Federal Realty Investment Trust Announces Third Quarter 2022 Operating Results

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Nov 03, 2022, 16:05 ET

NORTH BETHESDA, Md., Nov. 3, 2022 /PRNewswire/ -- Federal Realty Investment Trust (NYSE:FRT) today reported operating results for its third quarter ended September 30, 2022. For the three months ended September 30, 2022 and 2021, net income available for common shareholders was $1.89 per diluted share and $0.64 per diluted share, respectively.

Highlights for the quarter and subsequent events include:

Generated funds from operations available to common shareholders (FFO) per diluted share of $1.59 for the quarter compared to $1.51 for the third quarter 2021.
Generated comparable property operating income (POI) growth of 3.7% for the third quarter and 8.8% year-to-date.
Continued record levels of leasing with 119 signed leases for 562,859 square feet of comparable space in the third quarter, the highest third quarter volume on record.
Federal Realty's portfolio was 92.1% occupied and 94.3% leased, representing year-over-year increases of 190 basis points and 150 basis points, respectively and 10 basis points and 20 basis point increases, respectively quarter-over-quarter.

220 basis point spread between leased and occupied.

Continued strong small shop leasing, ending the quarter at 89.9% leased, an increase of 60 basis points over second quarter 2022, an increase of 380 basis points year-over-year and an increase of 640 basis points since the COVID-era low.
Sold 2 non-core assets for a combined sales price of $67 million in the third quarter.
Subsequent to quarter end, increased our total bank capacity by $550 million to $1.85 billion.

Amended our revolving credit facility, increasing the borrowing capacity from $1.0 billion to $1.25 billion, extending the maturity date to April 5, 2027, plus two six-month extension options.
Amended our unsecured term loan and borrowed an additional $300.0 million for a total of $600.0 million.

Increased 2022 earnings per diluted share guidance to $3.88 - $3.93 and increased 2022 FFO per diluted share guidance to $6.27 - $6.32.

"Another great quarter of outperformance with continued record leasing, a robust forward pipeline and bottom-line growth," said Donald C. Wood, Chief Executive Officer. "The sector leading household income and population levels that surround our properties are the best defense in today's uncertain macro environment."

Financial Results

Net Income

Net income available for common shareholders was $154.1 million and earnings per diluted share was $1.89 for third quarter 2022 versus $50.1 million and $0.64 respectively, for third quarter 2021.

FFO

In the third quarter 2022, Federal Realty generated FFO of $129.3 million, or $1.59 per diluted share. This compares to FFO of $118.0 million, or $1.51 per diluted share, in third quarter 2021.

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

Occupancy

The portfolio was 92.1% occupied as of September 30, 2022, an increase of 10 basis points quarter-over-quarter and an increase of 190 basis points year-over-year. The portfolio was 94.3% leased as of September 30, 2022, an increase of 20 basis points quarter-over-quarter and an increase of 150 basis points year-over-year. The spread between our leased and occupied percentages was 220 basis points at the end of the third quarter.

Additionally, our residential properties were 97.0% leased as of September 30, 2022, a sequential increase of 20 basis points over second quarter.

Leasing Activity

During the third quarter 2022, Federal Realty signed 126 leases for 584,949 square feet of retail space. On a comparable space basis (i.e., spaces for which there was a former tenant), Federal Realty leased 119 leases for 562,859 square feet at an average rent of $34.57 per square foot compared to the average contractual rent of $33.61 per square foot for the last year of the prior leases, representing a cash basis rollover growth on those comparable spaces of 3%, 13% on a straight-line basis.

Regular Quarterly Dividends

Federal Realty announced today that its Board of Trustees declared a regular quarterly cash dividend of $1.08 per common share, resulting in an indicated annual rate of $4.32 per common share. The regular common dividend will be payable on January 17, 2023 to common shareholders of record as of January 3, 2023.

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 17, 2023 to shareholders of record as of January 3, 2023.

