“Some noise in this quarter supported earnings as the adoption of ASC 842, the new accounting standard on leases, produced FFO per share by $0.02 in the 2019 first quarter to $1.56.” So said Federal Realty Investment Trust CEO Don Wood on the firm’s Q1 2019 earnings call. He said that results before implementation of ASC 842 was that FFO per share was $1.58, excluding the accounting change, compared favorably with $1.52 recorded in last year’s quarter, up 4% and comparable same-store income grew 3.5%. “Leasing volume was a little light, as it usually is in the first three months of the year, particularly after our record fourth quarter last year,” he added.
With 72 comparable deals done, for over 247,000 square feet of space, at an average rent of $45.07 per foot, a solid 10% higher than the $41.03 being paid by the previous tenant, he explained. “As you might expect we have the most success meaningfully increasing rents of those shopping centers that have been or are well are logged in being redeveloped and repositioned for sustaining their market-leading position.”
Properties like Brick Plaza where Trader Joe’s just signed to backfill an old Ethan Allen furniture store to nearly finish up the complete merchandising of this dominant shopping center, he said. Or EastGate crossing in Chapel Hill, North Caroline were an A1 location, plus a recent renovation creates strong demand and higher rents. Or Bethesda Row, he added, where four more — four new deals signed during the quarter saw a strong rent increases even with prior rents on those deals that range from $59 to onward now $110 per foot.
“We got other examples where we will roll back rates but nearly always for the solidification of the merchandising base to create long-term value,” he said. “Our eyes are on 2025 and relevance at that point in time. Those few examples serve as a pretty good microcosm of the shopping center leasing environment for us today. The bar has been raised on the product and place being offered. And the importance of a strong location has never been more critical to a retailer’s decision. We hear that from retailer after retailer. In our experience, it’s not about retailers choosing inferior locations with lower rents to grow their businesses, but rather consolidating around the shopping centers that give them the best chance of making money.”
He explained that in the oversupplied, overall, “market condition means using all the tools in our toolbox to consistently and sustainable grow earnings, after all it is about growth. Having lots of tools to generate earnings and value, is a true competitive advantage.”
Now one such tool is a fairly negotiated lease with a strong landlord dais wherever possible, he said. “Those strong contracts are an invaluable tool of value creation particularly when a tenant fails, or an integral — in our integral part of our business.”