Federal Realty Investment Trust Announces Third Quarter 2020 Operating Results

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Nov 05, 2020, 16:05 ET

ROCKVILLE, Md., Nov. 5, 2020 /PRNewswire/ -- Federal Realty Investment Trust (NYSE:FRT) today reported operating results for its third quarter ended September 30, 2020.

"Progress in many respects was the theme of the third quarter," said Donald C. Wood, President and Chief Executive Officer. "Improving rent collections, leasing volumes at pre-COVID levels and improved liquidity through our $400 million green bond offering all point to a bright future on the other side of this."

Financial Results

Net (loss) income available for common shareholders was ($30.3) million and earnings per diluted share was ($0.41) for third quarter 2020 which includes the $50.7 million net impairment charge relating to The Shops at Sunset Place. This compares to $63.5 million and $0.84, respectively, for third quarter 2019.

In the third quarter 2020, Federal Realty generated funds from operations available for common shareholders (FFO) of $85.0 million, or $1.12 per diluted share. This compares to FFO of $108.0 million, or $1.43 per diluted share, in the third quarter 2019 which included the $11.9 million charge related to the buyout of the Kmart lease at Assembly.

The year-over-year decreases in net income and FFO were attributable to the impacts of the COVID-19 pandemic with the primary driver being collectibility related adjustment impacts during the third quarter totaling $29.4 million, or $0.39 per share, which included a $1.7 million impact to straight-line rent. The decrease in net income was also driven by The Shops at Sunset Place impairment charge.

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 portfolio was 92.2% leased as of September 30, 2020, and the comparable portfolio was 92.0% leased.

During the third quarter 2020, Federal Realty signed 101 leases for 481,105 square feet of retail space. On a comparable space basis (i.e., spaces for which there was a former tenant), Federal Realty leased 471,726 square feet at an average rent of $37.38 per square foot compared to the average contractual rent of $37.74 per square foot for the last year of the prior leases, representing a cash basis rollover growth on those comparable spaces of -1%, 6% on a straight-line basis. Additionally, Federal Realty signed 13 leases for 63,609 square feet of office space during the third quarter 2020.

COVID-19 Operational Update

All 104 properties remain open and operating. Approximately 97% of our retail tenants based on annualized base rent are open and operating as of October 30, 2020. Annualized base rent reflects the aggregate, annualized in-place contractual (defined as rents billed on a cash basis without taking the impact of rent abatements into account) minimum rent for all occupied commercial spaces.

As of October 30, 2020, the Company has collected approximately 85% of total third quarter 2020 billed recurring rents and 85% of October 2020.

With $863 million of cash and cash equivalents as of September 30, 2020, Federal Realty has approximately $1.9 billion of liquidity in cash and undrawn availability under its $1.0 billion revolving credit facility. Additionally, subsequent to quarter end, the Company issued $400.0 million of green bonds.

Additional information on the impact of the COVID-19 pandemic on the Company's business to date is available in a presentation posted on the Investor section of Federal Realty's website.

Regular Quarterly Dividends

Federal Realty announced today that its Board of Trustees declared a regular quarterly cash dividend of $1.06 per share, resulting in an indicated annual rate of $4.24 per share. The regular common dividend will be payable on January 15, 2021, to common shareholders of record as of January 4, 2021.

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 January 15, 2021, to shareholders of record as of January 4, 2021.

Summary of Other Quarterly Activities and Recent Developments

October 13, 2020 – Federal Realty closed on its inaugural issuance of green bonds, $400.0 million aggregate principal amount of 1.250% notes at an effective yield of 1.379%, maturing February 15, 2026. The company intends to allocate an amount equal to the net proceeds from this offering to the financing and refinancing of recently completed and future eligible green projects.

Conference Call Information

Federal Realty's management team will present an in-depth discussion of Federal Realty's operating performance on its third quarter 2020 earnings conference call, which is scheduled for Friday, November 6, 2020 at 10:00AM ET. To participate, please call 877.407.9208 five to ten minutes prior to the call start time and use the passcode 13705852 (required). The teleconference can also be accessed via a live webcast at www.federalrealty.com in the Investors section. 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 November 20, 2020 by dialing 844.512.2921; Passcode: 13705852.

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 2,800 tenants, in 24 million square feet, and approximately 2,800 residential units.

Federal Realty has increased its quarterly dividends to its shareholders for 53 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 10, 2020 and subsequent quarterly reports on Form 10-Q, 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 redevelopment or renovation projects that we do pursue may cost more, take more time to complete or fail to perform as expected;
risk that we are investing a significant amount in ground-up development projects that 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 of 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;
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;
risks related to natural disasters, climate change and public health crises (such as the outbreak and worldwide spread of COVID-19), and the measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address them, may precipitate or materially exacerbate one or more of the above-mentioned risks, and may significantly disrupt or prevent us from operating our business in the ordinary course for an extended period.

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 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 review the risks contained in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 10, 2020 and subsequent quarterly reports on Form 10-Q.

