Greetings. Welcome to the Federal Realty Investment Trust Third Quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note this conference is being recorded. I will now turn the conference over to your host, Mike Ennes.

Thank you. You may begin..

Good afternoon. Thank you for joining us today for Federal Realty 's third quarter 2021 earnings conference call. Joining me on the call, are Don Wood, Dan G, Jeff Berkes, Wendy Seher, Dawn Becker, and Melissa Solis. They will be available to take your questions at the conclusion of our prepared remarks.

A reminder that certain matters discussed on this call may be deemed to be forward-looking statements 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 including guidance.

Although Federal Realty believes that 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 today on our annual reported 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.

We kindly ask that you limit your questions to one question and a follow-up during the Q&A portion of our call. If you have additional questions, please feel free to jump back in the queue. And with that, I will turn the call over to Don Wood to begin our discussion of our third quarter results. Don..

Thanks, Mike. Good afternoon, everybody. By the way, that was Mike Ennes stepping in for Leah Brady. We're going to do this call today as Leah just gave birth to a second child last week, a boy named Weston. Mom and baby are doing great. If you do get the chance, please reach out by email to congratulate her.

So, my prepared remarks today are going to sound a lot like last quarter, because the recovery continues on updated and ahead of schedule. The momentum that we took into the second quarter carried through and in fact strengthened in the third quarter, most evidently on the office leasing demand side at our mixed-use properties.

I'll just cut to the chase here and summarize where we are in 5 easy points. For one, we killed it in the third quarter at $1.51 a share. Secondly, we raised our 2021 total year guidance by over 7% at the midpoint.

Thirdly, we raised our '22 guidance, the only shopping center real estate Company to get '22 guidance so far by the way, similarly by over 6% at the midpoint. And Dan is going to talk about 2023 and 2024 also. We executed 119 retail leases for 430,000 feet of comparable space at 7% higher cash basis rents than the leases they replaced.

And we ended up the quarter with our Office product fully leased up at CocoWalk, 89% leased are under executed LOI at Pike & Rose, 88% leased are under executed LOI at Assembly Row. We're even having some consequential discussions with full building users at Santana West.

And then after the quarter, you might have seen last week that we signed a 105,000 square foot deal with Choice Hotels to be the leading tenant in the next phase at Pike & Rose. Some serious office leasing progress for any 3-month period, never mind 1, which decision-makers are still unsure of their future office space needs.

Sure, says a lot about many rich new constructions in our markets. We'll put more meat on the bone for each of those points and others. That's where this Company is. We sit here in the first week of November 2021, we're feeling great about our market position.

With FFO with a $1.51 per share, we exceeded even our most optimistic internal forecasts, we're up 35% over last year's recovering third quarter. We didn't anticipate the bounce back in nearly all facets of our business to be so fast and so strong, even with the effects of the Delta variant surge.

The quarterly positive impact of the past recovery meant that we collected more rent in the third quarter from prior periods than we anticipate, $8 million collected versus a few million forecasts. We had significantly less unpaid rent in the quarter than we anticipated. We collected 96% of what was due.

We had far fewer tenant failures than we anticipated. And at $4.9 million, we had far higher percentage rent from COVID -modified and unmodified leases than we had anticipated. We also had less dilution from our new residential construction in Assembly Row.

Because our lease -up is well ahead of schedule at this point, nearly half the new residential building is already lease d. Even the 3 hotels in our mixed-use properties are performing better than we thought that they would be at this point, with occupancy and all 3 back into the mid-60s and better.

And of course, we more than covered our dividend on an operating cash basis in the third quarter as we did last quarter. As a reminder, that's the dividend that was never cut during COVID. So, all that means that we'll significantly raise earnings guidance, and take a peek at the out years too.

As we've said all along, visibility to our 2022 earnings was ironically better than 2021. That's proven to be the case. Dan will talk through guidance details in a few minutes. On the retail leasing side, we continue to see strong demand across the board and see that continuing for the foreseeable future.

Over the last 4 quarters, we've done 442 comparable deals for nearly 2 million square feet. Not counting another couple of 100,000 feet for non-comparable new development.

To put that in to context, that's 27% more deal volume, 25% more square footage than the annual average over the last decade., a decade that itself was very strong for us from a retail leasing standpoint. We've been saying all along, demand for Federal Realty properties, that's not the issue.

They are high demand from today's relevant and well-capitalized restaurants and retailers that are all trying to improve their sales productivity post - COVID through better real estate locations. We've always been pickier than most in terms of the tenants we choose to curate our centers.

When you couple that with the execution of the broad post - COVID property improvement plans that we talked about over the last several quarters, that higher capital outlay today will result significantly higher asset value tomorrow.

Places that are fresher, more dominant, more relevant in a myriad of ways in the communities they serve for years and years to come. The value of our real estate net of capital is going up. And the prospects appear to be better than they were before COVID.

But assigned lease designing for our rent store and the well-publicized supply chain issues affecting most U.S. businesses will have been manage thoughtfully and definitely in the next 18 months to move all those tends from signed lease commitments to build out operating stores, in the shortest possible time frame, at a reasonable cost.

Although we're talking about a shortage of rooftop air conditioning units, or production shortages or kitchen equipment from overseas or material stuck on boats way and offload, supply-chain issues are broad and to some extent unpredictable. As a Company, we're all over it and we have been for months.

Early ordering, stockpiling, problem solving, and leveraging longstanding relationships are all tools that we're using to mitigate filled out the legs. At quarter's end, our portfolio was 92.8% leased, and 90.2% occupied. Both improvements over last quarter, and the quarter before that.

But a long way from being 95% lease, which we were just 3 years ago. The earnings upside from not only getting rent started in all the leasing we've done to date, but the continuation of occupancy gains to historic levels and maybe higher over the next couple of years, provides a visible and low-risk window as a strong future growth.

