Federal Realty Investment Trust Announces Third Quarter 2018 Operating Results

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- Reports 3.5% comparable property POI growth and raises 2018 Guidance -

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Oct 31, 2018, 16:05 ET

ROCKVILLE, Md., Oct. 31, 2018 /PRNewswire/ -- Federal Realty Investment Trust (NYSE:FRT) today reported operating results for its third quarter ended September 30, 2018. Highlights of the quarter and recent activity include:

Generated earnings per diluted share of $0.82 for the quarter compared to $1.47 in third quarter 2017, which included a $0.70 gain on sale of real estate.
Generated funds from operations available for common shareholders (FFO) per diluted share of $1.58 for the quarter compared to $1.50 in third quarter 2017.
Generated comparable property property operating income (POI) growth of 3.5% for the third quarter.
Signed leases for 447,765 square feet of comparable space (469,214 square feet total) in the third quarter at an average rent of $38.31 per square foot and achieved cash basis rollover growth on those comparable spaces of 6%. Over the last four quarters, cash basis rollover growth on comparable spaces was 12%.
Signed a long-term lease with Splunk Inc. for 301,000 square feet of office area at 700 Santana Row, a 319,000 square foot, Class-A mixed-use office and retail building under construction at Santana Row
Increased 2018 FFO per diluted share guidance range to $6.18 to $6.24.

"I couldn't be more pleased with the way our portfolio and our team are responding to changing consumer spending preferences" said Donald C. Wood, President and Chief Executive Officer of Federal Realty. "A big part of our ability to consistently and sustainably grow earnings—this quarter is the best result we've ever posted— is the breadth of the product type that we acquire, build and operate in some of the strongest markets in the country. The retail and entertainment experience that we create on the ground floor is an integral part of our ability to generate revenues from office users, apartment renters and hotel guests who work, live and stay above."

Financial Results

Net income available for common shareholders was $60.5 million and earnings per diluted share was $0.82 for third quarter 2018 versus $106.6 million and $1.47, respectively, for third quarter 2017 which included a $0.70 gain on sale of real estate. Year-to-date Federal Realty reported net income available for common shareholders of $181.4 million and earnings per diluted share of $2.47 which included a $0.14 gain on sale of real estate. This compares to net income available for common shareholders of $238.8 million and earnings per diluted share of $3.30 for the nine months ended September 30, 2017 which included a $0.97 gain on sale of real estate.

In third quarter 2018, Federal Realty generated funds from operations available for common shareholders of $117.3 million, or $1.58 per diluted share. This compares to FFO of $110.0 million, or $1.50 per diluted share, in third quarter 2017. For the nine months ended September 30, 2017, FFO was $344.6 million, or $4.66 per diluted share, compared to $324.5 million, or $4.45 per diluted share for the same nine month period in 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 third quarter 2018, 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.

The overall portfolio was 94.8% leased as of September 30, 2018, compared to 94.9% on September 30, 2017. Federal Realty's comparable portfolio was 95.2% leased on September 30, 2018, compared to 95.4% on September 30, 2017.

During third quarter 2018, Federal Realty signed 101 leases for 469,214 square feet of retail space. On a comparable space basis (i.e., spaces for which there was a former tenant), Federal Realty leased 447,765 square feet at an average rent of $38.31 per square foot compared to the average contractual rent of $36.22 per square foot for the last year of the prior leases, representing a cash basis rollover growth on those comparable spaces of 6%. Over the last four quarters, cash basis rollover growth on comparable spaces was 12%.

Summary of Other Quarterly Activities and Recent Developments

August 27, 2018 –Federal Realty announced that Splunk Inc. (NASDAQ: SPLK) signed a long-term lease for 301,000 square feet of office space in 700 Santana Row, a 319,000 square foot, Class-A mixed-use office and retail building under construction at Santana Row at the intersection of Santana Row and Olsen Drive.

Dividend Declarations

Federal Realty's Board of Trustees declared 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 January 15, 2019 to common shareholders of record as of January 2, 2019.

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, 2019 to shareholders of record as of January 2, 2019.

Guidance

Federal Realty raised its guidance for 2018 FFO per diluted share to a range of $6.18 to $6.24 and increased 2018 earnings per diluted share guidance to a range of $3.23 to $3.29.

Federal Realty will provide preliminary expectations for 2019 FFO per diluted share on the Trust's third quarter 2018 earnings conference call.

Conference Call Information

Federal Realty's management team will present an in-depth discussion of the Trust's operating performance on its third quarter 2018 earnings conference call, which is scheduled for Thursday, November 1, 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 6491417 (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 8, 2018 by dialing 855.859.2056; Passcode: 6491417.

