Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong leasing performance with 231 lease transactions completed, covering over 1 million square feet.
- Average in-place net rental rate reached an all-time high of $23.73 per square foot.
- Issued $600 million in unsecured bonds, improving the balance sheet and extending the average term to maturity to four years.
- FFO per unit increased by 8% year-over-year, driven by higher net operating income and interest income.
- Same-property NOI growth exceeded expectations, now projected to be within a range of 2.5% to 3.0% for the full year 2024.
Negative Points
- Higher year-over-year corporate and interest expenses impacted overall financial performance.
- Net asset value per unit decreased by 6% on a trailing 12-month basis due to higher cap rates and reduced density values.
- Interest expense increased by 7% year-over-year due to higher interest rates.
- Non-repeatable items contributed $3 million to NOI, which may not be sustainable in future quarters.
- Disposition activity has been slower than expected, with uncertainty around meeting the $400 million target for 2024.
Q & A Highlights
Q: Can you give more color on the $3 million of non-repeatable items and if they should be excluded moving forward?
A: Yes, these items should generally be excluded as they are non-repeatable. They include lease termination fees and bad debt recoveries, which are not forecasted to recur regularly.
Q: Outside of the Queens wave property, are there expectations to close any additional dispositions in 2024?
A: Yes, we expect to close more dispositions this year, though we don't have specific details to provide at this time.
Q: Can you provide details on the rent escalators achieved in Q2 leasing and how they compare historically?
A: Historically, contractual rent escalators have ranged between 1% and 1.5%. This quarter, the escalators were roughly double that, though we caution that one quarter does not establish a trend.
Q: What led to the higher-than-usual contractual rent steps in Q2?
A: The higher steps were due to a couple of larger anchor tenants with longer renewal terms and generally larger contractual escalators during the renewal term.
Q: How do you view FCR's NAV growth potential over the next three years, assuming a static interest rate environment?
A: We are confident in our ability to deliver on the operational elements of NAV growth within our control. While macroeconomic factors have been a headwind, we are starting to see signs that they may become a tailwind, which would further support NAV growth.
Q: How do you think about the split between pushing for higher rent increases versus longer lease terms?
A: Higher growth had a more significant impact than longer lease terms. We have been pushing for better contractual rent growth for some time, and this quarter's results reflect that effort.
Q: Will the success in raising debt in the unsecured market impact your disposition activity?
A: No, our success in debt raising does not significantly impact our disposition activity. Dispositions are earnings accretive and improve our balance sheet, and we will continue to pursue them regardless of our success in fundraising.
Q: Will the $400 million disposition target for 2024 be met, and could some transactions spill into 2025?
A: We believe we will come in around $400 million for 2024. Some transactions may close in early 2025, but we are not overly concerned about the exact timing as long as we continue to make meaningful progress.
Q: Does the $1 billion disposition target over three years include proceeds from condo sales?
A: No, the $1 billion target is for property dispositions only. Proceeds from condo sales, expected to be around $100 million in 2026, are in addition to this target.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