And that's before considering the inevitable earnings growth coming from the lease up of our billion-dollar plus development and redevelopment pipeline, the cost of which are largely locked in and are very active acquisition program also will add to that.

By the way, we did close on the $34 million acquisition of Twinbrooke Shopping Centre in Fairfax, Virginia in another off-market transaction during the third quarter, marking the fifth deal that we closed in 2021 and the second in Northern Virginia.

Very excited about the remerchandising and rent upside is underinvested shopping centers stable in the middle of Fairfax County. I've got to believe that the visibility of this Company is bottom line earnings growth. Coming out of COVID is on a risk-adjusted basis, one of the, if not the, most transparent in the sector.

That's about all I have for my prepared comments. Let me turn it over to Dan, who will be happy to entertain your questions after that..

Thank you, Don. Good afternoon, everyone. Feels really good to be here discussing another quarter, where we blew away expectations. $1.51 per share of FFO represented a 7% sequential gain over a strong second quarter, 35% above 3Q last year, and with $0.23 above our expectations, which represents an 18% beat.

As Don highlighted, the outperformance was broad-based, with upside coming from continued progress on collections, occupancy at leasing gains, better - than - forecasted contributions from hotel, parking, and percentage rent, faster lease -up at our developments, and another accretive off-market transaction.

While collections climbed higher to 96% in the current period, up from 94% last quarter, plus another 8 million of prior-period collection, leasing is what continues to command center stage for yet another quarter at Federal.

Momentum that started during the second half of 2020 continues with a fifth consecutive quarter of well-above-average leasing volumes across the portfolio. We saw our occupied percentage surge 60 basis points in the quarter, 89.6% to 90.2%.

Other strong leasing metrics to note, our small shop lease occupancy metric continued its climb upward, as it grew another 40 basis points to 86.1%, coming on top of the nearly 200 basis point gain in the second quarter. Overall, small shop is up 260 basis points year-over-year.

Leasing momentum continues to be driven by strengthen our lifestyle portfolio, as we signed leases with such relevant tenants of tomorrow, names such as [Indiscernible] Jenni Kayne, American Giant, Herman Miller, Peloton, Las lab, purple, another parity location, another Nike location, our fourth this year.

And restaurants such as Slot line, Moto [Indiscernible] Astro beer hall, Gregory's coffee, and van Loon, just to name a few. Some of these names, you may not be familiar with, but trust me, you will.

Office leasing continues to be a bright spot, with 224 thousand square feet of leases signed during the quarter, and subsequent to quarter-end, including the investment grade rated Choice Hotels deals by Don Highland. Comparable property growth, again, while not particularly relevant this year, continued its resurgence up 16%.

Please note for those that keep track, as we expected, term fees in the quarter were down significantly to $500,000 versus $6.1 million in the third quarter of last year. A headwind of a minus 4.2%, without it our comparable metric would have been 20%.

Our remaining spend on our $1.2 billion in-process development pipeline stands at $215 million with another $50 million remaining on our property improvement initiatives across the portfolio.

You may have noticed that we added a new project to our redevelopment schedule in our 8-K, a complete repositioning of Huntington shopping center, on the latter. An $80 million project which will transform a physically obsolete power center on a great piece of land, into a re-merchandised whole food anchored center.

The project is expected to achieve an incremental yield of 7%. Now, onto the balance sheet, and an update on liquidity, and leverage. For the $125 million of mortgage debt having been repaid over the last 60 days, we have no debt maturing until mid-2023.

We continue to be opportunistic selling tactical amounts of common equity for ATM program on our forward sales agreements.

And as a result, we maintained ample available liquidity of $1.45 billion as of quarter-end, comprised of our undrawn $1 billion revolver, roughly a $180 million of cash and $270 million of equity to be issued on our forward agreements. Additionally, our leverage metrics continue to show marked improvement.

Pro forma for our 2021 acquisitions over equity, under contract, our run-rate for net debt to EBITDA is down to 6.0 times. Pro forma for leases signed, yet not open, the figure is 5.8 times. Fixed charge coverage is backed up to 3.9 times.

Our targeted leverage ratios remain in the low-to-mid 5 times for net debt EBITDA and above 4x for fixed charge coverage. We are almost there. Finally, let's turn to guidance. Given the strong recovery we are experiencing in 2021, we will be meaningfully increasing guidance again for both this year and 2022.

Taking 2021 up 7.4% from a prior range of $5.05 to $5.15 to $5.45 to $5.50 per share. This implies 21% year-over-year growth versus 2020 at the midpoint. And are taking 2022 up 6.5% from a prior range of $5.30 to $5.50 for a revised range of $5.65 to $5.85 per share.

And while maybe premature, preliminary targets from our model show FFO growth in 2023, and 2024 in the 5% to 10% range. The drivers behind the improved outlook for 2021, first, a significantly stronger third quarter than previously expected.

And this should continue in the fourth quarter as we increase our fourth quarter estimate to $1.36 to $1.41 per share, a 10% improvement versus previous guidance, but down from this quarter. While we again collected more rent than expected from prior periods in the third quarter, we don't expect that to repeat.

Repairs and maintenance demo and other expenses are all expected at elevated levels as we continue to drive the quality of our existing portfolio, and G&A will be higher in the fourth quarter as well, given higher compensation expense.

In addition, we forecast issuing a $150 million to $200 million of common equity under our forward agreements before year-end.

For 2022, the improvement in outlook is driven by strength across all facets of our business from our occupancy growth driven by the continued momentum of leasing activity, contributions from our in-process $1.2 billion development pipeline, a full-year contribution for all of our 2021 acquisitions and higher collections as we returned to pre - COVID levels.

