Good day and welcome to the Federal Realty Investment Trust Second Quarter of 2024 Earnings Call. All participants are in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over Brenda Pomar, Senior Director of Corporate Communications. Please go ahead.

Good evening. Thank you for joining us today for Federal Realty's second quarter 2024 earnings conference call. Joining me on the call are Dawn Wood, Federal Chief Executive Officer, Jeff Berkus, President and Chief Operating Officer, Dan Gee, Executive Vice President, Chief Financial Officer and Treasurer, Jan Sweetnam, Executive Vice President, Chief Investment Officer, and Wendy Sear, Executive Vice President, Eastern Region President, as well as other members of our executive team that are 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 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 tonight, our annual report files on Form 10-K, and our other financial disclosure documents provide a more in-depth discussion of risk factors that may affect our financial conditions and results of operations. Given the number of participants on the call, we kindly ask that you limit yourselves to one question during the Q&A portion of our call. If you have additional questions, please re-queue. And with that, I will turn the call over to Don Wood to begin our discussion of our second quarter results. Don?

Thanks, Brenda, and good afternoon, everyone. So here are the highlights. All-time record quarterly FFO per share at $1.69, exceeding internal expectations, analyst consensus, and a very tough comp one year ago. All-time record second quarter comparable leasing volume at 594,000 square feet, within 4,000 square feet of the most comparable leasing volume ever in any quarter. Strong occupancy gains on both a lease and an occupied basis, the 95.3 and 93.1 respectively, up 100 and 110 basis points respectively from the last quarter, levels not seen since the 2017-2019 time period. Quarterly residential operating income on our stabilized REDI properties up 6.7% versus last year, 9.5% when including the new Darien Connecticut products. By the way, the apartments at Darien Commons are 99% leased with a waiting list to get in. Strong transactional activity in the quarter with the $215 million acquisition of Virginia Gateway and the $12 million buyout of the minority interest at CocoWalk, not to mention the sale of our remaining assets on Third Street Promenade in Santa Monica for $103 million. The momentum continued in July with our $60 million acquisition of Pinole Vista Crossing in Pinole, California. Yes, this was a very strong quarter, top to bottom, and based on what we see with our deal pipeline, this leasing environment is expected to continue to at least the balance of the year. Let me give you a little more color on leasing and its impact on our financing. 122 comparable deals at an average starting rent of $37.72 per foot compared with the final year of the previous lease of $34.29. 10% more rent to start, and that's great. By the way, those numbers include 98% of our deals, so they are truly representative of the entire company's results. But what makes that particularly…

Thank you, Don, and hello, everyone. Our reported FFO per share, $1.69 for the second quarter, came in at the top of our quarterly guidance range of $1.63 to $1.69. This result was against a tough second quarter 2023 comp, which was our previous record for quarterly FFO, highlighting the overall strength and operating fundamentals across the portfolio. Primary drivers for the strong performance? Simply POI growth in our comparable portfolio, driven by strong property-level expense controls, acceleration in our occupancy levels, and continued strength in our residential portfolio. Comparable POI growth, excluding the impact of prior period rent and term fees, was 2.9%. Now that's GAAP. It's 3.1% on a cash basis. Both numbers are above our expectation for the period, and you will see a revision upward in guidance as a result. Comparable total property revenues were up 3.1%, with comparable min rents up 2.7% on a GAAP basis and 2.9% on a cash basis. Solid results when you keep in mind that Bed Bath & Beyond was in possession of largely paying rent throughout the second quarter in 2023. Portfolio occupancy increased in the quarter to 95.3% leased and 93.1% occupied. Both metrics over 100 basis points increased since March 31. As a result, rent from signed leases not yet occupied in the existing portfolio stayed elevated at $26 million, with an additional $13 million of rent to come online from leases signed in the non-comparable pipeline. Also note that we continue to have a robust leasing pipeline with a significant amount of new leases being negotiated for currently vacant space. With a tenant watch list that is minimal, given our lack of exposure to troubled tenants, and our proven ability to get tenants open and rent paying for a tenant coordination team that is second to…

Thank you. [Operator Instructions] And our first question today will come from Juan Sanabria with BMO. Please go ahead.

Hi, thank you for the time. Just hoping, Don, you could talk a little bit more about the acquisition environment. Has the touch of assets you're looking for changed? I think before you're focused on kind of larger assets with less competition. And just general pricing expectations, great success year-to-date, but have cap rates come in at all or that low 7% is still kind of the bogey that we should have in the back of our minds?

