Federal Realty Investment Trust Announces Second Quarter 2018 Operating Results

- Announces 51st consecutive annual dividend increase -

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Aug 01, 2018, 16:15 ET

ROCKVILLE, Md., Aug. 1, 2018 /PRNewswire/ -- Federal Realty Investment Trust (NYSE: FRT) today reported operating results for its second quarter ended June 30, 2018. Highlights of the quarter and recent activity include:

Generated earnings per diluted share of $0.84 for the quarter compared to $1.05 in second quarter 2017, which included a $0.26 gain on sale of real estate.
Generated funds from operations available for common shareholders (FFO) per diluted share of $1.55 for the quarter compared to $1.49 in second quarter 2017.
Generated comparable property property operating income (POI) growth of 3.6% for the second quarter.
Signed leases for 449,247 sf of comparable space (474,578 sf total) in the second quarter at an average rent of $34.75 psf and achieved cash basis rollover growth on those comparable spaces of 10%.
Increased the regular quarterly dividend rate on common shares to $1.02 per share, representing the 51^st consecutive year of common dividend increases.
Increased 2018 FFO per diluted share guidance range to $6.13 - $6.23.

"Continued solid growth in our property level operating income this quarter along with solid progress in developing and delivering great new retail and mixed use destinations for the years to come, gives us great confidence in our ability to raise our dividend to shareholders for a REIT record 51st year in a row, that is, since 1967," said Donald C. Wood, President and Chief Executive Officer of Federal Realty. "As I celebrate my own 20th year anniversary with the Company in 2018 and 15th as its chief executive, I still marvel at the quality of the real estate and balance sheet that allows us to build on this incredibly unique and rare feat year in and year out. It's only possible by truly acting with long term real estate value creation always top of mind."

Financial Results

Net income available for common shareholders was $61.6 million and earnings per diluted share was $0.84 for second quarter 2018 versus $76.2 million and $1.05, respectively, for second quarter 2017 which included a $0.26 gain on sale of real estate.

In second quarter 2018, Federal Realty generated FFO of $114.8 million, or $1.55 per diluted share. This compares to FFO of $108.6 million, or $1.49 per diluted share, in second quarter 2017.

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

In second quarter 2018, comparable property POI increased 3.6%. 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.

The overall portfolio was 95.0% leased as of June 30, 2018, compared to 94.8% on March 31, 2018 and 94.5% on June 30, 2017. Federal Realty's comparable portfolio was 95.5% leased on June 30, 2018, compared to 95.3% on March 31, 2018 and June 30, 2017.

During second quarter 2018, Federal Realty signed 106 leases for 474,578 square feet of retail space. On a comparable space basis (i.e., spaces for which there was a former tenant), Federal Realty leased 449,247 square feet at an average cash basis contractual rent increase (i.e., excluding the impact of straight-line rents) of 10%. The average contractual rent on this comparable space for the first year of the new leases is $34.75 per square foot compared to the average contractual rent of $31.61 per square foot for the last year of the prior leases. The previous average contractual rent was calculated by including both the minimum rent and any percentage rent actually paid during the last year of the lease term for the re-leased space. On a straight-line basis, rent increases for comparable retail space averaged 20% for second quarter 2018.

Summary of Other Quarterly Activities and Recent Developments

June 15, 2018 – Federal Realty formed a new joint venture with Primestor Development Inc. to develop Jordan Downs Plaza shopping center in the Watts neighborhood of Los Angeles. When completed, Jordan Downs Plaza will be an approximately 113,000 square foot grocery anchored shopping center. The Trust expects the net project costs to be approximately $40 million.

Regular Quarterly Dividends

Federal Realty also announced today that its Board of Trustees increased the regular dividend rate on its common shares, declaring a regular quarterly cash dividend of $1.02 per share, resulting in an indicated annual rate of $4.08 per share. The regular common dividend will be payable on October 15, 2018, to common shareholders of record on September 21, 2018. This increase represents the 51st consecutive year that Federal Realty has increased its common dividend, the longest record of consecutive annual dividend increases in the REIT sector, and one of only a small number of companies in any sector to accomplish such a record.

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 October 15, 2018 to shareholders of record as of October 1, 2018.

Guidance

Federal Realty increased its 2018 guidance for FFO per diluted share to $6.13 to $6.23 and increased its 2018 earnings per diluted share guidance to $3.14 to $3.24.

Conference Call Information

Federal Realty's management team will present an in-depth discussion of the Trust's operating performance on its second quarter 2018 earnings conference call, which is scheduled for Thursday, August 2, 2018 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 9687996 (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 August 9, 2018 by dialing 855.859.2056; Passcode: 9687996.

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 105 properties include approximately 3,000 tenants, in approximately 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, 2018, 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, 2018.