Let me try to add some color to each of these areas to provide greater transparency to a multi-year path of out-sized growth. The first driver of growth, occupancy, and leasing, which I would like to break into two components. First, what deals are already executed.

With physical occupancy at 90.2% and our lease rate at 92.8% are signed not open spread to 260 basis points for our in-place portfolio. This represents roughly $25 million of incremental total rent. The second component.

What leasing demand will drive going forward? Given the strength of our leasing pipeline, getting back to 95% lease, a level we were at just 3 years ago, is certainly achievable.

If you look at our current pipeline of new leasing activity for currently unoccupied space, this could add another approximately a 115 basis points the current lease percentage or $12 million of total rent upside when executed. Please note, for every 100 basis points of occupancy gain, we see roughly $10 million in additional total rent on average.

The third driver of growth, our development pipeline. At $1.2 billion of spend, we'll throw off just over $10 million of POI in 2021 for about 1%. So, the stabilized projected yield in the mid to low 6% range, it should produce $70 million to $75 million of POI when stabilized.

The $60 million to $65 million of incremental POI should begin to deliver more fully in 2022, but will also be a meaningful driver of POI growth in 2023 and 2024. Please note, as we did before COVID, next quarter, we plan to reinclude in our 8-K supplement, the disclosure detailing the ramp up of POI for each of the projects in our pipeline.

The fourth driver of growth in 2022, acquisitions.

as they -- as Don mentioned, the closing of Twinbrooke Shopping Centre, our fifth off-market deal of the year brings our consolidated investment to $440 million, plus $360 million on a pro rata basis with a blended going in yield of 5.5% plus a full-year of contribution, these purchases are very accretive. Lastly, collections.

Current period collections for 2021 are forecasted to finish at 95% on average, for the entire year. We are expecting that to be higher in 2022 with pre-COVID levels returning in 2023. This is expected to more than offset any falloff in prior rent collection next year.

Keep in mind for every 100 basis points, a collection percentage improvement that represents almost $9 million annually. Please note that similar to last quarter, there is no benefits assumed to our guidance in either 2021 or 2022, from switching tenants from cash back to accrual basis accounting.

The combination of these primary drivers of growth supplemented by forecasted upside in other parts of our business such as parking, tell investments, percentage rent, gives us a clear and transparent path of growth, not only in 2022 but beyond into 2023 and 2024.

We couldn't be happier with our market position and expect to have sector-leading FFO growth over the next few years. And with that, Operator, please open the line for questions..

Thank you. At this time, we will be conducting a question and answer session. [Operator Instructions]. [Operator Instructions]. [Operator Instructions]. [Operator Instructions]. As a reminder, we ask that you limit yourselves to one question and one follow-up per person. One moment, please while we pull the questions.

Our first question is from Alexander Goldfarb of Piper Sandler. Please state your question..

Hey, good evening, Don. 1, it's great to see that you already are putting out '23 and '24 guidance. So, I guess it's going to be the standard thing you'll -- you're going to sandbag those and next quarter we'll see those numbers raised as well.

But the bigger question here, Don, is what is actually going on asset properties at the operations everywhere that the recovery is so strong and the tenant demand is so strong? Meaning, a number of years ago, tenants were still coming to your centers, taking space. They could see the consumer shopping at your properties.

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

Well, first of all Alex, it's good to know that you are very predictable in terms of the first part of your statements are not a question. But the -- in terms of the bigger -- in terms of the question you're asking, it's a whole bunch of things.

It's not just one thing, but certainly the notion of the amount of time that -- there are a lot of people assume certainly in our markets have not -- had not been out and had been at home and have restrictions one way or the other. I got to tell you, as you know, that gets old.

And so, you would have thought -- I think you're seeing a revised -- rejuvenises if you will, low for socialization. I can tell you any restaurants, certainly in New York, that you would see you would be -- you can't even get a reservation. And we're seeing that same thing throughout our properties. So, people want to be out.

Tenants are upgrading their space and having the ability. Obviously, I'm talking at our portfolio primarily, but having the ability to get into better real estate, in a portfolio that was as low as 89% is some-odd percent leased. That's just rare as it gets perfect.

And so, the ability to actually have a chance to upgrade is -- it's a huge driver as we've been talking about all the way through. From a consumer perspective, you've certainly got the demand. From a real estate perspective, the tenant perspective, you certainly have the demand, and then the other side of it is -- and this surprise me.

You can call it sandbagging or whatever, but it's surprised me that we have not lost more tenants over the past 6 or 8 months in 2021. The notion of tenants holding on to their properties and finding a way to make it through and not wanting to lose their superior positions from real estate was greater than we expected.

So, the combination of not losing them, having availability from the 89% coming back up, and the strong consumer demand, you put those 3 things together. And I think you've got the bulk of the answer to your question. And we have a say and we don't see a change to that, at this point. That's continuing strong in an innovative way..

Okay. And then the second is on Office, you had a win with Choice Hotels and I think you mentioned Santana West. We all hear the low return of Office numbers and yet all the Office companies talk about the really strong leasing that's going on. Clearly, you're seeing that in demand for your different mixed-use project.

So, as you look out over the next 12 months, how many new office projects do you think you could start based on the conversations that you're having today, is it just 1 or 2? Or you think you can easily balance 4, 5 or 6 buildings to go?.

No, no. No, Alex. It's the trice building. It's one. For us, first of all, just get it all in perspective. There is Assembly Row with office Pike & Rose, with office potential opportunities and it's Santana Row. In all 3 markets, the demand is there.

The Santana West is a different kettle of fish because it's one big building that we're looking for one big tenant to take the whole thing. At Assembly, the -- what has happened to the building that was Puma and just boom up forever has been astonishing in the past period of time. There you may see us able to announce another building next year.