Yes, no, Juan, it's a very fair question. We talked earlier in the year about a window and being able to jump through the window when the arbitrage kind of makes sense. I can tell you that if we signed up Virginia Gateway today, it would be more expensive than what we bought at Crystal Clear so that they have come in a little bit. As you would expect with assumptions of interest rates overall coming down. I mean, there's nothing more sensitive than that. Yet still, we've got some things working in the hopper that look like they can make some sense again, whether we close them or not, I don't know. But yes, you should absolutely, you should assume that there's a direct correlation between the product that's available out there and what the cost of money is. So frankly, the ones that we've built made so far where we hit that window right on, I'm feeling great about those two. In terms of the others that we were looking at now, still assume around the same places, maybe inside a little bit. But, let's see what happens with interest rates in the rest of the year with respect to how much product is available.

Great. And then just you mentioned kind of incremental leasing at Santana. Just curious kind of where that is leased today. If there's been any update from Splunk and Cisco and how we should think about capitalized interest in 2025 with the leasing progress you've made to date for that specific asset?

Dan, you want to take that?

Yes, sure. So Juan, the leasing at Santana West with this new AI-based tech company is going to bring us well above 50%. We have letters of intent. We're working back and forth, actually pretty rapidly right now, with about another 70,000 square feet of demand there. We may not be able to sign all of them. We'll see. But I would think that we'll start to get pretty well leased up by the end of the year, beginning of the first quarter of next year. So seeing pretty good activity. Smaller tenants, we're breaking floors. And that's where we're seeing really, really strong demand. And no update whatsoever on Cisco or Splunk or what their plans are. At least still a ways off. And we'll have to see what comes with that.

And with regards to capitalized interest, with regards to 2025, we have no change in terms of the outlook. I think we're getting better clarity. But I think we still need more things to pull in place before we'll provide any guidance on that front.

And our next question will come from Dori Kesten with Wells Fargo. Please go ahead.

Thanks for taking my question. You previously talked about adding about 100 basis points of small shop occupancy this year and I believe 200 on anchor. And I think you're already there on small shop and pretty close on anchor. Can you give us an update on your perspective about where you may end the year?

Yes. I expected this question, Dori, because we blew through our assumptions with respect to what we assumed. And, as I said, I still think there's another 100 basis points or so to go more on anchor. I don't think it's this year. I think it's between, it's by the end of 2025, effectively there on small shop. Man, there might be a little bit more to go there too, which I was not expecting to be able to say. But the pipeline really looks very strong. So that's all good news. I don't know if I have a number for you. No, no. I mean, in my prepared remarks, I highlighted that we've revised upward our targeted year in occupancy level to roughly 93.5%. That's a bull mark estimate and obviously dependent upon, how quickly we can get folks open in terms of what deals we've got already executed.

And our next question will come from Michael Goldsmith with UBS. Please go ahead.

Good afternoon. Thanks a lot for taking my question. Same property NOI sold [ph] sequentially in the quarter, though presumably that reflects the more difficult comparison, just given the guidance that applies like a return same property NOI growth back to that like mid-to-high 3% range. But can you just talk a little bit about the assumptions of like how you get there? Is that right that we're getting back to kind of like the that mid-to-high 3% range and just kind of like outline some of the expectations on how you get there through the back half of the year? Thanks.

Sure. I think it's really going to be driven by occupancy. I've got largely kind of it was a little back end of the quarter weighted in terms of the moves it move ins. So we didn't see, I think, fully the strength in occupancy growth during the quarter. And so we'll see that more fully in the third quarter. And I think we expect to be kind of in the mid to upper threes in the second half of the year. I think it's not a big stretch just assuming occupancy rates are elevated in the second half of the year.

And our next question will come from Steve Sakwa with Evercore. Please go ahead.

Thanks. Good afternoon. Dan, I guess as you sit here August 1st, you got a lot of things that are kind of known and in the bag and you don't really have any that speaking of to mature the tier, I guess just help us think through the swing factors of getting to the low end of the FFO range and kind of the high end of the FFO range.

