Federal Realty Investment Trust Announces Third Quarter 2016 Operating Results

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Nov 02, 2016, 04:15 ET

ROCKVILLE, Md., Nov. 2, 2016 /PRNewswire/ -- Federal Realty Investment Trust (NYSE: FRT) today reported operating results for its third quarter ended September 30, 2016. Highlights of the quarter and recent activity include:

Generated earnings per diluted share of $0.82 for the quarter compared to $0.75 in third quarter 2015.
Generated FFO per diluted share of $1.41 for the quarter compared to $1.36 in third quarter 2015
Generated same center property operating income growth of 1.5%.
Signed leases for 427,021 sf of comparable space at an average rent of $31.25 psf and achieved cash basis rollover growth on comparable spaces of 14%.
Opportunistically issued $250 million aggregate principal amount of 3.625% senior unsecured notes due August 1, 2046.

"We continue to execute on our long term goal of positioning our portfolio for the changing consumer," said Donald C. Wood, President and Chief Executive Officer of Federal Realty. "The right balance of aggressive shopping center re-leasing and re-development, along with the development of new mixed use communities with a balance sheet constructed for the long term is at the heart of our decision making. Third quarter results reflect that balance."

Financial Results

Net income available for common shareholders was $58.8 million and earnings per diluted share was $0.82 for third quarter 2016 versus $52.3 million and $0.75, respectively, for third quarter 2015. Year-to-date Federal Realty reported net income available for common shareholders of $191.5 million and earnings per diluted share of $2.70. This compares to net income available for common shareholders of $141.9 million and earnings per diluted share of $2.05 for the nine months ended September 30, 2015.

In the third quarter 2016, Federal Realty generated funds from operations available for common shareholders (FFO) of $101.7 million, or $1.41 per diluted share. This compares to FFO of $95.2 million, or $1.36 per diluted share, in third quarter 2015. For the nine months ended September 30, 2016, FFO was $301.4 million, or $4.21 per diluted share, compared to $256.4 million, or $3.68 per diluted share for the same nine month period in 2015. Excluding early extinguishment of debt charge in 2015, FFO per diluted share for the nine months ended September 30, 2015 was $3.95.

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 third quarter 2016, same-center property operating income increased 1.5% over the prior year when including properties that are being redeveloped and 0.4% when excluding those properties. As anticipated, the impact of anchor vacancies, both proactively pursued and otherwise, weighed on the three month results and quarter end occupancy.

The overall portfolio was 94.3% leased as of September 30, 2016, compared to 95.5% on September 30, 2015. Federal Realty's same center portfolio was 95.5% leased on September 30, 2016, compared to 96.1% on September 30, 2015.

During third quarter 2016, Federal Realty signed 102 leases for 452,836 square feet of retail space. On a comparable space basis (i.e., spaces for which there was a former tenant), Federal Realty leased 427,021 square feet at an average cash basis contractual rent increase per square foot (i.e., excluding the impact of straight-line rents) of 14%. The average contractual rent on this comparable space for the first year of the new leases is $31.25 per square foot compared to the average contractual rent of $27.40 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 GAAP basis (i.e., including the impact of straight-line rents), rent increases per square foot for comparable retail space averaged 27% for third quarter 2016.

Regular Quarterly Dividends

Federal Realty also announced today that its Board of Trustees declared a regular quarterly cash dividend of $0.98 per share, resulting in an indicated annual rate of $3.92 per share. The regular common dividend will be payable on January 17, 2017 to common shareholders of record as of January 3, 2017.

Summary of Other Quarterly Activities and Recent Developments

July 12, 2016 – Federal Realty closed on the public offering of $250 million aggregate principal amount of 3.625% senior unsecured notes due August 1, 2046. The notes were offered at 97.756% of the principal amount with a yield to maturity of 3.750%
July 13, 2016 – Federal Realty announced the appointment of Dan Guglielmone to the position of Executive Vice President, Chief Financial Officer and Treasurer effective August 15, 2016. Mr. Guglielmone will be a member of the Firm's Executive and Investment Committees and will be responsible for all capital markets activity along with east coast acquisitions. In addition, he will be responsible for the oversight of the accounting, financial reporting and investor relations functions. Dan will be based at Federal's headquarters in Rockville, Md.

Guidance

Federal Realty narrowed its guidance for 2016 FFO per diluted to a range of $5.63 to $5.67 and adjusted 2016 earnings per diluted share guidance to a range of $3.47 to $3.51.

In addition, Federal Realty provided initial 2017 FFO per diluted share guidance of $5.83 to $5.93 and 2017 earnings per diluted share guidance of $3.13 to $3.23. Federal Realty has provided additional disclosure around its 2017 guidance on the reconciliation page attached at the end of this press release.

Conference Call Information

Federal Realty's management team will present an in-depth discussion of the Trust's operating performance on its third quarter 2016 earnings conference call, which is scheduled for Thursday, November 3, 2016 at 11:00AM ET. To participate, please call 877.445.3230 five to ten minutes prior to the call start time and use the passcode 75378394 (required). Federal Realty will also provide an online webcast on the Company's web site, http://www.federalrealty.com, which will remain available for 30 days following the call. A telephonic replay of the conference call will also be available through November 10, 2016 by dialing 855.859.2056; Passcode: 75378394.