We're working it hard right now. But to your point, that demand could mean that there's a faster route to the next building. In terms of Pike & Rose, we certainly didn't expect to be announcing another office building here, as you know, building we just moved into. We were the only tenants in here on August 10th of 2020.

The notion that this building is 90% or 89, whatever it is, percent lease, and our conversations with Choice, who originally started about this building, was such that we could not accommodate them. We needed, if we wanted to do that deal, to started another building. It's astonishing. And I don't think this is even handed throughout the country.

Obviously, there's a whole question of what happens to office-based as in terms of needs going forward over the next decade. But I know if you're in an amenity rich environment with new buildings in places like where we are. I know you are in the catbird seat. Because I'm seeing it in terms of the deals we're doing.

So, 1, maybe 2 buildings over the next year..

Okay. Thank you, Don..

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

Great, thanks.

I just -- the acquisitions in your acquisition pipeline, are these still deals that you originated in 2020, or are they deals that you struck up since '21 started? And how are you doing with the more competitive cap rates?.

Yeah, the -- so everything we've announced to this date were pre - COVID negotiated deals, or deals that started in their negotiation. A pre -COVID often got renegotiated during COVID and allowed us to close, to me, 5 of the best acquisitions we've ever done at this Company.

Now, going forward, you bet it's different, because it's not back in a big way. I'm going to let Jeff give you his perspective of where that road leads.

Doesn't mean we can't find them, but it's certainly harder than it was to be able to get those 5 deals done during COVID, did it?.

Yes. Craig, as you probably know the market, like Don said, has snap back very quickly. And it is very active, deals, institutional quality, first-ranked deals in the markets where we do business are now 4.5 to 5 cap deals. So very aggressive pricing. We have a pretty strong pipeline. Our acquisitions teams are busy.

Nothing real material to talk about yet, but we've got some stuff on the Verizon we're excited about and maybe next quarter or 2 we will be able to talk more about it.

But the market just picked up very, very significantly and we're obviously happy to see that, but being disciplined and differentiating ourselves by trying to get stuff before it comes to market and put our money into assets that we think we have a reasonable chance to redevelop and grow income stream over time..

And Craig, the only thing I just want to add to that is it's a different perspective when you're trying to do what Jeff is talking about here, when you also have the development pipeline that's already been spent creating inevitable future growth,.

when you also have a portfolio that was hit harder during COVID and therefore has more room to grow to get back to a stabilized occupancy. So, there are other levers, if you will, to flow that continue the growth. And frankly, any acquisitions are the cherry on top of an already very robust growth profile..

Right. And then just on the other arm of external growth, maybe you could talk about Huntington.

And do you already have anchor lined up to take the newly constructed anchor and small shops space?.

Yeah, let's talk about Huntington. First of all, I think Simon did an amazing job, amazing job at the adjacent Walt Whitman Mall to Huntington. They did -- they just did a great job bringing the entire profile of that product up to what that market frankly deserves.

That -- but we would've liked to have done something similar at Huntington, but we have leases in place which are restricted. Well, COVID took care of that, didn't it? And so, the notion of being able, therefore, to go and lock in Whole Foods as our anchor, which we have, is a game changer.

And so now the future of Huntington, which will marry up very nicely to a brand-new Whitman mall adjacent to it, with a Whole Foods anchored center, on that piece of land, I mean, it's gold. Give us a couple of years to get it built out and done, and that'll be another avenue for future growth for Federal..

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

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

Thank you..

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

Thank you. I Just had another one on the new office plans for Pike & Rose.

I'm wondering if you can provide some context around what you're expecting from a cost perspective? And just based on leasing progress to date would you expect somewhere close to the office portion of Phase 3?.

It's a good question, Katie. And so, we are pretty darn good shape in locking up our costs, but we're not all the way there yet. Basically, at the end of the day, we should be able to yield as fix, and potentially better on the building. The building will be close to $200 million to build, hopefully not that high, but somewhere around that spot.

And so, what it does, and that's a fully loaded 6, to the extent you talked about incremental will be higher. We're really just thrilled to be able to take what we've done and capitalize on it. I couldn't imagine starting that in a place that wasn't already very established with the amenity that's already here..

Okay. Great. And then just start on the results and we saw a big confident straight-line this quarter. I'm curious if you've started converting any of your cash basis tenants back to accrual this quarter? And how should we think about the run rate straight line going into 2022? It's probably going to be lumpy..

It will be lumpy, but it should grow with all the office leasing that we're doing. The big driver was boomer this quarter, which is still in a free rent period. But as we do more and more office leasing, that's going to push to our straight-line rent increasing, and that should increase next quarter and into 2022.

And no changes to how we're assessing cash to accrual..

Okay great, thanks..

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

Hi, good evening, everyone.

How are you doing?.

Hi, Derek..

Have any of the big 3 master mixed-use developments recovered more briskly? Are there any leading or notable laggards? And if so, does that bode well for a snap-back in demand clearly for the laggard in the coming quarters or would you describe leasing demand as being relatively balanced across the big 3?.

I would. I would say it's balanced now. And all 3 of them, they got hurt a lot more obviously than the essential base properties throughout the portfolio. And so those 3 still are not back to where they are going to be or where we want them at all.

So yes, there is outside growth at those properties because as you know -- I mean, the office leasing is just one component of what we're seeing. And then you can imagine what it's doing to the retail side, in terms of the leasing that's coming to fill space that hadn't been there before.

That growth will continue and we will take all of 2022, the variant in the 2023 where you'll continue to see that out-sized growth from those 3 properties space. They are special properties now. That is where people want to be. It's also, as you can imagine, where people want to live.

And so, I think we're like 97% leased at us at the residential component of those assets. Certainly, we have some restrictions in the jurisdictions that they're in on the ability to increase rents in the case of Montgomery County, and evict in the case of Summerville and Massachusetts.