Summary of Other Activities

October 18, 2022 – Federal Realty announced that it has been recognized as a peer group leader in multiple categories in the 2022 Global Real Estate Sustainability Benchmark (GRESB) Real Estate Assessment. The company earned the #1 ranking in the U.S. Publicly Listed Retail Centers peer group under the Standing Investments Benchmark Report. In addition, Federal earned the #1 ranking and was named Sector Leader in the U.S. Diversified-Office/Residential peer group under the Development Benchmark Report. It also received an "A" Public Disclosure Score from GRESB for the second consecutive year and achieved "Green Star" recognition for the fifth year. The REIT was previously named "Development Sector Leader" in GRESB's 2020 Real Estate Assessment.
October 11, 2022 – Federal Realty announced it has set a target approved by the Science Based Targets initiative to reduce Scope 1 and 2 greenhouse gas emissions by 46% between 2019 and 2030. This goal has been set in alignment with the more stringent objective of keeping global temperature increases to less than 1.5°C, the most ambitious goal of the Paris Agreement.
October 6, 2022 - Federal Realty acquired a 47.5% interest in an unconsolidated joint venture that owns Chandler Festival and Chandler Gateway, two dominant regional shopping centers located in one of the top retail nodes in the Phoenix metro area for $58.9 million. Combined, the properties comprise 617,000 square feet on 62 acres.
October 1, 2022 – Mr. Thomas A. McEachin joined Federal Realty's Board of Trustees replacing Mr. Mark S. Ordan who resigned effective September 30, 2022. Mr. McEachin is a seasoned financial executive having held various positions at leading companies such as United Technologies, Digital Equipment, Xerox and, most recently, as Chief Financial Officer of Covidien Surgical Solutions, the largest division of Covidien PLC.
September 2022 - Federal Realty sold two non-core assets, Towson Residential (including a retail pad) and Rockville Town Square, for a combined total sales price of $67 million.

Guidance

Federal Realty increased its 2022 guidance for earnings per diluted share to $3.88 - $3.93 from $2.50 - $2.65 and 2022 FFO per diluted share to $6.27 - $6.32 from $6.10 - $6.25.

Conference Call Information

Federal Realty's management team will present an in-depth discussion of Federal Realty's operating performance on its third quarter 2022 earnings conference call, which is scheduled for Thursday, November 3, 2022 at 5:00 PM ET. To participate, please call 844.826.3035 five to ten minutes prior to the call start time and use the passcode 10171249 (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 17, 2022 by dialing 844.512.2921; Passcode: 10171249.

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 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 3,200 tenants, in 26 million square feet, and approximately 3,300 residential units.

Federal Realty has increased its quarterly dividends to its shareholders for 55 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, 2022, 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 or to fill existing vacancy;
risks that we may not be able to proceed with or obtain necessary approvals for any development, redevelopment or renovation project, and that completion of anticipated or ongoing property development, redevelopment or renovation projects that we do pursue may cost more, take more time to complete or fail to perform as expected;
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 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; and
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, 2022 and subsequent quarterly reports on Form 10-Q.

Federal Realty Investment Trust
Consolidated Balance Sheets
September 30, 2022
	September 30,	December 31,
	2022	2021
	(in thousands, except share and per share data)
	(unaudited)
ASSETS
Real estate, at cost
Operating (including $1,963,129 and $2,207,648 of consolidated variable interest entities, respectively)	$ 9,323,359	$ 8,814,791
Construction-in-progress (including $23,448 and $18,752 of consolidated variable interest entities, respectively)	681,641	607,271
	10,005,000	9,422,062
Less accumulated depreciation and amortization (including $349,553 and $389,950 of consolidated variable interest entities, respectively)	(2,660,799)	(2,531,095)
Net real estate	7,344,201	6,890,967
Cash and cash equivalents	146,214	162,132
Accounts and notes receivable, net	187,149	169,007
Mortgage notes receivable, net	9,475	9,543
Investment in partnerships	122,822	13,027
Operating lease right of use assets	95,187	90,743
Finance lease right of use assets	45,756	49,832
Prepaid expenses and other assets	266,203	237,069
TOTAL ASSETS	$ 8,217,007	$ 7,622,320
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgages payable, net (including $192,442 and $335,301 of consolidated variable interest entities, respectively)	$ 321,299	$ 339,993
Notes payable, net	568,302	301,466
Senior notes and debentures, net	3,407,298	3,406,088
Accounts payable and accrued expenses	245,610	235,168
Dividends payable	90,121	86,538
Security deposits payable	28,042	25,331
Operating lease liabilities	78,234	72,661
Finance lease liabilities	67,662	72,032
Other liabilities and deferred credits	242,800	206,187
Total liabilities	5,049,368	4,745,464
Commitments and contingencies
Redeemable noncontrolling interests	185,759	213,708
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), 392,878 and 399,896 shares issued and outstanding, respectively	9,822	9,997
Common shares of beneficial interest, $.01 par, 100,000,000 shares authorized, 81,204,286 and 78,603,305 shares issued and outstanding, respectively	817	790
Additional paid-in capital	3,794,247	3,488,794
Accumulated dividends in excess of net income	(1,060,027)	(1,066,932)
Accumulated other comprehensive income (loss)	6,084	(2,047)
Total shareholders' equity of the Trust	2,900,943	2,580,602
Noncontrolling interests	80,937	82,546
Total shareholders' equity	2,981,880	2,663,148
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 8,217,007	$ 7,622,320