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, our mission is to deliver long term, sustainable growth through investing in densely populated, affluent communities where retail demand exceeds supply. Our 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 96 properties include over 2,800 tenants, in approximately 22 million square feet, and over 1,800 residential units.

Federal Realty has paid quarterly dividends to its shareholders continuously since its founding in 1962, and has increased its dividend rate for 49 consecutive years, the longest record in the REIT industry. Federal Realty 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 9, 2016, 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 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 9, 2016.

Investor Inquiries	Media Inquiries
Leah Andress	Andrea Simpson
Investor Relations Associate	Vice President, Marketing
301/998-8265	617/684-1511
[email protected]	[email protected]

Federal Realty Investment Trust
Consolidated Balance Sheets
September 30, 2016
	September 30,		December 31,
	2016		2015
	(in thousands, except share and per share data)
	(unaudited)
ASSETS
Real estate, at cost
Operating (including $1,219,223 and $1,192,336 of consolidated variable interest entities, respectively)	$	6,017,414	$	5,630,771
Construction-in-progress	586,918		433,635
	6,604,332		6,064,406
Less accumulated depreciation and amortization (including $200,877 and $176,057 of consolidated variable interest entities, respectively)	(1,688,510)		(1,574,041)
Net real estate	4,915,822		4,490,365
Cash and cash equivalents	101,281		21,046
Accounts and notes receivable, net	120,135		110,402
Mortgage notes receivable, net	29,904		41,618
Investment in real estate partnerships	11,129		41,546
Prepaid expenses and other assets	219,066		191,582
TOTAL ASSETS	$	5,397,337	$	4,896,559
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgages payable (including $441,294 and $448,315 of consolidated variable interest entities, respectively)	$	473,490	$	481,084
Capital lease obligations	71,597		71,620
Notes payable	288,489		341,961
Senior notes and debentures	1,975,988		1,732,551
Accounts payable and accrued expenses	184,007		146,532
Dividends payable	71,231		66,338
Security deposits payable	16,228		15,439
Other liabilities and deferred credits	119,231		121,787
Total liabilities	3,200,261		2,977,312
Commitments and contingencies
Redeemable noncontrolling interests	125,861		137,316
Shareholders' equity
Preferred shares, authorized 15,000,000 shares, $.01 par: 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, 71,782,989 and 69,493,392 shares issued and outstanding, respectively	721		696
Additional paid-in capital	2,704,490		2,381,867
Accumulated dividends in excess of net income	(737,124)		(724,701)
Accumulated other comprehensive loss	(5,394)		(4,110)
Total shareholders' equity of the Trust	1,972,690		1,663,749
Noncontrolling interests	98,525		118,182
Total shareholders' equity	2,071,215		1,781,931
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	5,397,337	$	4,896,559

Federal Realty Investment Trust
Consolidated Income Statements
September 30, 2016
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands, except per share data)
	(unaudited)
REVENUE
Rental income	$	197,469	$	181,562	$	585,712	$	538,612
Other property income	2,759		2,479		8,559		9,364
Mortgage interest income	929		1,211		3,211		3,529
Total revenue	201,157		185,252		597,482		551,505
EXPENSES
Rental expenses	38,588		34,439		118,385		108,501
Real estate taxes	24,973		21,804		71,164		62,865
General and administrative	8,232		9,374		25,278		27,526
Depreciation and amortization	48,903		43,718		145,137		128,373
Total operating expenses	120,696		109,335		359,964		327,265
OPERATING INCOME	80,461		75,917		237,518		224,240
Other interest income	105		6		285		109
Interest expense	(24,313)		(21,733)		(71,143)		(69,346)
Early extinguishment of debt	—		—		—		(19,072)
Income from real estate partnerships	—		360		41		986
INCOME FROM CONTINUING OPERATIONS	56,253		54,550		166,701		136,917
Gain on sale of real estate and change in control of interests	4,945		—		32,458		11,509
NET INCOME	61,198		54,550		199,159		148,426
Net income attributable to noncontrolling interests	(2,221)		(2,103)		(7,286)		(6,161)
NET INCOME ATTRIBUTABLE TO THE TRUST	58,977		52,447		191,873		142,265
Dividends on preferred shares	(136)		(136)		(406)		(406)
NET INCOME AVAILABLE FOR COMMON SHAREHOLDERS	$	58,841	$	52,311	$	191,467	$	141,859
EARNINGS PER COMMON SHARE, BASIC
Continuing operations	$	0.75	$	0.75	$	2.26	$	1.89
Gain on sale of real estate and change in control of interests, net	0.07		—		0.44		0.17
	$	0.82	$	0.75	$	2.70	$	2.06
Weighted average number of common shares, basic	71,319		69,006		70,626		68,637
EARNINGS PER COMMON SHARE, DILUTED
Continuing operations	$	0.75	$	0.75	$	2.26	$	1.88
Gain on sale of real estate and change in control of interests, net	0.07		—		0.44		0.17
	$	0.82	$	0.75	$	2.70	$	2.05
Weighted average number of common shares, diluted	71,489		69,181		70,804		68,821

