the new market tax credit in 2025. We suggest that to better grasp the true operational growth of the business, you should exclude that one-time factor from 2025 and concentrate on the recurring figure of $7.08. Looking ahead, we do not anticipate any new one-time events. One-time events are viewed as recurring numbers, like term fees, which we consider part of the business. While they are unpredictable, we do not foresee any substantial deviations from our current projections, which were slightly increased this quarter to a range of $5 million to $6 million. This should remain consistent. In terms of capitalized interest, we projected around $13.5 million and expect to stay in the $13 million to $14 million range this year. Although we don’t have an exact number yet, you can use $10 million to $11 million as a placeholder for capitalized interest, with more precise information to come in February. For growth, although we lack a specific figure, the current guidance indicates recurring growth in 2025 of about 4.6%. We believe this aligns well with what we might expect next year in terms of recurring figures. Keep in mind, this includes a headwind of 150 to 200 basis points from refinancing our bonds in February. Therefore, we're looking at an underlying growth of about 5.5% to 7% in the core business, which we feel very positive about. Additionally, we expect to see an incremental development POI contribution of only $3 million to $5 million this year, but that should rise into double digits next year. We will provide a more accurate contribution figure for 2026 in February.

I guess, Jan or Wendy, the spreads in the quarter were impressive, right, 28% cash spreads. I guess if you take a step back, how much of that is sort of true market rent growth that you're seeing in your portfolio versus maybe just sort of mix or tenant upgrades. Trying to understand if these spreads are sustainable. And if there's sort of this inflection of market rents that are taking place for your type of assets.

There’s no doubt that a 28% is a strong number for us. I view it over a 12-month period, where we're seeing results in the mid-teens. We will continue to be aggressive, which makes sense because our leased and occupied rate is increasing, allowing us to drive rents at that level. It can be inconsistent, so not every quarter will achieve 28%, but we definitely have the capability to increase rents. As I mentioned, the trailing 12 months should lead us to mid-teens results as we see the outcomes in the fourth quarter and into the first quarter.

Dan, regarding the situation at Santana West, you mentioned that the office tenant did not occupy the space this year and that the preparations were delayed. Is that tenant expected to be on track for 2026, meaning should we anticipate revenue coming in early 2026? Or might there be a further delay in recognizing that revenue?

Yes. We expect to align with our revised guidance from earlier this year, and in the fourth quarter, we will start recognizing straight-line rent. This applies to PwC, which is approximately the 40% anchor tenant in the building. This is one of the factors contributing to the additional property operating income that we anticipate from our development portfolio in 2026. Therefore, this aligns with our expectations and will contribute to growth next year.

Maybe one for Jan, just as it relates to sort of the investment pipeline and outlook. I know in Kansas City, you talked about the upside opportunity in some of these larger open-air centers similar to town center versus maybe the premium the market is putting on more grocery anchor. So can you just talk about your thoughts on maybe the disconnect between those two types of properties? I mean, is it expectations for higher foot traffic at grocery-anchored center that's maybe driving down that cap rate? Or is there just a broader disconnect versus the types of assets like a town center or an Annapolis that you all are targeting?

Thank you, Michael. That's a great question. We're in an interesting time in the market. Over the past decade, there has been a strong demand for grocery-anchored centers, and cap rates have decreased to relatively low levels. It seems like they have flattened a bit recently, and there hasn't been as much capital available. In fact, lately, there's been minimal capital for larger transactions. The few transactions that have occurred attracted good bidding, but the yields were higher due to lower competition. In the second half of this year, we've noticed an influx of large centers entering the market and more capital pursuing those acquisitions. This increase in competition means it's more challenging for sellers to determine which bidders are serious and which can effectively navigate any issues to close deals. We believe we compete strongly in this environment. Overall, while we seem to be in a balanced position competitively, we will need to monitor developments into 2026 and beyond. We anticipate more large transactions will be available later this year and early next year, and we feel well-positioned to engage in those opportunities.

