Federal Realty Investment Trust Announces Operating Results for the Year and Quarter Ended December 31, 2018

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Feb 13, 2019, 16:05 ET

ROCKVILLE, Md., Feb. 13, 2019 /PRNewswire/ -- Federal Realty Investment Trust (NYSE: FRT) today reported operating results for its year and quarter ended December 31, 2018. For the year ended December 31, 2018 and 2017, net income available for common stockholders was $3.18 per diluted share and $3.97 per diluted share, respectively. For the three months ended December 31, 2018 and 2017, net income available for common stockholders was $0.71 per diluted share and $0.67 per diluted share, respectively.

Key Highlights of the full year and quarter include:

Generated FFO per diluted share of $6.23 for the year compared to $5.74 in 2017 ($5.91 excluding prepayment premium). For the fourth quarter, generated FFO per diluted share of $1.57 compared to $1.30 for the fourth quarter 2017 ($1.47 excluding prepayment premium).
Generated comparable property operating income (POI) growth of 3.1% for the year ended 2018. For the fourth quarter, comparable property POI growth was 2.0%.
Signed leases for 573,923 square feet of comparable space (622,234 square feet total) in the fourth quarter at an average rent of $32.16 per square foot and achieved cash basis rollover growth on those comparable spaces of 15%. Over the last four quarters, cash basis rollover growth on comparable spaces was 12%.
Announced the launch of Phase 3 at Assembly Row which includes 277,000 square feet of office space – anchored by PUMA North America, 500 residential units and 56,000 square feet of ground floor retail.
Introduced 2019 FFO per diluted share guidance range of $6.30 to $6.46, which reflects the impact of the newly implemented lease accounting standard ASC 842.

"2018 was a year of records for us; from funds from operations per share of $6.23, to total leasing volume at nearly 2 million square feet, to 51 consecutive years of increased common dividends," said Donald C. Wood, President and Chief Executive Officer of Federal Realty. "The growing diversification of our revenue base, along with the development and redevelopment opportunities being executed by our talented team, gives us confidence that our multi-faceted business plan is the right one to service today's evolving and demanding consumer."

Financial Results

For the full year 2018, Federal Realty reported net income available for common shareholders of $233.9 million and earnings per diluted share of $3.18. This compares to net income available for common shareholders of $287.5 million and earnings per diluted share of $3.97 for the full year 2017. Net income available for common shareholders was $52.5 million and earnings per diluted share was $0.71 for the fourth quarter 2018 versus $48.6 million and $0.67, respectively, for the fourth quarter 2017.

For the full year 2018, Federal Realty generated funds from operations available for common shareholders (FFO) of $461.8 million, or $6.23 per diluted share. This compares to FFO of $420.0 million, or $5.74 per diluted share, for the full year 2017. Excluding the $12.3 million early extinguishment of debt charge in the fourth quarter 2017, FFO per diluted share for the full year 2017 would have been $5.91. For the fourth quarter 2018, FFO was $117.2 million, or $1.57 per diluted share, compared to $95.5 million, or $1.30 per diluted share for the fourth quarter 2017 ($1.47 if the early extinguishment of debt charge was excluded).

FFO is a non-GAAP supplemental earnings measure which the Trust considers meaningful in measuring its operating performance. A reconciliation of FFO to net income is attached to this press release.

Portfolio Results

The overall portfolio was 94.6% leased as of December 31, 2018, and the comparable portfolio was 95.1% leased. Comparable property POI increased 3.1% for the year 2018 and 2.0% in the fourth quarter. Comparable property POI represents our consolidated property portfolio other than those properties that distort comparability between periods in two primary categories (1) assets that were not owned for the full quarter in both periods presented and (2) assets currently under development or being repositioned for significant redevelopment and investment.

For the year 2018, Federal Realty signed 402 leases for 2.0 million square feet of retail space. On a comparable space basis (i.e., spaces for which there was a former tenant), Federal Realty leased 1.9 million square feet at an average rent of $34.11 per square foot compared to the average contractual rent of $30.37 per square foot for the last year of the prior leases, representing a cash basis rollover growth on those comparable spaces of 12%.

During fourth quarter 2018, Federal Realty signed 114 leases for 622,234 square feet of retail space. On a comparable space basis (i.e., spaces for which there was a former tenant), Federal Realty leased 573,923 square feet at an average rent of $32.16 per square foot compared to the average contractual rent of $27.96 per square foot for the last year of the prior leases, representing a cash basis rollover growth on those comparable spaces of 15%.

