Federal Realty Investment Trust Announces Second Quarter 2019 Operating Results

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Aug 01, 2019, 16:05 ET

ROCKVILLE, Md., Aug. 1, 2019 /PRNewswire/ -- Federal Realty Investment Trust (NYSE: FRT) today reported operating results for its second quarter ended June 30, 2019. For the three months ended June 30, 2019 and 2018, net income available for common shareholders was $1.05 per diluted share and $0.84 per diluted share, respectively.

Highlights of the quarter include:

Generated funds from operations available for common shareholders (FFO) per diluted share of $1.60 for the quarter compared to $1.55 in second quarter 2018.
Generated comparable property operating income (POI) growth of 3.5% for the second quarter.
Signed leases for 378,756 sf of comparable space in the second quarter at an average rent of $42.68 psf and achieved cash basis rollover growth on those comparable spaces of 7%.
Opportunistically issued $300 million aggregate principal amount of 3.20% Notes due 2029.
Amended our revolving credit facility to increase our borrowing capacity to $1.0 billion, extend the maturity date to January 2024, plus two six-month extension options, and lower the spread over LIBOR to 77.5 basis points.
Increased the regular quarterly dividend rate on common shares to $1.05 per share, representing the 52^nd consecutive year of common dividend increases.
Maintained our 2019 FFO per diluted share guidance range of $6.30 - $6.46.

"Continuing to reliably grow bottom line results despite headwinds remains our focal point and the second quarter didn't disappoint," said Donald C. Wood, President and Chief Executive Officer. "Our multi-faceted business plan including great properties, strong leases, redevelopment and development opportunities and an advantageous cost of capital all contributed to a solid result and allowed us to increase our dividend to our shareholders for a REIT-record 52 years in a row."

Financial Results

Net income available for common shareholders was $78.9 million and earnings per diluted share was $1.05 for second quarter 2019 versus $61.6 million and $0.84, respectively, for second quarter 2018.

In the second quarter 2019, Federal Realty generated FFO of $121.0 million, or $1.60 per diluted share. This compares to FFO of $114.8 million, or $1.55 per diluted share, in second quarter 2018.

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 94.1% leased as of June 30, 2019, and the comparable portfolio was 94.6% leased. In second quarter 2019, comparable property POI increased 3.5%. 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.

During the second quarter 2019, Federal Realty signed 115 leases for 382,656 square feet of retail space. On a comparable space basis (i.e., spaces for which there was a former tenant), Federal Realty leased 378,756 square feet at an average rent of $42.68 per square foot compared to the average contractual rent of $39.75 per square foot for the last year of the prior leases, representing a cash basis rollover growth on those comparable spaces of 7%.

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 $1.05 per share, resulting in an indicated annual rate of $4.20 per share. The regular common dividend will be payable on October 15, 2019, to common shareholders of record on September 23, 2019. This increase represents the 52^nd 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, 2019 to shareholders of record as of September 23, 2019.

Summary of Other Quarterly Activities and Recent Developments

May 28, 2019 – Federal Realty closed on the sale of Free State Shopping Center for $72.0 million. Free State Shopping Center is a 264,000 square foot Giant Food anchored shopping center located in Bowie, Maryland.

June 7, 2019 – Federal Realty issued $300 million aggregate principal amount of 3.20% Notes due 2029 at 99.838% of par value. Federal Realty used the net proceeds from the offering to repay in full the outstanding balance of its unsecured term loan and for general corporate purposes.

July 25, 2019 – Federal Realty completed an amendment of its revolving credit facility to increase the borrowing capacity to $1.0 billion from $800 million and extend the maturity date to January 19, 2024, plus two six-month extension options. The pricing was also lowered to LIBOR plus 77.5 basis points based on the Trust's current rating.

Guidance

Federal Realty maintained its 2019 guidance for FFO per diluted share of $6.30 to $6.46 and updated 2019 earnings per diluted share guidance to $3.39 to $3.55.

Conference Call Information

Federal Realty's management team will present an in-depth discussion of the Trust's operating performance on its second quarter 2019 earnings conference call, which is scheduled for Friday, August 2, 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 9787327 (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, 2019 by dialing 855.859.2056; Passcode: 9787327.

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 52 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.