I was wondering if you could elaborate a bit on the debt maturity schedule and particularly the $200 million Bethesda Row mortgage maturing in December, I saw there's two 1-year extension options there. So I was just wondering what the plan is.

Yes. Regarding Bethesda Row, we will be extending the mortgage for another year, utilizing the first of two extension options, which will take us to the end of 2026. We also have the option to extend it to the end of 2027. It's a low-leverage situation and is easily financeable. We recently refinanced our Azalea loan, which matures tomorrow, at very attractive rates on a swap-to-fixed basis, resulting in rates below 4%. As for our $400 million in bonds maturing in February with a 1.25% interest rate, we have options. It's beneficial to have these options available in the bond market, bank term loan market, or convertible market. Being a federal entity with a high investment-grade rating allows us to be opportunistic and flexible in our refinancing plans, and we'll look to optimize that. More details will be available in February regarding how we plan to proceed.

A question on your physical occupancy. I note you're still about 160 basis points, I believe, below peak levels. And maybe, Wendy, if you can give some sort of update on how quickly you see that trending? And is there a chance that we could surpass that level over the next 18 months or so?

Thank you, Floris. I feel optimistic about our ability to increase the occupancy rate, particularly on the anchor side where we have more potential for growth. As I mentioned earlier, we have 175,000 square feet of space, and we're finalizing leases for currently vacant areas in the next quarter, which should help improve our numbers by the end of that quarter. For the small shop segment, we are over 93% leased at this moment, and we plan to use that as an opportunity to raise rents slightly. We are comfortable with a little bit of frictional vacancy since it allows us to drive rents. However, I expect the most significant increase will come from the anchor side, which will ultimately boost our overall occupancy.

Great. Curious how Annapolis is funded and how that ties into the $0.01 accretion for 4Q and $0.03 to $0.04 for the full year? Wondering if that $0.01 accretion is combined with the $200 million of sales to fund or just trying to figure out how that $0.01 is inclusive of sales to close by year-end or not?

Yes. It's somewhat flexible. We have a substantial balance sheet that provides us with the ability to fund. We have available capacity on our credit facilities and term loans. For now, we are using cash on hand to fund temporarily. In the long term, it will be funded through asset sales. The $0.01 accretion represents the difference between the initial yield from day one and the next 12 months compared to our sales, which are yielding in the mid- to high 5s. On a GAAP basis, we are in the 7s, which explains the quarterly $0.01 accretion for the fourth quarter and the annualized $0.03 to $0.04 for the full year. I hope that addresses your question, Cooper. It was a good one.

This is Viktor Fediv on with Greg McGinniss. As you are now in an active external growth mode, could you share some details on current competition for the assets you target and how it is impacting cap rates overall? Just trying to understand whether the pool of assets that check all the boxes for Federal are shrinking or not.

Jan, do you want to take that one?

Yes, I'm not sure I totally heard the full question. Is the question in terms of what does the pool of future potential acquisitions look like? Was that the question?

Yes, yes, as a result of current dynamic and competition for the assets, yes, just trying to understand the size of the pool, yes.

It seems we are still in a state of equilibrium. Looking back 12 to 9 months, there weren't many large transactions available that piqued our interest, and few were pursuing those assets. Today, however, there have been several significant transactions introduced to the market in April, May, and June, accompanied by increased capital interested in those acquisitions. While there is more competition now, it poses a greater challenge for sellers to determine which bids are legitimate and to identify the bidders who can address issues and reach closing successfully. We believe we are well-positioned competitively in this context. Overall, from a competitive perspective, we appear to be in a similar state of equilibrium. We will have to monitor developments in 2026 and beyond, but we anticipate an influx of large transactions later this year and early next year, and we feel confident about our competitive stance to engage in those opportunities.

Yes. I believe another aspect that isn't fully recognized is the expertise we possess at Federal Realty. This includes our leasing capabilities, our relationships with tenants, and our ability to enhance the operations and productivity of the properties we acquire through placemaking and other strategies. Many of these properties are not being managed effectively. Achieving results in this area is challenging and requires a highly skilled operator. I view this as a competitive advantage over many of our competitors. We have the ability to drive increases in property operational income and net operating income at these potential acquisitions in ways that others cannot.