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

Oh, okay great. And to -- just back to the off-market COVID era acquisitions, especially the 4 big ones prior to Twinbrooke or even including Twinbrooke.

With private markets, which we've discussed being competitive and cap rates compressing, where do you feel those 4 assets would trade if they were being marketed today versus in the throes of the pandemic or how much value do you think is already been harvested in your view?.

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

Great guys, thanks..

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

Hey, good evening. So, Dan, and I apologize, I know you've covered some of this already.

Could you please just outline the one-time items in Q3 results or changes expected into Q4? And then what are the base assumptions that underlie future guidance? And especially if you could just touch on the expected cadence of occupancy recovery, that'd be pretty appreciated. Thank you..

Sure. I mean, the big items for next quarter is as I mentioned, a little higher expenses of property level of repairs and maintenance, demo, and other expenses. I don't expect prior period meant to be as strong consistently, a bit poor forecasters of prior period rents.

I think at some point that's going to fall off and I think this quarter feels like it probably is the quarter that has happened. I think we will be issuing and we plan to be issuing about a $150 million to $200 million of equity in the quarter, which will call some drag. And then G&A is expected to be a bit higher due to compensation expenses.

So those are the main drivers that take us all Focal 151 that we had this quarter. And then in terms of cadence of occupancy, I think next year, like by year-end, we should see continued growth in our occupancy percentage from the 90.2 where it is today, probably somewhere between 90.5 and 91, in that range.

And then over the course, we'll be somewhere -- I think we should get into the 92s by year-end 2022. So somewhere between 92% and 93% is probably somewhere in that range is the cadence on occupancy..

Okay. Great, thanks.

And then thinking about lease structure post-pandemic, have there been any changes in these terms or needs from retailers and office tenants as we talk to them today?.

On the retail side, Greg, I don't see any changes. I did when we were in the middle of COVID, and as we're coming out, I see that we're in a strong position to negotiate what I call real deals and also participate in some cases in a percentage override.

So, no, I think that we're in a strong position to continue to negotiate strong contracts for the future..

And on the office side, have you've seen any changes?.

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

Thank you..

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

Hi. Thanks for the time. Just curious on a couple of the hot topic items. One, inflation and two supply-chain issues.

What impacts they are having? Do you expect the supply chain issues to have the lease versus occupied spread right now? Further before contracts given maybe some delays in getting permits and/or parks, you mentioned HVAC units and I'm just curious on how you see inflation impacting the profitability of your tenants.

In particular, I'm curious about your thoughts on the grocers..

There's a lot to unpack in there. And certainly, as I tried to hit in the prepared remarks, the supply chain issues are so broad that yeah, they got to be managed really tightly, and there is absolutely risk there. And so, when you take a -- you go from lease to actually getting a tenant opened, we had better be proactive.

And we have been extremely proactive about whether it be allowing for a larger lead time, whether it be moving ahead with work effectively before everything is all tied up.

A big one and I've -- Wendy mentions this all the time, and that's how I know it must be pervasive, is using our relationships with our tenant to be able to divide up work for who has the best leverage in a situation to get the appropriate supplies, or to trade some things out, has been really effective.

So, I am certainly not expecting us to have significant delays throughout the year, there will certainly be example where we do, there will be other examples where we'll beat it. But it does -- but your point is important. It has to be a very proactive and creative way to deal with something that is, in some respects, uncontrollable.

So, we'll see how that plays out, so far so good. And then on the costs, really good thing that the biggest piece of our development pipeline is already locked in and is -- even as I sit here on 909 Rose, our office building here, this building was built with 2018 money.

And even though there's been a delay and has taken longer to effectively get it leased up. Now that it has, those deals are really good deals on 2018 money. And so, this will work out just fine same way at Santana, same way up in assembly. On a new stuff, we got a lock in early, best we can.

Lock in price escalation, we got to leverage buying power with bulk purchases. We have the sole source alternate suppliers. It's all part of a very proactive and tightly controlled development organization. I think we're really good at..

Thanks, Don. And then just my follow-up would just be on cap rates for acquisitions, you're looking at -- you mentioned in the release that you're aggressively looking for opportunities.

Should we think of those as opportunities for those mid to high 4s for stabilized assets or are you targeting more redevelopment opportunities that maybe have some potential for you guys to add value with your platform and or leasing expertise? Just curious on how we should be thinking about that going forward..

I think you're really need to think about it from an IRR perspective. Because going in cap rates today are so -- you don't even know what the NOI or the POI is being captives when people talk about cap rates the way they are. Because of the disruptions of COVID, because of the assumptions being made about releasing and things like that.

You have to dig deeper when somebody gives you a cap rate. What -- so from our perspective, we don't say no to something at a 4 or say yes to something at a 6 based on that cap rate, we are looking at where we can create value in that real estate. And honestly, looking at IRR, with IRR assumptions.

So, to the extent our IRR is over and above 150 basis points of our cost of capital as we define it, we like that deal. Sometimes 100 basis points over, sometimes 200 basis points over. We look at our IRR in a I'm very honest, sober way because I think if you only think about it in cap rate perspective, you miss the opportunities of the both..

Thank you..

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

Good evening, Don, Dan. Thanks for taking my question. Your occupied percentage grew 50, 60 basis points sequentially, but lease occupancy grew a bit less than that sequentially.

So, can you help bridge the gap between all the strong commentary about what you're seeing in retail leasing and how that's reflected in your lease percentage? And then also is 200,000 square feet to 250,000 square feet of new leases the right piece to expect going forward?.

With regards to the lease percentage being a little slower, it was actually reversed the last quarter where our lease percentage was up significantly by 90 basis points, something like that. Look, it's quarter-to-quarter, look for the trends.