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

Federal Realty Investment Trust
Consolidated Balance Sheets
June 30, 2019
	June 30,		December 31,
	2019		2018
	(in thousands, except share and per share data)
	(unaudited)
ASSETS
Real estate, at cost
Operating (including $1,703,069 and $1,701,804 of consolidated variable interest entities, respectively)	$	7,293,212	$	7,307,622
Construction-in-progress (including $78,633 and $51,313 of consolidated variable interest entities, respectively)	575,229		495,274
Assets held for sale	5,938		16,576
	7,874,379		7,819,472
Less accumulated depreciation and amortization (including $312,416 and $292,374 of consolidated variable interest entities, respectively)	(2,148,010)		(2,059,143)
Net real estate	5,726,369		5,760,329
Cash and cash equivalents	105,903		64,087
Accounts and notes receivable, net	138,870		142,237
Mortgage notes receivable, net	30,429		30,429
Investment in partnerships	30,800		26,859
Operating lease right of use assets	94,828		—
Finance lease right of use assets	53,044		—
Prepaid expenses and other assets	203,498		265,703
TOTAL ASSETS	$	6,383,741	$	6,289,644
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgages payable, net (including $441,469 and $444,388 of consolidated variable interest entities, respectively)	$	450,883	$	474,379
Capital lease obligations	—		71,519
Notes payable, net	4,163		279,027
Senior notes and debentures, net	2,702,737		2,404,279
Accounts payable and accrued expenses	177,078		177,922
Dividends payable	78,808		78,207
Security deposits payable	20,588		17,875
Operating lease liabilities	74,536		—
Finance lease liabilities	72,068		—
Other liabilities and deferred credits	157,524		182,898
Total liabilities	3,738,385		3,686,106
Commitments and contingencies
Redeemable noncontrolling interests	134,710		136,208
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, 74,950,197 and 74,249,633 shares issued and outstanding, respectively	752		745
Additional paid-in capital	3,088,946		3,004,442
Accumulated dividends in excess of net income	(841,505)		(818,877)
Accumulated other comprehensive loss	(1,024)		(416)
Total shareholders' equity of the Trust	2,407,166		2,345,891
Noncontrolling interests	103,480		121,439
Total shareholders' equity	2,510,646		2,467,330
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	6,383,741	$	6,289,644

Federal Realty Investment Trust
Consolidated Income Statements
June 30, 2019
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(in thousands, except per share data)
	(unaudited)
REVENUE
Rental income	$	229,731	$	224,168	$	461,223	$	448,816
Mortgage interest income	734		734		1,469		1,491
Total revenue	230,465		224,902		462,692		450,307
EXPENSES
Rental expenses	41,438		39,905		85,698		84,678
Real estate taxes	25,166		28,307		52,853		56,755
General and administrative	11,422		8,413		20,987		16,342
Depreciation and amortization	59,057		58,381		118,679		116,491
Total operating expenses	137,083		135,006		278,217		274,266

Gain on sale of real estate, net of tax	16,197		3,972		16,197		7,288

OPERATING INCOME	109,579		93,868		200,672		183,329

OTHER INCOME/(EXPENSE)
Other interest income	189		159		366		338
Interest expense	(27,482)		(27,766)		(55,515)		(53,950)
Income (loss) from partnerships	381		(728)		(1,053)		(1,253)
NET INCOME	82,667		65,533		144,470		128,464
Net income attributable to noncontrolling interests	(1,765)		(1,938)		(3,424)		(3,622)
NET INCOME ATTRIBUTABLE TO THE TRUST	80,902		63,595		141,046		124,842
Dividends on preferred shares	(2,011)		(2,011)		(4,021)		(4,021)
NET INCOME AVAILABLE FOR COMMON SHAREHOLDERS	$	78,891	$	61,584	$	137,025	$	120,821
EARNINGS PER COMMON SHARE, BASIC:
Net income available for common shareholders	$	1.05	$	0.84	$	1.83	$	1.65
Weighted average number of common shares	74,713		72,990		74,458		72,948
EARNINGS PER COMMON SHARE, DILUTED:
Net income available for common shareholders	$	1.05	$	0.84	$	1.83	$	1.65
Weighted average number of common shares	74,713		73,025		74,458		72,997

Federal Realty Investment Trust
Funds From Operations
June 30, 2019
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(in thousands, except per share data)
Funds from Operations available for common shareholders (FFO) (1)
Net income	$	82,667	$	65,533	$	144,470	$	128,464
Net income attributable to noncontrolling interests	(1,765)		(1,938)		(3,424)		(3,622)
Gain on sale of real estate, net	(16,197)		(3,972)		(16,197)		(7,288)
Depreciation and amortization of real estate assets	53,323		52,011		106,812		103,362
Amortization of initial direct costs of leases	4,537		4,702		9,287		9,302
Funds from operations	122,565		116,336		240,948		230,218
Dividends on preferred shares	(1,875)		(1,875)		(3,750)		(3,750)
Income attributable to operating partnership units	661		759		1,390		1,534
Income attributable to unvested shares	(346)		(398)		(690)		(786)
FFO	$	121,005	$	114,822	$	237,898	$	227,216
Weighted average number of common shares, diluted	75,456		73,880		75,235		73,859
FFO per diluted share	$	1.60	$	1.55	$	3.16	$	3.08

Notes:

1)	In connection with the adoption of the new lease accounting standard, effective January 1, 2019, certain internal and external legal leasing costs no longer qualify for capitalization. As a result, capitalized leasing costs excluding external commissions decreased to $0.6 million and $1.0 million for the three and six months ended June 30, 2019, respectively, from $2.0 million and $3.6 million for the three and six months ended June 30, 2018, respectively.