Craig, we don't hear you. You're on mute? Okay. We'll go to the next question. Operator?

Can we discuss the SNO pipeline? How much total rent is included in that pipeline? What is the expected timeline for it to come online? Do you think it will compress from this point forward, or is there potential for it to expand as occupancy increases?

Great question, Ravi. Craig, please re-queue; we couldn't hear you. Ravi, regarding the SNO, we are looking at about $20 million in the comparable portfolio and another $18 million in the to-be-delivered portfolio, totaling $38 million. Approximately one-quarter of that will start coming online in the fourth quarter on an annualized basis. Around 60% should be in 2026, and the remaining 15% is expected in 2027. Of the 60% anticipated next year, about 70% to 75% will likely occur in the first half. It's important to note that while SNO is beneficial from a modeling perspective, it only tells part of the story. When considering SNO, one must also assess the leaks in the bottom of the bucket, including credit reserves and the credit profile of the tenancy. Both aspects should be analyzed together. Concerning our SNO, as Wendy indicated, we expect lease rates to increase into the fourth quarter and early 2026. This should widen the gap between the leased rate and occupancy rate, with both expected to trend upward, which is ideal. The directional trend in your occupancy metrics is more crucial than the actual spread. We might see the gap increase to around 200 basis points, but our aim is to tighten it to historical levels, ideally between 100 to 150 basis points, as this reflects efficiency in getting tenants operational and indicates the credit quality of our tenancy if we can maintain a very tight SNO, as everyone emphasizes.

This is Sydney on for Craig. I think he was having some technical difficulties. Wendy, you mentioned that tenants are buying for currently occupied space 2 to 3 quarters and years ahead of expirations now. Is this a significant trend that you're seeing? Or is this more anecdotal? And how much of this activity actually drives the cash spreads on new leases during the quarter?

Thank you for the question, Sydney. When I review our activities over the past several quarters, it's evident that the rate of new deals being signed for already occupied space has been increasing. Initially, after COVID, we were leasing previously occupied space around 30% to 40% of the time. Now, that figure has risen to 50% to 60%, and this past quarter, 70% of our leases were for occupied space. I believe this trend will continue as our occupancy and lease rates increase, indicating a strong ability to minimize downtime and stabilize our revenues from quarter to quarter, which is our main focus.

I guess a quick question for clarification. I think you talked about FFO growth being kind of in the mid-4s on a recurring basis going forward. Is that just for the current portfolio? Or does that also layer on potential future acquisition and disposition activity, too?

Yes, that's mainly based on the current situation. It reflects our expectations with Annapolis, but it does not include any additional or speculative acquisitions for 2026. Our goal is to pursue acquisitions that are accretive from day one, and the mid-4s serves as the baseline. Future acquisitions will further improve that number. Therefore, there are no assumptions regarding speculative acquisitions or disposals included in that figure.

Could you talk a little bit about the $150 million acquisition that's still meant to happen by year-end? If you could just kind of give us a general sense of kind of what it is, where it is?

Yes, Jan, feel free to add. We will make that announcement once the deal is finalized. We are currently under contract for about $150 million. As Don mentioned, it will be similar to a location in Leawood, Kansas. We will disclose more details upon closing, as is our usual practice. Regarding returns, they will align with what we have been achieving on our assets so far. Jan, I’m not sure if there’s anything else to add, but that’s what we can share today, Tayo.

Yes, I think you summarized it well, Dan. The only point I want to emphasize is that it’s a fantastic city and a great market. It fits extremely well within the affluent submarket, and the affluent customers there have significant unmet needs, indicating pent-up demand in the area. I believe we’ll be able to showcase this and discuss it further once the deal is finalized. That's my additional input.

Yes. And I'd add another thing that this is an off-market transaction, something that was sourced off market. And it fits perfectly within kind of the new Federal playbook in terms of top metros with a dynamic employment, dominant assets with a meaningful size and significant trade area, affluence, unmet retail demand and proven hits and checks all of those boxes. So we're excited about it and stay tuned.