Federal Realty Investment Trust
Consolidated Balance Sheets
June 30, 2018
	June 30,		December 31,
	2018		2017
	(in thousands, except share and per share data)
	(unaudited)
ASSETS
Real estate, at cost
Operating (including $1,660,403 and $1,639,486 of consolidated variable interest entities, respectively)	$	7,181,679	$	6,950,188
Construction-in-progress (including $47,251 and $43,393 of consolidated variable interest entities, respectively)	535,658		684,873
Assets held for sale	27,773		—
	7,745,110		7,635,061
Less accumulated depreciation and amortization (including $268,723 and $247,410 of consolidated variable interest entities, respectively)	(1,970,173)		(1,876,544)
Net real estate	5,774,937		5,758,517
Cash and cash equivalents	56,116		15,188
Accounts and notes receivable, net	149,861		209,877
Mortgage notes receivable, net	30,429		30,429
Investment in real estate partnerships	22,613		23,941
Prepaid expenses and other assets	268,747		237,803
TOTAL ASSETS	$	6,302,703	$	6,275,755
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgages payable, net (including $447,246 and $460,372 of consolidated variable interest entities, respectively)	$	477,706	$	491,505
Capital lease obligations	71,538		71,556
Notes payable, net	368,389		320,265
Senior notes and debentures, net	2,402,851		2,401,440
Accounts payable and accrued expenses	178,665		196,332
Dividends payable	75,757		75,931
Security deposits payable	17,187		16,667
Other liabilities and deferred credits	181,601		169,388
Total liabilities	3,773,694		3,743,084
Commitments and contingencies
Redeemable noncontrolling interests	141,417		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, 73,434,943 and 73,090,877 shares issued and outstanding, respectively	737		733
Additional paid-in capital	2,884,771		2,855,321
Accumulated dividends in excess of net income	(780,973)		(749,367)
Accumulated other comprehensive loss	412		22
Total shareholders' equity of the Trust	2,264,944		2,266,706
Noncontrolling interests	122,648		124,808
Total shareholders' equity	2,387,592		2,391,514
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	6,302,703	$	6,275,755

Federal Realty Investment Trust
Consolidated Income Statements
June 30, 2018
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(in thousands, except per share data)
	(unaudited)
REVENUE
Rental income	$	220,476	$	204,246	$	441,057	$	408,693
Other property income	3,692		3,068		7,759		5,258
Mortgage interest income	734		735		1,491		1,487
Total revenue	224,902		208,049		450,307		415,438
EXPENSES
Rental expenses	39,905		37,128		84,678		78,237
Real estate taxes	28,307		26,522		56,755		51,612
General and administrative	8,413		8,643		16,342		16,910
Depreciation and amortization	58,381		52,666		116,491		104,045
Total operating expenses	135,006		124,959		274,266		250,804
OPERATING INCOME	89,896		83,090		176,041		164,634
Other interest income	159		68		338		174
Interest expense	(27,766)		(23,907)		(53,950)		(47,665)
Loss from real estate partnerships	(728)		(114)		(1,253)		(114)
INCOME FROM CONTINUING OPERATIONS	61,561		59,137		121,176		117,029
Gain on sale of real estate, net	3,972		18,996		7,288		19,174
NET INCOME	65,533		78,133		128,464		136,203
Net income attributable to noncontrolling interests	(1,938)		(1,842)		(3,622)		(3,722)
NET INCOME ATTRIBUTABLE TO THE TRUST	63,595		76,291		124,842		132,481
Dividends on preferred shares	(2,011)		(135)		(4,021)		(271)
NET INCOME AVAILABLE FOR COMMON SHAREHOLDERS	$	61,584	$	76,156	$	120,821	$	132,210
EARNINGS PER COMMON SHARE, BASIC:
Net income available for common shareholders	$	0.84	$	1.05	$	1.65	$	1.83
Weighted average number of common shares	72,990		72,001		72,948		71,928
EARNINGS PER COMMON SHARE, DILUTED:
Net income available for common shareholders	$	0.84	$	1.05	$	1.65	$	1.83
Weighted average number of common shares	73,025		72,124		72,997		72,061

Federal Realty Investment Trust
Funds From Operations
June 30, 2018
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(in thousands, except per share data)
Funds from Operations available for common shareholders (FFO)
Net income	$	65,533	$	78,133	$	128,464	$	136,203
Net income attributable to noncontrolling interests	(1,938)		(1,842)		(3,622)		(3,722)
Gain on sale of real estate, net (1)	(3,972)		(18,814)		(7,288)		(18,884)
Depreciation and amortization of real estate assets	52,011		45,634		103,362		90,316
Amortization of initial direct costs of leases	4,702		5,066		9,302		9,750
Funds from operations	116,336		108,177		230,218		213,663
Dividends on preferred shares (2)	(1,875)		—		(3,750)		—
Income attributable to operating partnership units	759		783		1,534		1,567
Income attributable to unvested shares	(398)		(357)		(786)		(707)
FFO	$	114,822	$	108,603	$	227,216	$	214,523
Weighted average number of common shares, diluted (2)	73,880		73,019		73,859		72,956
FFO per diluted share	$	1.55	$	1.49	$	3.08	$	2.94

Notes:
1)	Gain on sale of real estate for the three and six months ended June 30, 2018 is related to condominium units sold at Assembly Row and Pike & Rose. Gains for the three and six months ended June 30, 2017 also include 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 June 30, 2018 Form 10-Q for additional information regarding the adoption.

2)	For the three and six months ended June 30, 2018 and 2017, dividends on our Series 1 preferred shares are not deducted in the calculation of FFO available to common shareholders, as the related shares are dilutive and included in "weighted average common shares, diluted."

Investor Inquires:	Media Inquiries:
Leah Andress Brady	Andrea Simpson
Investor Relations Manager	Vice President, Marketing
301.998.8265	617.684.1511
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