We see trends continuing upwards on our lease percentage, quarter-over-quarter, some quarters may be a little slower. We had some tenants left. We took some space back. There were some issues that came up this quarter that put a little bit of a damper on our lease percentage momentum.

But we would expect given the leasing activity that we have and the leasing activity in unoccupied space that we see, we should see -- that should resume to a better than basis point increase that you saw this quarter. I think one thing to comment, Don, is that while our occupied percentage grew 60 basis points, I don't think we had any impact.

We got rent started, and it was I think a strong quarter for that in terms of getting tenants in, getting them rent-paying. And that's going to ebb and flow from quarter-to-quarter. Don't look at any one particular quarter, look at the trends over time.

And I think you see looking backwards, the trends have been very positive than I think that going forward we should expect that as well..

That's really helpful. And then on longer-term question. Don, you've talked a lot about reaching $7 a share in FFO over the past several calls in this updated guidance. If you take the high end of '22 numbers and you get that 10% growth in '23 and '24, you're going to get there.

So, what has to go right in order for you to get their kind of by the end of 2024?.

What's happening now. The single biggest thing that's going to impact the timing of the trajectory is the lease up of the Santana West building in California. As I've said, that's an on-off switch. Or hopefully it's an on-off switch because it's a we're looking for a single tenant user the building, at least the majority of the building.

So, the timing of that creates variability in that trajectory. And the second thing is, I am very confident this is going to be a 95% leased portfolio. That trajectory of that 95, we have to see. To the extent that is quicker will get the seventh faster to the extended slower. We'll get it to its lower.

But basically, what we're seeing happening now, the continuation of that will get you there. I hope that's helpful..

Thank you very much..

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

Hey, there. I guess my first question is on capital allocation.

You talked a lot about the cap rate compression in the market seeing grocer deals in the 4.5%, 5%, I guess I'm curious how you think about incremental dispositions in the face of this strength to fund some of your external growth pursuits? And how that maybe you're thinking about your stock as currency with implied cap here in the high 4% range?.

On the disposition side of things, we do what we always do and come for the portfolio and if those assets aren't keeping up with the growth that we've projected for the rest of the portfolio, we look at selling them and we're actively in that process right now.

Again, nothing to talk about on this call, but we always look at peeling off a portion of the portfolio and that's scheduling $100 million or so every year, and we're in that process right now..

And Haendel, just to make the point, we expect stock rates go up, and accordingly when you're looking at capital allocation, how you're going to fund our growth, whether that's with those dispositions or whether it's with equity or, you know we take a balanced approach.

So, you should expect some dispositions and taking advantage of the market that is there today. As Danny said, you should expect some of the forward contracts that we've taken to be issued all on a modest basis, all with a balanced approach to that.

I'm not surprising you with one way to fund this Company, but with that we're using all the tools we got available..

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

A big chunk of that number will hit in 22? I would say that 90% of the income from those leases, will happen in the fourth quarter, and over the balance of 2022..

Okay. [Indiscernible].

It turns the cadence..

Okay. Percentage rents if I could sneak one more in here, I guess how they performed in the quarter perspectives are big, a pickup versus prior quarters.

Any thoughts on that into year-end here?.

Yes, no. Strong and significantly better than we thought. There’re 2 components to it. First, is there are -- there is percentage rent on deals that were not adjusted during COVID. They have natural or unnatural breakpoints betting on how it contracts its RIN and sales have been high.

So just there's a natural component to percentage rent that is better than the others. And then as I think we talked about in the past, there have been -- some of our COVID deals effectively traded out; fixed rent for a low great point of percentage rent, so that we were sharing the recovery, if you will, with the prospective tenants.

The recovery has been stronger. And so, percentage rent on those COVID adjusted deals were higher. So, I think what we have $4.9 million in the quarter. When you think about $5 million, will be 5 million times 4, $20 million for the year? No, it won't.

This was -- it was a really good quarter and some of those deals in percentage rent will convert back to fixed rent deal. Just by the very nature of the contract, it won't be as strong in that particular number going forward. But I am hopeful that's helpful. In either case, it's because sales were higher than we thought they would be..

No, I understood. Understood. And certainly, appreciate the color on the sales.

The adjustments you made in the leases, is that going to be for the next year, 2 years, or when do they go back to more traditional?.

Most of them are done in '22, I think 1 or 2 will make their way into '23..

Got it. Thank you..

Thank you..

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

Thanks, Don. Good evening. Just going back to your acquisition.

Your basis value per square foot was pretty low and I know that was negotiated during COVID, but even if you market to market is still pretty low basis, so I was just curious, I know you could mention IRR, but what's the real estate strategy behind your acquisition?.

Hey, Ki, it's Jeff. It's a little different, of course, or maybe a lot different than a couple of cases on the group of properties that we bought. But you know us and you know us well, and we're always looking to the highest and best use of the real estate.

So, in a couple of those centers, it's relatively simple; cleaning them up and doing a better job on leasing, including in extent to one case potentially having a better grocery anchor.

There’re some identification opportunities for a couple of the properties for sure, and then gross bond is a little bit of a blank slate that we need to think through and figure out what we're going to do with all leases about property coming up in 2025 and we're in that process.

The goal there is to narrow the options by the end of the year, and have some clear direction at some point in 2022, but we're not quite there yet. As you know, our view is always buying this piece of land we can buy, in terms of location and isolation, density, incomes, road network, all that gets up.

And then put on that piece of land what the market demands and generate as much rent as possible one. That's why we bought those deals. They will have those characteristics and it's a little bit different than each one that, that's what we'll be doing..

But you are right..

And they'll leave some good growth. We're really happy with the growth profile than what we bought the last year..

You are right, keeping to look at one of the components we look at, and that's price per acre. Because at the end of the day, what you get in at, will help determine what it is that you can make work, in terms highest and best use.