It sounds like including what you have under contract to sell, $200 million closing by year-end and another $200 million closing in 2026, you can be selling up to the $1.5 billion you've identified. Is it feasible to replenish with another $1.5 billion and recycle that as well? Just wondering about the length of runway for unlocking of value creation?

Yes, that's a great question, Linda, and thank you. I believe that gives us a runway potentially into 2027, and the current $1 billion also provides a runway. These opportunities are identified, and we expect them to draw interest from the market. Do we have additional opportunities? Yes, we can certainly explore that further. I'm referring to the near term, the next 18, 24, to 36 months that we're considering. Is there more behind that? Yes, we need to be cautious. A lot of our portfolio has experienced significant gains because we've added considerable value to these assets. Therefore, we need to be prudent in managing that. Ideally, we would prefer to do this through 1031 exchanges, which serves as a constraint. However, if we need to act more quickly because we see additional opportunities in the market to invest in acquisitions or redevelopments, we have the flexibility to accelerate and prioritize some of those assets in our sales process.

I just want to follow up. You mentioned some points about leasing. Looking at renewal rates up 29%, GLA reached its highest in the last 12 months. Could you discuss what contributed to such a significant increase in renewals, especially considering there weren't many TIs involved?

Look, we were able to push rents on the renewal. Look, timing of renewals, it ebbs and flows. We happen to have a significant kind of opportunity this quarter and those deals got done. There were some really strong renewal rates that we were able to achieve. And in terms of the volume of renewals, that happens, that will ebb and flow over time. I think there were a number of deals that we're able to get renewals at rates that were kind of above average. I would not expect us to maintain, continue to be driving renewal rates. I would look also on a trailing 12-month basis, maybe a little bit lower just because renewals tend to be a little bit lower. But I would look at kind of a more normalized number is looking at the trailing 12, which is in our supplement on the leasing page there.

This is a more big picture question. You have highlighted that the recently acquired centers have a very clear significant operational upside. Do you think these acquisitions, along with the broader market focus are a turning point for the company in terms of expected growth? Or are you more maintaining a growth trajectory, essentially replacing more mature centers for others that will drive the next phase of growth? And yes, I hope my question is clear.

Yes, I believe I understand your question, Paulina. We are seeing an opportunity to acquire raw materials that we can integrate into our Federal business model. This allows us to enhance merchandising, leasing, and rents, and invest capital in a disciplined manner to improve returns on those assets. I see this as something additive to our strategy. We can also achieve this with our existing portfolio. However, we recognize the potential to sell some assets where we have maximized value, which could provide an attractive source of capital to reinvest in assets that can boost our growth rate. I don't view this as a turning point; rather, it represents a continuation of our strengths. We see an opportunity to realize gains within our portfolio and reinvest them, ultimately enhancing our growth rate. This approach is in line with the expansion of what Federal has consistently done.

As you consider the expansion markets, particularly Leawood and the next city, do you think that retailers or rents haven't increased as much in those markets? I'm trying to understand if, while everyone is aware of the higher rents in infill markets like Philadelphia, New York Metro, or D.C. Metro due to substantial incomes, the situation is different in some of the Midwest markets with various ownership histories. Do you believe that rents have not increased in those areas to the same extent? Or is that where the opportunity lies? I'm trying to grasp whether this is mainly about new growth areas or if the markets themselves may not be as efficient due to different types of ownership compared to coastal markets.

Yes, Alex, thanks for the question. The short answer is that there is significant potential to increase rents here. They haven't been fully maximized, and the properties haven't received the necessary investments for that. Ultimately, it all comes down to the volume that tenants believe they can achieve here. We demonstrated this at Leawood, where the property was not operating at the level we would typically expect. I believe a major part of our strategy involves continuing to enhance the merchandising, increase sales, invest in the properties, and raise rents to align more closely with what tenants are accustomed to paying in other regions of the country.

Thank you for joining us today. Have a nice weekend, everyone.