Yes, look, I think that we outline on our guidance page, I think all the different factors that can get us to the upper end and the lower end. I think occupancy is a big driver to get us towards the top of the range. I think other things that are on there, whether it be other revenue, whether it be parking or percentage rent, are probably kind of more middle of the road in terms of what our expectations have been this year so far. Term fees will lag based upon where we are this year because tenants candidly really don't want to get space back. So that's going to be end up coming in probably closer to the bottom of our range, given where we sit today. And I think we also look, we have a very conservative approach to revenue recognition in terms of, and some of it's just timing. Timing of when cash basis tenants pay, and that can cause some swings between quarters and so forth. So that's part of it. And it's also, I think, a big driver of getting us to the top of the range again is really, how successful we can be in continuing to get tenants open on time or ahead of time and beating our rent commencement dates. It's going to be critical from that perspective. And then to a certain degree is how many, we do have some floating rate exposure to get us further up is, are we, do we have one, do we have two, do we have three rate cuts? I mean, I think that's probably more going to be more impactful next year. But also that's a little bit of a swing.

And our next question will come from Greg McGinniss with Scotiabank. Please go ahead.

Hey, good evening. So based on retailer guidance, it appears tenant sales growth is under some pressure. And there's plenty of anecdotes out there about challenges facing the lower end consumer and potentially inching up the socioeconomic ladder as well. Are you seeing any of this leak into tenant conversations or willingness to be taking new space right now? Or do retailers just seem either immune or they don't care that this is happening?

Yes, Greg, it's Wendy. We are not seeing that diminish in any way the leasing demand that we're seeing over our various different product types. So I think if you look at the tenants that are in our portfolio, that lower end tenant that's sensitive, whether it's Dollar Tree or Party City or some of the, those tenants that are even McDonald's as they just came out with some varied reports on the consumer and their impact on that lower end consumer. So we are not seeing that. In fact, we were having discussions with Starbucks the other day. And they've had some mixed results that you saw come out. And I was looking at all of our 40 some locations that we have with them. And we're not seeing any impact on their sales because our demographic in our markets is more of that affluent upper end demographic. So there is some fatigue showing in the $6 latte, but not so much in our markets.

And our next question will come from Alexander Goldfarb with Piper Sandler. Please go ahead.

Hey, I'm not sure it's up in my name today, but it's Alexander still. Don, question for you on new supply. We keep hearing the same thing, which is that rents would have to be 35%, 50% higher to justify, new supply and mass. So I'm just curious, as you guys look at redevelopment and taking down portions of centers rebuilding, are you looking at the same rent math needed to do basic redevelopment? And if not, what explains the significant difference in rents needed to pencil between new supply and redevelopments?

Yes, no, Alex, you're, and I'm not calling you Alexandra, by the way, you're Alex to me, buddy. You've got a couple of things to think about, including construction costs. And let me start with that, because that is the first thing that, that it's been a long time since we've seen pressure on, on prices, construction prices coming down, and we are starting to see that. Now, whether that's actually the cost of things like lumber, which is under pressure, certainly to come down, given the lack of housing starts, whether it's, whether it's lack of work, so that the developers profit, is they're more willing to take less profit. There are incremental changes there that are very important to this, to the whole equation. And then when you come to, when you come to the rents and what rents are needed, it obviously not only depends on the starting rent, but it definitely depends on where you see your growth. And particularly when we're talking about a number of the things that we would redevelop, in particular, we got a lot of residential stuff that would be added to our existing properties, like, like Bell. And so you're -- we're sitting there saying, there, you clearly know that there's, there's, more housing needed throughout the country globally. And when you're sitting, you add them to mixed use, or to shopping centers to create more of a mixed use environment there. The -- what we've seen is the ability to press up, like I've told you on my residential rents. So the combination of where those rents are going, or are today, will be tomorrow and continue to grow coupled with, with construction costs are really important. And as I'm talking to you, Jeff Berkes is putting up his finger. So he's got something else to say, Alex, we're going to add that in. Go ahead, Jeff.

Hey, Alex. If you're thinking about this from a, are we concerned about more competitive retail supply coming into our trade areas? I would definitely say that, the vast, vast majority of the places where we're located, single story retail service parking is not the highest and best use of the land, which is what Don's getting to, our locations lend themselves to densification, maybe a little bit of ground floor retail and an apartment building or something like that. And we are starting to see those economics become more viable. But, in terms of us getting a lot of competitive new supply in the trade areas where we do business, we just don't see that. In fact, we see a lid on supply and maybe downward pressure on supply, which is giving us a lot of pricing power with retailers.

And our next question will come from Jeff Spector with Bank of America. Please go ahead.

Great. Thank you. Maybe, follow up on all the leasing that you've executed. Can you talk a little bit more about categories? And I know you talked, you had a comment about lattes, but there are a lot of questions on restaurants. I guess, can you talk a little bit more about again, leasing demand by category, what you're trying to fill at this point, and then any other, anecdotal comments you can share and what you're seeing throughout the portfolio in some of the categories like restaurants that people are concerned over? Thank you.