Regular Quarterly Dividends

Federal Realty's Board of Trustees declared a regular quarterly cash dividend of $1.02 per common share, resulting in an indicated annual rate of $4.08 per common share. The regular common dividend will be payable on April 15, 2019 to shareholders of record as of March 14, 2019.

Federal Realty's Board of Trustees also declared a quarterly cash dividend on its Class C depositary shares, each representing 1/1000 of a 5.000% Series C Cumulative Preferred Share of Beneficial Interest, of $0.3125 per depositary share. All dividends on the depositary shares will be payable on April 15, 2019 to shareholders of record as of April 1, 2019.

Summary of Other Quarterly Activities and Recent Developments

February 7, 2019 – Federal Realty announced Wendy Seher and Jan Sweetnam have been promoted to executive vice president and will serve as members of the Trust's Executive Committee, in addition to their roles as members of the Investment Committee. Wendy Seher was promoted to Executive Vice President – Eastern Region President. Jan Sweetnam was promoted to Executive Vice President – Western Region Chief Operating Officer.

January 18, 2019 – Federal Realty announced the launch of Phase 3 at Assembly Row which includes 277,000 square feet of office space – anchored by PUMA North America, 500 residential units and 56,000 square feet of ground floor retail. The estimated total investment in Phase 3 is expected to be approximately $475 million. Upon completion of Phase 3, total investment at Assembly Row will be approximately $1.2 billion.

Guidance

Federal Realty introduced 2019 guidance for FFO per diluted share of $6.30 to $6.46 and 2019 earnings per diluted share guidance of $3.14 to $3.30, which reflects the impact of the newly implemented lease accounting standard ASC 842.

Conference Call Information

Federal Realty's management team will present an in-depth discussion of the Trust's operating performance on its fourth quarter and year end 2018 earnings conference call, which is scheduled for Thursday, February 14, 2019 at 10:00AM ET. To participate, please call 877.445.3230 five to ten minutes prior to the call start time and use the passcode 2162635 (required). A replay of the webcast will be available on Federal Realty's website at www.federalrealty.com. A telephonic replay of the conference call will also be available through February 21, 2019 by dialing 855.859.2056; Passcode: 2162635.

About Federal Realty

Federal Realty is a recognized leader in the ownership, operation and redevelopment of high-quality retail based properties located primarily in major coastal markets from Washington, D.C. to Boston as well as San Francisco and Los Angeles. Founded in 1962, Federal Realty's mission is to deliver long term, sustainable growth through investing in densely populated, affluent communities where retail demand exceeds supply. Its expertise includes creating urban, mixed-use neighborhoods like Santana Row in San Jose, California, Pike & Rose in North Bethesda, Maryland and Assembly Row in Somerville, Massachusetts. These unique and vibrant environments that combine shopping, dining, living and working provide a destination experience valued by their respective communities. Federal Realty's 104 properties include approximately 3,000 tenants, in 24 million square feet, and over 2,600 residential units.

Federal Realty has increased its quarterly dividends to its shareholders for 51 consecutive years, the longest record in the REIT industry. Federal Realty is an S&P 500 index member and its shares are traded on the NYSE under the symbol FRT. For additional information about Federal Realty and its properties, visit www.FederalRealty.com.

Safe Harbor Language

Certain matters discussed within this press release may be deemed to be forward-looking statements within the meaning of the federal securities laws. Although Federal Realty believes the expectations reflected in the forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. These factors include, but are not limited to, the risk factors described in our Annual Report on Form 10-K filed on February 13, 2019, and include the following:

risks that our tenants will not pay rent, may vacate early or may file for bankruptcy or that we may be unable to renew leases or re-let space at favorable rents as leases expire;
risks that we may not be able to proceed with or obtain necessary approvals for any redevelopment or renovation project, and that completion of anticipated or ongoing property redevelopments or renovation projects that we do pursue may cost more, take more time to complete, or fail to perform as expected;
risks that we are investing a significant amount in ground-up development projects that may not perform as planned, may be dependent on third parties to deliver critical aspects of certain projects, requires spending a substantial amount upfront in infrastructure, and assumes receipt of public funding which has been committed but not entirely funded;
risks normally associated with the real estate industry, including risks that occupancy levels at our properties and the amount of rent that we receive from our properties may be lower than expected, that new acquisitions may fail to perform as expected, that competition for acquisitions could result in increased prices for acquisitions, that costs associated with the periodic maintenance and repair or renovation of space, insurance and other operations may increase, that environmental issues may develop at our properties and result in unanticipated costs, and, because real estate is illiquid, that we may not be able to sell properties when appropriate;
risks that our growth will be limited if we cannot obtain additional capital;
risks associated with general economic conditions, including local economic conditions in our geographic markets;
risks of financing, such as our ability to consummate additional financings or obtain replacement financing on terms which are acceptable to us, our ability to meet existing financial covenants and the limitations imposed on our operations by those covenants, and the possibility of increases in interest rates that would result in increased interest expense; and
risks related to our status as a real estate investment trust, commonly referred to as a REIT, for federal income tax purposes, such as the existence of complex tax regulations relating to our status as a REIT, the effect of future changes in REIT requirements as a result of new legislation, and the adverse consequences of the failure to qualify as a REIT.

Given these uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements that we make, including those in this press release. Except as may be required by law, we make no promise to update any of the forward-looking statements as a result of new information, future events or otherwise. You should carefully review the risks and risk factors included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 13, 2019.

Federal Realty Investment Trust
Consolidated Balance Sheets
December 31, 2018
	December 31,
	2018		2017
	(in thousands, except share and
	per share data)
ASSETS
Real estate, at cost
Operating (including $1,701,804 and $1,639,486 of consolidated variable interest entities, respectively)	$	7,307,622	$	6,950,188
Construction-in-progress (including $51,313 and $43,393 of consolidated variable interest entities, respectively)	495,274		684,873
Assets held for sale	16,576		—
	7,819,472		7,635,061
Less accumulated depreciation and amortization (including $292,374 and $247,410 of consolidated variable interest entities, respectively)	(2,059,143)		(1,876,544)
Net real estate	5,760,329		5,758,517
Cash and cash equivalents	64,087		15,188
Accounts and notes receivable	142,237		209,877
Mortgage notes receivable, net	30,429		30,429
Investment in real estate partnerships	26,859		23,941
Prepaid expenses and other assets	265,703		237,803
TOTAL ASSETS	$	6,289,644	$	6,275,755
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgages payable (including $444,388 and $460,372 of consolidated variable interest entities, respectively)	$	474,379	$	491,505
Capital lease obligations	71,519		71,556
Notes payable	279,027		320,265
Senior notes and debentures	2,404,279		2,401,440
Accounts payable and other liabilities	177,922		196,332
Dividends payable	78,207		75,931
Security deposits payable	17,875		16,667
Other liabilities and deferred credits	182,898		169,388
Total liabilities	3,686,106		3,743,084
Commitments and contingencies
Redeemable noncontrolling interests	136,208		141,157
Shareholders' equity
Preferred shares, authorized 15,000,000 shares, $.01 par:
5.0% Series C Cumulative Redeemable Preferred Shares, (stated at liquidation preference $25,000 per share), 6,000 shares issued and outstanding	150,000		150,000
5.417% Series 1 Cumulative Convertible Preferred Shares, (stated at liquidation preference $25 per share), 399,896 shares issued and outstanding	9,997		9,997
Common shares of beneficial interest, $.01 par, 100,000,000 shares authorized, 74,249,633 and 73,090,877 shares issued and outstanding, respectively	745		733
Additional paid-in capital	3,004,442		2,855,321
Accumulated dividends in excess of net income	(818,877)		(749,367)
Accumulated other comprehensive (loss) income	(416)		22
Total shareholders' equity of the Trust	2,345,891		2,266,706
Noncontrolling interests	121,439		124,808
Total shareholders' equity	2,467,330		2,391,514
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	6,289,644	$	6,275,755

Federal Realty Investment Trust
Consolidated Income Statements
December 31, 2018
	Three Months Ended				Year Ended
	December 31,				December 31,
	2018		2017		2018		2017
	(in thousands, except per share data)