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
September 30, 2018

	September 30,		December 31,
	2018		2017
	(in thousands, except share and per share data)
	(unaudited)
ASSETS
Real estate, at cost
Operating (including $1,665,185 and $1,639,486 of consolidated variable interest entities, respectively)	$	7,256,876	$	6,950,188
Construction-in-progress (including $60,937 and $43,393 of consolidated variable interest entities, respectively)	481,994		684,873
Assets held for sale	21,990		—
	7,760,860		7,635,061
Less accumulated depreciation and amortization (including $280,028 and $247,410 of consolidated variable interest entities, respectively)	(2,018,627)		(1,876,544)
Net real estate	5,742,233		5,758,517
Cash and cash equivalents	41,872		15,188
Accounts and notes receivable, net	151,403		209,877
Mortgage notes receivable, net	30,429		30,429
Investment in real estate partnerships	27,647		23,941
Prepaid expenses and other assets	292,080		237,803
TOTAL ASSETS	$	6,285,664	$	6,275,755
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgages payable, net (including $445,831 and $460,372 of consolidated variable interest entities, respectively)	$	476,057	$	491,505
Capital lease obligations	71,529		71,556
Notes payable, net	305,483		320,265
Senior notes and debentures, net	2,403,565		2,401,440
Accounts payable and accrued expenses	184,683		196,332
Dividends payable	77,809		75,931
Security deposits payable	17,698		16,667
Other liabilities and deferred credits	173,953		169,388
Total liabilities	3,710,777		3,743,084
Commitments and contingencies
Redeemable noncontrolling interests	141,448		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, 73,859,280 and 73,090,877 shares issued and outstanding, respectively	741		733
Additional paid-in capital	2,946,555		2,855,321
Accumulated dividends in excess of net income	(795,649)		(749,367)
Accumulated other comprehensive loss	127		22
Total shareholders' equity of the Trust	2,311,771		2,266,706
Noncontrolling interests	121,668		124,808
Total shareholders' equity	2,433,439		2,391,514
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	6,285,664	$	6,275,755

Federal Realty Investment Trust
Consolidated Income Statements
September 30, 2018

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
	(in thousands, except per share data)
	(unaudited)
REVENUE
Rental income	$	223,777	$	212,048	$	664,834	$	620,741
Other property income	5,183		5,171		12,942		10,429
Mortgage interest income	793		734		2,284		2,221
Total revenue	229,753		217,953		680,060		633,391
EXPENSES
Rental expenses	41,909		41,250		126,587		119,487
Real estate taxes	29,086		27,492		85,841		79,104
General and administrative	7,638		9,103		23,980		26,013
Depreciation and amortization	60,778		55,611		177,269		159,656
Total operating expenses	139,411		133,456		413,677		384,260
OPERATING INCOME	90,342		84,497		266,383		249,131
Other interest income	319		79		657		253
Interest expense	(28,166)		(26,287)		(82,116)		(73,952)
Loss from real estate partnerships	(1,440)		(182)		(2,693)		(296)
INCOME FROM CONTINUING OPERATIONS	61,055		58,107		182,231		175,136
Gain on sale of real estate, net	3,125		50,775		10,413		69,949
NET INCOME	64,180		108,882		192,644		245,085
Net income attributable to noncontrolling interests	(1,622)		(2,105)		(5,244)		(5,827)
NET INCOME ATTRIBUTABLE TO THE TRUST	62,558		106,777		187,400		239,258
Dividends on preferred shares	(2,010)		(177)		(6,031)		(448)
NET INCOME AVAILABLE FOR COMMON SHAREHOLDERS	$	60,548	$	106,600	$	181,369	$	238,810
EARNINGS PER COMMON SHARE, BASIC:
Net income available for common shareholders	$	0.82	$	1.47	$	2.47	$	3.31
Weighted average number of common shares	73,400		72,091		73,100		71,983
EARNINGS PER COMMON SHARE, DILUTED:
Net income available for common shareholders	$	0.82	$	1.47	$	2.47	$	3.30
Weighted average number of common shares	73,408		72,206		73,136		72,110

Federal Realty Investment Trust
Funds From Operations
September 30, 2018

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
	(in thousands, except per share data)
Funds from Operations available for common shareholders (FFO)
Net income	$	64,180	$	108,882	$	192,644	$	245,085
Net income attributable to noncontrolling interests	(1,622)		(2,105)		(5,244)		(5,827)
Gain on sale of real estate, net (1)	(3,125)		(50,775)		(10,413)		(69,659)
Depreciation and amortization of real estate assets	54,132		48,796		157,494		139,112
Amortization of initial direct costs of leases	5,232		4,780		14,534		14,530
Funds from operations	118,797		109,578		349,015		323,241
Dividends on preferred shares (2)	(1,875)		(41)		(5,625)		(41)
Income attributable to operating partnership units	765		788		2,299		2,355
Income attributable to unvested shares	(353)		(357)		(1,139)		(1,064)
FFO	$	117,334	$	109,968	$	344,550	$	324,491
Weighted average number of common shares, diluted (2)	74,254		73,089		73,992		73,001
FFO per diluted share	$	1.58	$	1.50	$	4.66	$	4.45


Notes:
1)	$7.3 million of the gain on sale of real estate for the nine months ended September 30, 2018 is related to condominium units sold at Assembly Row and Pike & Rose. $0.6 million and $3.9 million of the gains for the three and nine months ended September 30, 2017, respectively, 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 September 30, 2018 Form 10-Q for additional information regarding the adoption.
2)	For the three and nine months ended September 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."