Yes, I think in terms of categories, it's still pretty widespread in terms of what we see, again, in our different property types. So that remains strong. I was looking at sales from the first part of last year to the first part of this year, because when we're looking at what we're concerned about, our sales growing is one metric to look at, and AI is another metric to look at as to who's visiting our shopping centers. There's multiple points to kind of check the health and the productivity of our tenants. So I was looking, for example, fast casual restaurants is booming with us. And I think maybe what we're seeing is there's just more options out there. That's a big category that we've been focused on in many of our properties. Whole price apparel is doing quite well. Specialty foods are doing quite well. So those, all those and anything health and beauty related off the charts. So anything in those categories, they're growing like an 8% to 12% per year. And so when those sales are growing, we're still being able to push those rents. So, and that doesn't even get into with some of the retailers. Sales is one metric and that e-commerce distribution is another metric that we don't always have full eyes on that can be quite productive from a retailer perspective.

Jeff, I feel like I always have to caveat whenever a question comes up about categories. I feel like I always have to qualify it by saying, you have to look at the operators and you have to look at best-in-class operators in whatever the category is. Because as we see, I mean, I was just looking at sales numbers for our restaurants, for example, at Santana Row, at Pike and Rose Assembly Row, extremely productive. And part of the reason they're extremely productive is because there's some of the best operators in the space. If you've got the best properties, you've got the ability to be a little bit more choosy on who comes into those properties. And that applies whether you're talking about, apparel operators, shop, small, smaller shop, apparel operators, restaurant operators, gym operators, all of it. And when you look at a time where the consumer is, there is worry about the consumer going forward, I can tell you, mediocre businesses go away. Strong businesses find their way through. And so that understanding of the strength of the operator has to be figured into the mix when you ask about categories. It's more than just categories.

And our next question will come from Mike Mueller with JPMorgan. Please go ahead.

Yes, hi. Going back to development, redevelopment, whenever you decide it's the right time to flex up again the program, do you think it's going to be more retail focused or mixed use, resi focused at first?

I think it's going to, so what we've learned on, our mixed use properties is absolutely that the integration of the uses, and this actually applies to office too, that we'll be building office anytime soon. But that the integration of those units, whether you're talking about residential or whether you're talking about office or whatever you're talking about, is clearly much more impactful if it's near all the other amenities. It's the fully amenitized environment. So when you look at our shopping centers, you know that our shopping centers are in pretty darn good demographic areas where the rents for residential would largely be high enough or getting to be high enough to be able to make those numbers work. So when I talk in my comments about 3,700 apartment units that are either entitled or being entitled or being designed, that's probably where we'll start as evidenced by ballot in terms of where kind of big development happens. Now, if you go out to Huntington, that's a complete, retail redevelopment of a shopping center. And that opportunity came to us, frankly, before COVID. And we've worked through that. When I look now, I believe residential adding to our retail shopping centers is probably where you'll see us starting as evidenced by ballot.

And our next question will come from Craig Mailman with Citi. Please go ahead.

Hey, good evening. Just maybe a quick two part here. One, have you guys disclosed yet the cap rate on Santa Monica? And then two, I noticed you guys did issue some equity during the quarter. And I'm just curious, as you continue to acquire assets, potentially in the back half of this year into 2025, kind of the sources of capital, whether it be equity or would you sell more assets into the potential strength here with the 10 year coming in a bit, kind of what's the optimal mix as you guys look to redeploy capital, the most accretive methods?

What was the first part of the question? You got two questions in there.

The first one was on Santa Monica...

The cap rate on Santa Monica is kind of a little bit of a hard one. I mean, kind of, it's kind of mid to upper sixes, kind of in place, but it quickly kind of goes down into the fives. And next year and the year after that, low fives. So, the unlevered IRR that we kind of penciled is kind of has a low six handle on it. So it's a really attractive source of capital. Not as accretive this year as we would like, but very much accretive over the longer term. The second piece in terms of, look, we acquired and put to work in the quarter $287 million of capital in CocoWalk buyout at Virginia Gateway, at Pinal Vista Crossing. I think raising capital, which we always do in a balanced approach that we fund the business. We have a multiple premium and an attractive multiple that even though it's not where we'd like it to be from an NAB perspective, it's still accretive capital. Where we deployed it, that $287 million, and it was in modest amount, about a quarter the capital needed there was to fund it. So I think it was very prudent in terms of how we approached it. With regards to going forward and future acquisitions, we'll be opportunistic. We have a big, full pipeline of assets under consideration for sale. That will be a component of it. I don't think it necessarily means we will sell. And then we'll look to I think opportunistically tap the equity market as we see it's an accretive, if we can accretively deploy that capital and grow FFO from. So that's kind of how we look at that.