Federal Realty Investment Trust
Consolidated Income Statements
September 30, 2022
	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2022	2021	2022	2021
	(in thousands, except per share data)
	(unaudited)
REVENUE
Rental income	$ 273,179	$ 247,024	$ 793,516	$ 694,954
Mortgage interest income	272	260	805	2,116
Total revenue	273,451	247,284	794,321	697,070
EXPENSES
Rental expenses	58,809	49,318	166,189	141,474
Real estate taxes	32,803	29,529	94,628	88,272
General and administrative	13,100	12,253	39,046	35,357
Depreciation and amortization	77,109	70,611	223,244	202,160
Total operating expenses	181,821	161,711	523,107	467,263

Gain on deconsolidation of VIE	70,374	—	70,374	—
Gain on sale of real estate and change in control of interest	29,723	—	29,723	17,428

OPERATING INCOME	191,727	85,573	371,311	247,235

OTHER INCOME/(EXPENSE)
Other interest income	234	88	487	701
Interest expense	(35,060)	(32,249)	(98,707)	(95,511)
Income (loss) from partnerships	1,873	1,129	4,878	(86)
NET INCOME	158,774	54,541	277,969	152,339
Net income attributable to noncontrolling interests	(2,636)	(2,419)	(8,171)	(5,777)
NET INCOME ATTRIBUTABLE TO THE TRUST	156,138	52,122	269,798	146,562
Dividends on preferred shares	(2,008)	(2,010)	(6,026)	(6,031)
NET INCOME AVAILABLE FOR COMMON SHAREHOLDERS	$ 154,130	$ 50,112	$ 263,772	$ 140,531

EARNINGS PER COMMON SHARE, BASIC:
Net income available for common shareholders	$ 1.90	$ 0.64	$ 3.31	$ 1.81
Weighted average number of common shares	80,765	77,485	79,480	77,269
EARNINGS PER COMMON SHARE, DILUTED:
Net income available for common shareholders	$ 1.89	$ 0.64	$ 3.31	$ 1.81
Weighted average number of common shares	81,511	77,575	80,137	77,287

Federal Realty Investment Trust
Funds From Operations
September 30, 2022
	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2022	2021	2022	2021
	(in thousands, except per share data)
Funds from Operations available for common shareholders (FFO)
Net income	$ 158,774	$ 54,541	$ 277,969	$ 152,339
Net income attributable to noncontrolling interests	(2,636)	(2,419)	(8,171)	(5,777)
Gain on deconsolidation of VIE	(70,374)	—	(70,374)	—
Gain on sale of real estate and change in control of interest	(29,723)	—	(29,723)	(17,428)
Depreciation and amortization of real estate assets	67,455	61,236	196,159	174,770
Amortization of initial direct costs of leases	7,454	6,202	19,129	20,127
Funds from operations	130,950	119,560	384,989	324,031
Dividends on preferred shares (1)	(1,875)	(1,875)	(5,625)	(6,031)
Income attributable to downREIT operating partnership units	704	742	2,111	2,267
Income attributable to unvested shares	(449)	(438)	(1,353)	(1,156)
FFO	$ 129,330	$ 117,989	$ 380,122	$ 319,111
Weighted average number of common shares, diluted (1)(2)	81,511	78,365	80,232	77,997
FFO per diluted share (2)	$ 1.59	$ 1.51	$ 4.74	$ 4.09

Notes:
1)	For the three and nine months ended September 30, 2022 and the three months ended September 30, 2021, 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 are included in "weighted average common shares, diluted."
2)	The weighted average common shares used to compute FFO per diluted common share for all periods presented includes downREIT operating partnership units that were excluded from the computation of diluted EPS for the three and nine months ended September 30, 2021. Conversion of these operating partnership units is dilutive in the computation of FFO per diluted share for all periods presented but is anti-dilutive for the computation of dilutive EPS for the three and nine months ended September 30, 2021.