Federal Realty Investment Trust
Funds From Operations
September 30, 2016
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands, except per share data)
Funds from Operations available for common shareholders (FFO)
Net income	$	61,198	$	54,550	$	199,159	$	148,426
Net income attributable to noncontrolling interests	(2,221)		(2,103)		(7,286)		(6,161)
Gain on sale of real estate and change in control of interests, net	(4,706)		—		(31,133)		(11,509)
Depreciation and amortization of real estate assets	42,779		38,603		126,806		113,613
Amortization of initial direct costs of leases	4,260		3,689		12,729		10,805
Funds from operations	101,310		94,739		300,275		255,174
Dividends on preferred shares	(136)		(136)		(406)		(406)
Income attributable to operating partnership units	750		879		2,397		2,520
Income attributable to unvested shares	(263)		(325)		(826)		(899)
FFO (1)	$	101,661	$	95,157	$	301,440	$	256,389
Weighted average number of common shares, diluted	72,254		70,115		71,642		69,761
FFO per diluted share (1)	$	1.41	$	1.36	$	4.21	$	3.68

Notes:

1) If the $19.1 million early extinguishment of debt charge incurred in the second quarter of 2015 was excluded, our FFO for the nine months ended September 30, 2015 would have been $275.4 million, and FFO per diluted share would have been $3.95. Additionally, the dividend payout ratio as a percentage of FFO for the nine months ended September 30, 2015 would have been 67%.

Federal Realty Investment Trust
Reconciliation of FFO Guidance
September 30, 2016

The following table provides a reconciliation of the range of estimated earnings per diluted share to estimated FFO per diluted share for the full year 2016 and 2017. Estimates do not include the impact from potential acquisitions, potential dispositions, or land sale gains which have not closed as of November 2, 2016.

	Full Year 2016 Guidance Range

	Low		High
Estimated net income available to common shareholders, per diluted share	$	3.47	$	3.51
Adjustments:
Gain on sale of real estate and change in control of interests, net	(0.43)		(0.43)
Estimated depreciation and amortization of real estate	2.36		2.36
Estimated amortization of initial direct costs of leases	0.23		0.23
Estimated FFO per diluted share	$	5.63	$	5.67

	Full Year 2017 Guidance Range

	Low		High
Estimated net income available to common shareholders, per diluted share	$	3.13	$	3.23
Adjustments:
Estimated depreciation and amortization of real estate	2.46		2.46
Estimated amortization of initial direct costs of leases	0.24		0.24
Estimated FFO per diluted share	$	5.83	$	5.93

Note:

See Glossary of Terms. Individual items may not add up to total due to rounding.

Our 2017 guidance range above for earnings per diluted share and FFO per diluted share reflects the following long term value creation initiatives which have a significant negative impact to projected 2017 earnings. The amounts provided are estimates given only to provide some context to understand our 2017 guidance and does not include all items which impact 2017 guidance. The actual impact to 2017 earnings from these items may be higher or lower than set forth below. Amounts are shown per diluted share:
	Impact to 2017

	Low		High
Impact of Excess Anchor Vacancy	$	(0.06)	$	(0.07)

As a result of both proactive lease buyouts and recent bankruptcies, anchor and near anchor tenant vacancy in the portfolio is nearly 2% higher than our historical normalized levels. This incremental anchor vacancy adversely impacts our 2017 earnings by approximately $0.06 to $0.07 per diluted share. Specific examples of this unusual level of anchor vacancy are: A&P at Brick Plaza, Melville Mall and Troy Hills; The Sports Authority at Assembly Square, Brick Plaza and Crow Canyon; Hudson Trail at Montrose Crossing and AC Moore at Assembly Square.

Impact of Development/Redevelopment Value Creation Initiatives	$	(0.06)	$	(0.10)

During the latter half of 2017, we anticipate delivering approximately 80% of the 719 residential units being developed as part of Phase 2 of each of Pike & Rose and Assembly Row (with the balance of the units delivered in 2018). As is typical with the delivery and lease-up of large residential developments, these projects will operate at a loss during 2017, their initial year of opening and lease-up, as operating costs, marketing costs and interest expense will exceed revenue. Additionally, assuming we obtain internal approval to proceed with our currently contemplated redevelopment plan, we expect to commence redevelopment of a portion of CocoWalk in mid to late 2017. The costs of repositioning the asset and the impact on revenues of our redevelopment activities at both of our 2015 Miami acquisition properties will be dilutive relative to 2016. The expected dilutive impact of these initiatives to 2017 is $0.06 to $0.10 per diluted share.

Impact of Slower Pike & Rose Maturation	$	(0.06)	$	(0.08)

Given the current supply imbalance in Montgomery County Maryland and ongoing disruption due to Phase 2 construction, we now expect Phase 1 of Pike & Rose to achieve economic stabilization in 2019 at a return on cost range of 6-7%.