And so, when you look at something like Grossmont, price per acre is really important to us because we're not sure of exactly which way we can go. But because of a price we've got in it, we've got multiple ways to go. And that's when you really think about creating value it really often comes down to the flexibility.

To show we have an idea, and then often something gets in the way of that idea; whether your choices. And so, I don't want to say that price per acre is not important. It's really important. And obviously, when you get the highest and best use, you try to figure out what your IRR will be as you go through.

That going in price is probably the most important factor in determining what it is that you can do..

Yeah. Thanks for that color. And it is interesting because you're seeing different reasons, take different strategies and -- it'll be dumb to say just low basis is good. Obviously want to smart deals and put smart capital to work. But it is something I noticed that your basis is just low on a lot of these deals.

Anyway, on second question on development, what is the likelihood of adding a 4th project to your big 3? And does the fact that just the cost to develop is so high, and if you do it and get started then you're basically locking in a higher rent that you need to justify it.

Does that hold you back from adding a 4th grand project?.

Well, so I would say the chance of having a big 4, a 4th project, are less than 50-50. They're not 0, they're not even 20%, but it's less than 50-50, and there's a number of reasons for that. The single biggest reason is everything has to be looked at through our risk-adjusted prism.

And when you look at the big 3, it's funny because we've been doing the big 3 for so long, everybody loves to say, Okay, what's the next? But if you work here and you would try to figure out where you want to put capital incrementally to create the most value. Time and time again, you will come down to the big 3 because we're not close to being done.

And so, the notion of adding incremental building to Santana Row, Pike & Rose, and Assembly Row, just kills the comparison with starting another mixed-use property that will take two decades to do. It always comes down to capital allocation and where your alternatives are and what the smartest thing to do is.

And then I think the mistake that some investors and analysts make are underestimating the level of growth and capital that is still yet to come at the Big Three, some 10, 15, the case of Santana, 20 years later..

Got it. Thank you for color..

Our next question is from Paulina Rojas-Schmidt of Green Street. Please proceed with your question..

Good evening. Your tenant collectability impact includes $5 million in rent abatements.

I'm curious, what type of tenants are still receiving these abatements? Then how much longer do you think they will need it? And 3, are these really rent abatements or these are deferrals that you are writing off?.

I mean, deferrals that you're write off are abatements. But I mean, different parts of the deals that Don alluded to where we restructured and we lowered the rent for a period of time, and then would participate through participating rent based on sales.

Effectively, whatever demunition from the contractual rents to the new floor rent is considered an abatement. To the extent that you write off previously negotiated deferrals, that's an abatement. Really where the abatements are occurring, we have restaurants.

We still have that because a lot of our deals that were restructured like that because of the limits on their capacity constraints during COVID and so forth..

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

They actually don't need it any longer. And that's why you see percentage rent the way you see it, middle of setting that abatement. And it was smart that we were able to switch off an abatement for a fixed rent for percentage rent because we are getting paid. It's just in a different line than you see it there. I just want to make sure you know.

These are contracts that were agreed to previously that have sunset dates on them. The end of this year, some in '22 and a couple in '23. That number will bill -- burn down over the course of 2022..

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

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

Next year we'll give you a detail ed assumption on same -- comparable property growth on the February call..

Thank you very much..

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

Hi. A couple of quick ones here.

How much quarterly hotel and parking NOI are you guys getting today? And what do you see is a more normalized level for that?.

Hang on, Mike, that's bandwidth..

While scrambling, the second one was --.

Let's go one question at a time. I'm not -- you're going to get them..

Sure..

Help me out here. It's roughly the run rate right now, parking income is about $2.5 million a quarter. And given that -- that should stay -- that's probably at about 70% to 75% of a stabilized run rate. And then hotels are not going to contribute this year. And so, we should see that it's only gravy as they increase. We've seen the scale in the list.

Couple of months, kind of a real resurgence in our occupancy levels at the 3 hotels that we have. So, we're really optimistic that they will start to contribute in '22 and certainly in '23 and '24 portfolios..

Got it. Okay.

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

I don't have 0. No, I will give some guidance on 2022 in February. This year, we've been pretty consistently in the $7 million to $10 million range. Started out high in the third quarter of last year, and it's been about $7 million to $8 million the last 3 quarters. I don't think we can sustain that.

So that should start coming down just based upon on what's outstanding in terms of our build accounts receivable. And so, it should come down pretty meaningfully, certainly in 2022 from the levels we've had this year..

Got it. Okay. That's helpful. Thank you..

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

Hi. Just have one question.

Do you have big picture thoughts on how companies are utilizing office space differently coming out of COVID, based on what you're seeing in your own portfolio, or any anecdotes to share?.

You know Linda, all I would say is -- and I just did an interview for the Washington Business Journal around the Choice deal. And the -- we are seeing pretty consistently in our places and again, it's a small sample size. But most people are looking for less space. And from where they are to where they're going.

And I guess I'm not saying anything so eye-opening there. But it's been pretty consistent and equally consistent is obviously the ones we're talking to are putting a very high-value on the amenity base environment in buildings that are brand-new.

And so, when you put those two things together, we're not getting frankly, the rent pressure, partly because I think it's -- the total rent that they're paying is not more than they were paying before because they are taking less space.

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

Do they also want shorter lease terms too?.

No. And no cases, frankly..

Thank you..

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

Great. Thanks..

Our next question is from Tammi Fique of Wells Fargo Securities. Please proceed with your question..

Thank you. Good evening. I'm just wondering in terms of the acquisitions in the pipeline, I'm wondering if you could talk about where you are looking to expand geographically going forward. Particularly given the recent acquisitions in Phoenix.

And then as a follow-up, do you think that there is an advantage to geographic portfolio concentrations in your business, where given that you have been pretty concentrated historically? Thank you..