And our next question will come from Floris van Dijkum with Compass Point. Please go ahead.

Guys, how are you? Good evening.

Hey, just one thing, Floris. One question, not a three-parter.

No, I'm not going to cheat. I'm not. I just, you guys have historically always focused on the softer aspects around leases in terms of rent bumps and etcetera. A lot of your peers are touting the fact that they're now driving 3% rent bumps annually, etcetera, as well as less renewal options. Maybe if you could talk about what are the improvements that you're seeing in your lease terms? Are you able to drive what percentage of your leases that you're signing, for example, on your shop tenants are having rent bumps of 4% and maybe some more detail behind that? And also maybe talk about some of the other, the terms for anchors. Are you able to shorten the lease terms there or is there, at market upside at certain levels?

Yes, Floris, we announced kind of blended anchor and small shop that was 2.4%. Really, really strong. Nobody else I think is even close. And that's driven by significant percentage of our leases at 3% or better on the small shop side. And we get better rent bumps on our anchors. Probably kind of in the mid to upper ones. I think that was about where we were this last quarter. So, that blended gets us there. We continue to push that an important component, but we also look to push other components. The starting rent is an important part of it as well. And so the more qualitative aspects, I'll hand over to Wendy in terms of what are the things are we getting from tenants in this environment where we're getting better negotiating leverage? The other thing is I'd like to highlight to you is it's just also, we had a good quarter and we got a good couple quarters in terms of TI's. And we're starting to, I mentioned that in my prior remarks, we're focused on kind of controlling those TI dollars and limiting that. And that's why I highlighted the net effective straight line rents in the mid-teens is an impressive number and something I'd like to highlight.

But I think the only thing that I would add to that would be the different components of that contract, whether it be options, whether it be increases, whether it be control rights, exclusivity, there's so many components that really hasn't changed with this high demand that we're going after them any differently than we've always treated them, which is every component is separate and every component needs to make sense on that particular aspect. So I would say we are having some success in getting some more flexibility on options, for example, which we don't like options. We just don't. And so we rarely give them if there's a, if we have to, and if there's a, you know, a capital allocation that's heavy from the tenant, we have to, we'll try to see if we can do it at a fair market value with a base and try, maybe we've done several, many actually, where you tie it to a sales volume that they can't exercise it unless they're reaching a certain level of production within the center. So yes, we are diving deep into all those like we always do and having more success. And it's a balanced approach, right? We're doing a lot of business with these national and regional tenants, so we want to make sure that we have a balanced approach.

The only thing I'm going to add to that, Floris, is I've always touted that I felt that our contracts were among the strongest, if not the strongest in the industry. And when I say contracts, what I'm talking about, not only lease bumps, which we can quantify, but certainly the qualitative things like redevelopment rights, like lack of sales kick outs, like lack of co-tenancy. All of that, I think our contracts are stronger today than they were a few years ago, even. And a few years ago, I think they were in the sector. Hard to prove it. Better locations give us more leverage. That's where I think we are.

And our next question will come from Handel [Indiscernible] with Mizuho. Please go ahead.

Hi there. This is Ravi Vaidya on the line for Handel. I hope you guys are doing well. I've got a quick follow-up to the guide here. Why maintain the 70 to 90 bids for bad debt at this point? The portfolio seems to have minimal credit issues. What's on your watch list right now for the back half of the year?

Hey, look, I think 70 to 90 is still operative. I mean, I think we were at the lower end of that range in the first half of the year, the way we look at it. And I think that it's proven to kind of keep that same leverage. I'm hoping we'll end up towards the bottom end. And certainly if we can end up towards the end, obviously that enhances our ability to outperform and get towards the upper end of our range of guidance. But I'm fine given where we were. I think the first half of the year, we ended up kind of at the lower end of that range. And I don't think it's -- we don't see a reason at this point to change that out.

And our next question will come from Linda Tsai with Jefferies. Please go ahead.

Hi, Dan. You mentioned earlier you're doing a better job of controlling TI dollars. What does that process look like and what are those conversations, how do those go?

