Federal Realty Investment Trust's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Federal Realty Investment Trust (FRT)

Q1 2012 Earnings Call

May 08, 2012 11:00 am ET


Kristina Lennox -

Donald C. Wood - Chief Executive Officer, President, Trustee and Chairman of Executive Investment Committee

Andrew P. Blocher - Chief Financial Officer, Senior Vice President and Treasurer

Chris Weilminster - Senior Vice President of Leasing

Jeffrey S. Berkes - Former President of Federal Realty West Coast


Craig R. Schmidt - BofA Merrill Lynch, Research Division

Christy McElroy - UBS Investment Bank, Research Division

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Cedric Lachance

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Michael Bilerman - Citigroup Inc, Research Division

Stephen Bakke - Morgan Stanley, Research Division



Good morning, and welcome to the Federal Realty Investment Trust First Quarter 2012 Earnings Conference Call. [Operator Instructions] This conference is being recorded. [Operator Instructions] I would now like to introduce the conference leader, Ms. Kristina Lennox. Ma'am, you may begin.

Kristina Lennox

Good morning. I'd like to thank everyone for joining us today for Federal Realty's First Quarter 2012 Earnings Conference Call. Joining me on the call are Don Wood, Dawn Becker, Andy Blocher, Jeff Berkes and Chris Weilminster. These and other members of our management team are available to take your questions at the conclusion of our prepared remarks.

Our first quarter 2012 supplemental disclosure package provides a significant amount of valuable information with respect to the trust's operating and financial performance. This document is currently available on our website.

Certain matters discussed on this call may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any annualized or projected information, as well as statements referring to expected or anticipated events or results. 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 contained in our forward-looking statements, and we could give no assurance that these expectations will be attained.

Risks inherent in these assumptions include, but are not limited to, future economic conditions including interest rates, real estate conditions and the risks and costs of construction. The earnings release and supplemental reporting package that we issued yesterday, 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 results of operations.

Before I turn the call over to Don Wood, I'd like to remind you that next week on May 16 to 17, we will be sponsoring an Investor Analyst Day in San Jose. If you would like additional information, please contact me directly. And now, Don will begin our discussion of our first quarter 2012 results. Don?

Donald C. Wood

Thanks, Kristina, and good morning, everyone. A great quarter for us in so many ways from the record quarterly earnings of $1.04, to the credit upgrade from Fitch to A- and a positive outlook designation from both S&P and Moody's, to the strong double-digit lease rollover growth, to the construction starts and assembly in Santana Row, to the seamless integration of Plaza El Segundo and Montrose Crossing into the portfolio, everything came together this quarter for us quite nicely. And then the second quarter started out the same way, and so as Andy will talk about in a little bit, we're going to raise earnings guidance for the full year.

What I'd like to do is talk how the quarter starts around the productivity of our core leasing, because it provides the best window we have into the expectations for future cash flows. The first quarter was pretty extraordinary, 22 leases for 461,000 feet of comparable space completed at an average rent of $31.66, 17% higher than the $27.15 it replaces. Just to put that in perspective, we've only leased 461,000 feet of space in the 3-month period 3 times in the last 60 quarters, that's since 1997. So it'd be very helpful in 2012 and 2013 cash flows.

An important contributor to the quarterly leasing result was a very significant re-merchandising of Huntington's Shopping Center in Long Island, where we replaced Barnes & Noble and Toys R Us with new and very accretive deals with Nordstrom Rack, Alto [ph] and Chili's. While we certainly deployed capital to reconfigure, the deals make a ton of sense both financially and with the objective of improving merchandise for the benefit of the entire shopping center. Huntington is a great example of a very well-located real estate where demand does exceed supply and where we can drive economics. It sits adjacent to an assignment [ph] who's very successful, Walt Whitman Mall.

Geographically, the economy in Northern California continues to gain ground with job creation in the tech sector really benefiting our residential rents at Santana along with increasing tenant sales. Washington and Boston also continue to feel very good, while Philadelphia has flattened out in the past couple of quarters, more small-shop tenant failures relative to the other regions in Philly. You might recall from my past comments that Philly held up remarkably well during the depths of the recession, but it seems to be acting weaker now; stable, just not growing all that much. It is so important to have a diversified portfolio, not just by tenant concentration, but by regional concentration and retail property type too. The portfolio remains 93.8% leased, flat with last year but up from the fourth quarter. You should also expect physical occupancy to decline for the year as the recently executed deals begin to be delivered.

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