Yeah, let me try and start with the end of your question first Tammi, and if I don't get all of it, tell me what I missed. Look, we've said a number of times we really like the markets that we're in, and we see great benefit from having a concentration in each of those markets.

We think that helps us see more deals on the acquisition side of our business going forward, and it certainly puts us in a much better position when we're talking to tenants. Every one of our leasing people would tell you that so being concentrated in a market is important.

So certainly, now that we're in the greater Phoenix Metropolitan area, we're going to want to grow in Greater Phoenix and get that same concentration that we have in our other target markets. So, expect to see that.

I think we've mentioned on some prior calls that we are looking at a couple of new markets, doing our research, making sure we're identifying where in those markets we want to be in. We're working on deals in those markets. Whether they happen or not, I don't know. It's too soon to say. But.

don't be surprised if we pick another a couple of markets to be in. The share of the -- characteristics of the markets we're already in, which is barriers to entry and good education and income, and the population density levels, and properties where we think over time we can grow the income stream and add value. That's what we do..

Tammi, I just want to add that something what Jeff said, which I couldn't agree with more all way through.

You can't really -- you cannot underestimate that when you're a player in a market, how prospective sellers, or people that are not even sellers, but might be sellers, will view you, how they'll come to you? How you'll see things that you wouldn't see? It's so different than just owning one or two properties in a very wide place because obviously, our business -- this business is local.

And the best example we have that just happened is effectively what's going on in Phoenix. I mean, we are talking -- the inbound questions along with our own work in Phoenix has quadrupled from what it would have been when -- if we had just bought 1 or 2 very small properties. By owning Camelback Colonnade, we're a player. It's well-known.

And what -- you can't underestimate how that can lead to more work. And certainly, on the retailer side and on the operational side, you get your obvious efficiencies and disproportionate level of play. We've seen that in Washington, DC, in suburban Maryland forever. We're now starting to see it in Northern Virginia.

because we've made such a play there. There's no doubt in my mind that concentration is a really big plus in this business. And no more so than on the acquisition side..

Great. Thank you for that perspective. And then I guess just following up on collections question, just to be clear. You expect a majority of those tenants to start paying full rent again and not get results during move-outs.

Is that the right way to think about it?.

Can you repeat that again? You flooded in and out..

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

Is that correct?.

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

And so, to the extent those businesses can survive in the existing business and going forward, maybe they don't belong here. A nd so we're taking a harder line on that side. With respect to the balance. We certainly expect to get paid and will.

I'm not -- I don't -- the difference between 96% and 99.3%, I don't know whether it's 1/2 and 1/2of those choices or 2/3 and 1/3, but it's something like that..

Okay, great. Thank you. Our next question is from Katy Mcconnell of Citi. Please proceed with your question..

Are we going around [Indiscernible]?.

Hey, Don, Q - Michael Bilerman..

[Indiscernible].

Why are you laughing?.

So, we started with Katy Mcconnell. We ended with Katy Mcconnell, but it's not Katy Mcconnell. So, I thought --.

No..

I thought we're going around the circle again, but no, sir, what can I do for you?.

I'm not going to ask you for drivers of 2023 and 2024 guidance. So, don't worry about that, but you did give us '21 and '22. So, I really appreciate that you guys came around and provided that to the investment community. So, thank you. I wanted to ask 2 questions. One, just one on Summer Ville.

Joe has put out some revised and updated plans for what he wants to see at Assembly, I guess how close could we be to that next phase and incorporating the power center into a larger project? And I know you talked about the big 3, the gifts that keep on giving, it feels like this is closer now, but I wanted to get your sense of where things stand..

I don't think that the power center conversion to Assembly Row 9.0 or wherever it would be at that point is imminent, so I don't want you to think about it that way. It is obvious when you think about the long -term highest and best use of any piece of property, given what's happened at Assembly Row.

And eventually, one day there should be intensification on the power center site. But it is years and years away. I don't -- heck, you won't pay me for '23 for Pete's sake, never mind whenever that's going to happen at that asset. But forgetting about that, look at the rest of Assembly Row.

Look at the space between Partners HealthCare and our existing property and what happens to them. And it is -- we are looking very hard at life sciences sale, as you can imagine. And to the extent we can get the economics to make some sense at all. Obviously construction costs are the biggest hurdle in that.

But given what's happened to the adjacent properties, it's really clear to us that the assembly site at -- in Somerville, is going to be a life sciences site at some point. Whether it's just the adjacencies or whether it includes us, will depend on whether we can make the numbers work or not.

But that you should -- that is far more imminent certainly than the power center site..

And then just thinking about -- trigger over your enthusiasm, I don't want to curb your enthusiasm at all, but I guess how do you sit back? It's been a pretty strange 2 years.

And so how are you able to distinguish that all the things that are happening now are not just sort of a little bit of a catch-up, from just being out of the market for a while? And not taking what's happening right now on all the leasing and activity and everyone's excited and we're getting back out and we're having meals and dinners and bar mitzvahs and weddings.

How do you not take it to not get ahead of yourself in terms of where it goes?.

I love that question, man, because you're basically talking to a very conservative guy. In terms of those, I worry about everything going forward all the time. In this case the thing that gives me confidence, and it's a lot of confidence, is I am sure that what we own and where it is, is really valuable.

And so, it's like the office side, we may be over office in this country now. We talked about being over retail wherever, we may be over office. But Federal Realty is it, because where we have that office and what is being built in terms of that office, if there's any office at all.

It's going to be -- That demand is going to be at places like this that we own. I feel the same way on the retail. And so, where you hear confidence from me, you don't hear confidence that everything is great in the world is going to stay great in the world. I just know on a relative basis, whatever is happening, we've got the right products.

And that's where my -- that's where my confidence comes from..

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

Thanks, Mike. Talk to you soon..

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

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

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day..