I guess I will start with the anchors. Many of these anchors we have longstanding relationships with and they're eager to figure out how to make more deals. So it's not -- we're getting into the details of the space and really digging deep and they're getting creative on how they'll take that space. So -- and what condition that space needs to be in. So that speaks to the demand and the quality of the real estate. On the smaller shops, we have probably the most ability to influence that conversation. So yes, we are using that to maximum. And we also want to understand how much capital they're putting into the space as well. So many discussions and having some good progress.

Yes, Linda, just to make that really clear, I think the biggest thing there is the -- what a tenant and what we as a landlord are willing to do to be able to get that tenant in the space and operating. Whether that means hanging on to an AC unit that you would have wanted replaced ideally. Nah, let's give that five years and let's see how that goes. Whether it looks at -- whether it works on a storefront that a tenant particularly wants that we'll put a limit on and so they'll pick up the incremental cost of a particular storefront they get in. Things like that. What it is a willingness to work together because of the heavy supply demand where we are in demand supply of the space to accept space differently than they were before.

And our next question will come from Paulina Rojas with Green Street. Please go ahead.

Good evening. The retail environment is clearly very solid. So what do you think this environment will translate in terms of market rent growth in your markets for the next 12 to 14 months? It seems to me that investors are generally very hesitant to forecast market rent growth above, let's say, 3%, 4%. And I wonder if you agree or disagree with this view.

What I would say first, Paulina, about that is take it back to the tenant. That tenant is pushing through -- is doing two things in order to be profitable in their business. One is they're trying to push through the inflationary costs that are obviously 35% higher than they were pre-COVID. So they're trying to push that through. The more successful they are, the more willing they are to be able to pay more rent. I have an obvious thing there. What's a little less obvious is the work that they're doing on their margins to try to make their businesses more efficient so that even to the extent they're unable to push all the cost increases through, they're trying to increase their profitability. That goes into what they're willing to do for space. So if you take a tenant that is having success with the consumer and you take a lack of choices that that tenant has as to where they're able to move, that's where you can get some pretty good-sized rent increases. Importantly in that absolutely is the contractual bump. And I know you hear us say it every single day, but we have to say it every single day because it's an important part of the economics. So I don't know that I have a percentage for you. When you see us able to move overall tenant increases to 10% from the new stuff versus the last year of what was in there, on top of those bumps, let me tell you, that's really strong. That's worth 23% with a, on a straight line basis. So I don't see that changing over the next 12 to 14 months. And that's where I think you should expect us.

And our next question will come from Tayo Okusanya with Deutsche Bank. Please go ahead.

Yes. Good evening, everyone. Congrats on the great quarter and the outlook. Don, curious, and I'm not sure if this is a fair question, but curious what your thoughts are on this news out there of Blackstone potentially buying ROIC and specifically just what you think the implications are for the broader shopping center group and maybe, FRC in particular, if any.

No, of course, Tayo, it's a very fair question. And what you're going to hear is an opinion because I have no inside knowledge of it. But when you sit and you think about, looking forward at the demand for retail space over the next five years, I think you should feel pretty good about that. I think Blackstone feels pretty good about that or there wouldn't be negotiations that way. I think that is all about the not only the supply demand characteristics that we've all been talking about here, but also the valuations and the choices in other sectors, which are not as robust as maybe they were over the last couple of years. So when you put all that together, it doesn't surprise me. There are whatever we've got, 17 companies in the shopping center index or something like that. Many of them are smaller companies. I think you should always expect that to -- companies like that to be under pressure of sale. Now, whether those deals happen or not, we'll have to see. But I've never thought of Blackstone as being a company that really stretched. So I suspect they see a lot of value there.

And our next question will come from Greg McGinniss with Scotiabank. Please go ahead.

Thanks for taking another question. Dan, I apologize if you address this in the opening remarks. I just couldn't remember. But what's the expectation on bad debt embedded in the same store and has that changed at all?

That's still the same 70 to 90 basis points we had originally. And that's kind of outlined in our guidance and in the prepared remarks. I don't think we're shifting it around. We ended up in the first half of the year in the lower end of that range. And hopefully we can remain in that lower end of that range. And that's reflected in the same store outlook.

And this will conclude our question-and-answer session. I'd like to turn the conference back over to Brenda Pomar for any closing remarks.

We look forward to seeing many of you in the next few weeks. Thanks for joining us today.

The conference is now concluded. Thank you for attending today's presentation. And you may now disconnect your lines at this time.