REVENUE
Rental income	$	230,864	$	220,720	$	895,698	$	841,461
Other property income	3,647		2,396		16,589		12,825
Mortgage interest income	865		841		3,149		3,062
Total revenue	235,376		223,957		915,436		857,348
EXPENSES
Rental expenses	46,507		45,403		173,094		164,890
Real estate taxes	28,935		28,735		114,776		107,839
General and administrative	9,620		10,268		33,600		36,281
Depreciation and amortization	66,976		56,394		244,245		216,050
Total operating expenses	152,038		140,800		565,715		525,060
OPERATING INCOME	83,338		83,157		349,721		332,288
Other interest income	285		222		942		475
Interest expense	(28,038)		(26,173)		(110,154)		(100,125)
Early extinguishment of debt	—		(12,273)		—		(12,273)
Loss from real estate partnerships	(705)		(121)		(3,398)		(417)
INCOME FROM CONTINUING OPERATIONS	54,880		44,812		237,111		219,948
Gain on sale of real estate, net	1,502		7,973		11,915		77,922
NET INCOME	56,382		52,785		249,026		297,870
Net income attributable to noncontrolling interests	(1,875)		(2,129)		(7,119)		(7,956)
NET INCOME ATTRIBUTABLE TO THE TRUST	54,507		50,656		241,907		289,914
Dividends on preferred shares	(2,011)		(2,011)		(8,042)		(2,458)
NET INCOME AVAILABLE FOR COMMON SHAREHOLDERS	$	52,496	$	48,645	$	233,865	$	287,456
EARNINGS PER COMMON SHARE, BASIC
Net income available for common shareholders	$	0.71	$	0.67	$	3.18	$	3.97
Weighted average number of common shares, basic	73,790		72,515		73,274		72,117
EARNINGS PER COMMON SHARE, DILUTED
Net income available for common shareholders	$	0.71	$	0.67	$	3.18	$	3.97
Weighted average number of common shares, diluted	73,796		72,598		73,302		72,233

Federal Realty Investment Trust
Funds From Operations / Other Supplemental Information
December 31, 2018
	Three Months Ended				Year Ended
	December 31,				December 31,
	2018		2017		2018		2017
	(in thousands, except per share data)
Funds from Operations available for common shareholders (FFO)
Net income	$	56,382	$	52,785	$	249,026	$	297,870
Net income attributable to noncontrolling interests	(1,875)		(2,129)		(7,119)		(7,956)
Gain on sale of real estate, net (1)	(1,502)		(7,973)		(11,915)		(77,632)
Depreciation and amortization of real estate assets	55,604		49,607		213,098		188,719
Amortization of initial direct costs of leases	10,069		4,594		24,603		19,124
Funds from operations	118,678		96,884		467,693		420,125
Dividends on preferred shares	(1,875)		(1,876)		(7,500)		(1,917)
Income attributable to operating partnership units	754		788		3,053		3,143
Income attributable to unvested shares	(330)		(310)		(1,469)		(1,374)
FFO (2)	$	117,227	$	95,486	$	461,777	$	419,977
Weighted average number of common shares, diluted	74,630		73,481		74,153		73,122
FFO per diluted share (2)	$	1.57	$	1.30	$	6.23	$	5.74

Notes:
1)	The gain on sale of real estate for the year ended December 31, 2018 includes a $7.2 million net gain related to condominium units sold at Assembly Row and Pike & Rose. For the three months and year ended December 31, 2017, the gain on sale of real estate includes $1.5 million and $5.4 million, respectively, of net gains related to Assembly Row condominium units under the percentage-of-completion method. Effective January 1, 2018, we adopted a new accounting standard related to revenue recognition, which results in a change in our revenue recognition policy for condominium sales. See Note 2 of our December 31, 2018 Form 10-K for additional information regarding the adoption.
2)	If the $12.3 million early extinguishment of debt charge incurred in the fourth quarter of 2017 was excluded, our FFO, FFO per diluted share, and dividend payout ratio as a percentage of FFO would have been:

	Three Months Ended			Year Ended
	December 31, 2017			December 31, 2017
	(in thousands, except per share data)
FFO	$	107,719		$	432,210
FFO per diluted share	$	1.47		$	5.91
Dividend payout ratio as a percentage of FFO	68		%	66		%

Investor Inquires:	Media Inquiries:
Leah Andress Brady	Brenda Pomar
Investor Relations Manager	Corporate Communications Manager
301.998.8265	301.998.8316
[email protected]	[email protected]