Federal Realty Investment Trust
Consolidated Balance Sheets
September 30, 2020
	September 30,		December 31,
	2020		2019
	(in thousands, except share and per share data)
	(unaudited)
ASSETS
Real estate, at cost
Operating (including $1,709,234 and $1,676,866 of consolidated variable interest entities, respectively)	$	7,817,819	$	7,535,983
Construction-in-progress (including $81,463 and $102,583 of consolidated variable interest entities, respectively)	769,668		760,420
Assets held for sale	—		1,729
	8,587,487		8,298,132
Less accumulated depreciation and amortization (including $314,866 and $296,165 of consolidated variable interest entities, respectively)	(2,339,664)		(2,215,413)
Net real estate	6,247,823		6,082,719
Cash and cash equivalents	863,279		127,432
Accounts and notes receivable, net	164,882		152,572
Mortgage notes receivable, net	39,905		30,429
Investment in partnerships	22,093		28,604
Operating lease right of use assets	92,837		93,774
Finance lease right of use assets	51,437		52,402
Prepaid expenses and other assets	229,037		227,060
TOTAL ASSETS	$	7,711,293	$	6,794,992
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgages payable, net (including $474,775 and $469,184 of consolidated variable interest entities, respectively)	$	549,445	$	545,679
Notes payable, net	402,580		3,781
Senior notes and debentures, net	3,508,824		2,807,134
Accounts payable and accrued expenses	276,396		255,503
Dividends payable	82,688		81,676
Security deposits payable	19,693		21,701
Operating lease liabilities	72,921		73,628
Finance lease liabilities	72,052		72,062
Other liabilities and deferred credits	148,889		157,938
Total liabilities	5,133,488		4,019,102
Commitments and contingencies
Redeemable noncontrolling interests	159,721		139,758
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, 75,641,074 and 75,540,804 shares issued and outstanding, respectively	760		759
Additional paid-in capital	3,174,066		3,166,522
Accumulated dividends in excess of net income	(999,664)		(791,124)
Accumulated other comprehensive loss	(7,300)		(813)
Total shareholders' equity of the Trust	2,327,859		2,535,341
Noncontrolling interests	90,225		100,791
Total shareholders' equity	2,418,084		2,636,132
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	7,711,293	$	6,794,992

Federal Realty Investment Trust
Consolidated Income Statements
September 30, 2020
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
	(in thousands, except per share data)
	(unaudited)
REVENUE
Rental income	$	207,410	$	233,212	$	613,687	$	694,435
Mortgage interest income	787		735		2,294		2,204
Total revenue	208,197		233,947		615,981		696,639
EXPENSES
Rental expenses	41,832		54,484		122,561		140,182
Real estate taxes	30,520		29,030		90,183		81,883
General and administrative	9,308		11,060		29,373		32,047
Depreciation and amortization	65,631		59,648		190,603		178,327
Total operating expenses	147,291		154,222		432,720		432,439

Impairment charge	(57,218)		—		(57,218)		—
Gain on sale of real estate, net of tax	—		14,293		11,682		30,490

OPERATING INCOME	3,688		94,018		137,725		294,690

OTHER INCOME/(EXPENSE)
Other interest income	538		389		1,355		755
Interest expense	(36,228)		(27,052)		(98,746)		(82,567)
Loss from partnerships	(1,621)		(249)		(6,657)		(1,302)
NET (LOSS) INCOME	(33,623)		67,106		33,677		211,576
Net loss (income) attributable to noncontrolling interests	5,334		(1,641)		3,304		(5,065)
NET (LOSS) INCOME ATTRIBUTABLE TO THE TRUST	(28,289)		65,465		36,981		206,511
Dividends on preferred shares	(2,010)		(2,010)		(6,031)		(6,031)
NET (LOSS) INCOME AVAILABLE FOR COMMON SHAREHOLDERS	$	(30,299)	$	63,455	$	30,950	$	200,480

EARNINGS PER COMMON SHARE, BASIC AND DILUTED:
Net (loss) income available for common shareholders	$	(0.41)	$	0.84	$	0.40	$	2.68
Weighted average number of common shares	75,404		74,832		75,386		74,584

Federal Realty Investment Trust
Funds From Operations / Other Supplemental Information
September 30, 2020
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
	(in thousands, except per share data)
Funds from Operations available for common shareholders (FFO) (1)
Net (loss) income	$	(33,623)	$	67,106	$	33,677	$	211,576
Net loss (income) attributable to noncontrolling interests	5,334		(1,641)		3,304		(5,065)
Gain on sale of real estate, net of tax	—		(14,293)		(11,682)		(30,490)
Impairment charge, net (2)	50,728		—		50,728		—
Depreciation and amortization of real estate assets	58,224		53,441		170,878		160,253
Amortization of initial direct costs of leases	5,853		4,878		15,562		14,165
Funds from operations	86,516		109,491		262,467		350,439
Dividends on preferred shares (3)	(2,010)		(1,875)		(6,031)		(5,625)
Income attributable to operating partnership units	790		658		2,362		2,048
Income attributable to unvested shares	(265)		(314)		(806)		(1,004)
FFO (4)	$	85,031	$	107,960	$	257,992	$	345,858
Weighted average number of common shares, diluted (3)	76,149		75,554		76,133		75,342
FFO per diluted share (4)	$	1.12	$	1.43	$	3.39	$	4.59


Notes:

1)	Amounts reflect the components of "net loss (income) attributable to noncontrolling interests," but excludes "income attributable to operating partnership units."
2)	Impairment charge relates to The Shops at Sunset Place. Amount is net of the allocation to noncontrolling interests.
3)	For the three and nine months ended September 30, 2019, dividends on our Series 1 preferred stock were not deducted in the calculation of FFO available to common shareholders, as the related shares were dilutive and included in "weighted average common shares, diluted."
4)	Funds from operations available for common shareholders for the three and nine months ended September 30, 2019 includes an $11.9 million charge related to the buyout of the Kmart lease at Assembly Row Marketplace. If this charge was excluded, our FFO, FFO per diluted share, and dividend payout ratio as a percentage of FFO for those periods would have been:

	Three Months Ended		Nine Months Ended
	September 30, 2019
	(in thousands, except per share data)
FFO	$	119,837	$	357,735
FFO per diluted share	$	1.59	$	4.75