Federal Realty Investment Trust Announces Third Quarter 2019 Operating Results

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Oct 30, 2019, 16:05 ET

ROCKVILLE, Md., Oct. 30, 2019 /PRNewswire/ -- Federal Realty Investment Trust (NYSE:FRT) today reported operating results for its third quarter ended September 30, 2019. For the three months ended September 30, 2019 and 2018, net income available for common shareholders was $0.84 per diluted share and $0.82 per diluted share, respectively.

Highlights of the quarter include:

Generated funds from operations available for common shareholders (FFO) per diluted share of $1.43 for the quarter ($1.59 excluding the charge related to the buyout of the Kmart lease at Assembly) compared to $1.58 in the third quarter 2018.
Generated comparable property operating income (POI) growth of 2.1% for the third quarter.
Signed leases for 468,643 sf of comparable space in the third quarter at an average rent of $38.93 psf and achieved cash basis rollover growth on those comparable spaces of 7%.
Opportunistically issued $100 million aggregate principal of Notes due 2029 at an effective yield of 2.744%.

"An overall solid operating quarter for the Company made even better by numerous strategic initiatives that will benefit the future," said Donald C. Wood, President and Chief Executive Officer. "Opportunities that availed themselves to us in the third quarter like the targeted acquisition of the Kmart parcel at Assembly and important lease recaptures elsewhere enable future development that pave the way for a clear path to further value enhancement."

Financial Results

Net income available for common shareholders was $63.5 million and earnings per diluted share was $0.84 for third quarter 2019 versus $60.5 million and $0.82, respectively, for third quarter 2018.

In the third quarter 2019, Federal Realty generated FFO of $108.0 million, or $1.43 per diluted share ($1.59 excluding the $11.9 million charge related to the buyout of the Kmart lease at Assembly). This compares to FFO of $117.3 million, or $1.58 per diluted share, in the third 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 94.2% leased as of September 30, 2019, and the comparable portfolio was 94.9% leased. In the third quarter 2019, comparable property POI increased 2.1%. 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. Additionally, the charge related to the buyout of the Kmart lease at Assembly is excluded.

During the third quarter 2019, Federal Realty signed 103 leases for 491,414 square feet of retail space. On a comparable space basis (i.e., spaces for which there was a former tenant), Federal Realty leased 468,643 square feet at an average rent of $38.93 per square foot compared to the average contractual rent of $36.31 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's Board of Trustees declared a regular quarterly cash dividend of $1.05 per common share, resulting in an indicated annual rate of $4.20 per common share. The regular common dividend will be payable on January 15, 2020 to common shareholders of record as of January 2, 2020.

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, 2020 to shareholders of record as of January 2, 2020.

Summary of Other Quarterly Activities and Recent Developments

August 12, 2019 – Federal Realty acquired the Kmart lease at Assembly for $14.5 million, unlocking significant value creation potential on a 6 acre parcel of land at its highly successful Assembly Row project.

August 21, 2019 – Federal Realty issued $100 million aggregate principal amount of Notes due 2029 at an effective yield of 2.744%. The notes have the same terms and are of the same series as the notes that Federal Realty issued on June 7, 2019. Federal Realty used the net proceeds from the offering to reduce amounts outstanding under its revolving credit facility and for general corporate purposes.

October 11, 2019 – Federal Realty closed on the sale of Plaza Pacoima for $51.3 million. Plaza Pacoima is a 204,000 square foot Costco and Best Buy anchored power center located in Pacoima, California. The property was part of the Primestor Joint Venture formed in 2017 and was planned for sale as part of that acquisition. Year-to-date, Federal Realty has completed $149 million of dispositions.

Guidance

Federal Realty revised its 2019 guidance for FFO per diluted share to a range of $6.16 to $6.22 ($6.32 to $6.38 excluding the charge related to the buyout of the Kmart lease at Assembly) and 2019 earnings per diluted share guidance to $3.48 to $3.54.

Conference Call Information

Federal Realty's management team will present an in-depth discussion of the Trust's operating performance on its third quarter 2019 earnings conference call, which is scheduled for Thursday October 31, 2019 at 10:00AM ET. To participate, please call 877.407.9208 five to ten minutes prior to the call start time and use the passcode 13694901 (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 November 14, 2019 by dialing 844.512.2921; Passcode: 13694901.

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.

Federal Realty Investment Trust
Consolidated Balance Sheets
September 30, 2019
	September 30,		December 31,
	2019		2018
	(in thousands, except share and per share data)
	(unaudited)
ASSETS
Real estate, at cost
Operating (including $1,536,443 and $1,701,804 of consolidated variable interest entities, respectively)	$	7,302,912	$	7,307,622
Construction-in-progress (including $97,922 and $51,313 of consolidated variable interest entities, respectively)	691,989		495,274
Assets held for sale	49,835		16,576
	8,044,736		7,819,472
Less accumulated depreciation and amortization (including $289,739 and $292,374 of consolidated variable interest entities, respectively)	(2,190,486)		(2,059,143)
Net real estate	5,854,250		5,760,329
Cash and cash equivalents	162,543		64,087
Accounts and notes receivable, net	143,855		142,237
Mortgage notes receivable, net	30,429		30,429
Investment in partnerships	30,017		26,859
Operating lease right of use assets	94,271		—
Finance lease right of use assets	52,723		—
Prepaid expenses and other assets	239,477		265,703
TOTAL ASSETS	$	6,607,565	$	6,289,644
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgages payable, net (including $389,523 and $444,388 of consolidated variable interest entities, respectively)	$	466,600	$	474,379
Capital lease obligations	—		71,519
Notes payable, net	3,889		279,027
Senior notes and debentures, net	2,806,422		2,404,279
Accounts payable and accrued expenses	221,781		177,922
Dividends payable	81,477		78,207
Security deposits payable	20,354		17,875
Operating lease liabilities	74,032		—
Finance lease liabilities	72,065		—
Other liabilities and deferred credits	165,542		182,898
Total liabilities	3,912,162		3,686,106
Commitments and contingencies
Redeemable noncontrolling interests	122,282		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, 75,494,931 and 74,249,633 shares issued and outstanding, respectively	758		745
Additional paid-in capital	3,167,460		3,004,442
Accumulated dividends in excess of net income	(857,152)		(818,877)
Accumulated other comprehensive loss	(1,135)		(416)
Total shareholders' equity of the Trust	2,469,928		2,345,891
Noncontrolling interests	103,193		121,439
Total shareholders' equity	2,573,121		2,467,330
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	6,607,565	$	6,289,644

Federal Realty Investment Trust
Consolidated Income Statements
September 30, 2019
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
	(in thousands, except per share data)
	(unaudited)
REVENUE
Rental income	$	233,212	$	228,960	$	694,435	$	677,776
Mortgage interest income	735		793		2,204		2,284
Total revenue	233,947		229,753		696,639		680,060
EXPENSES
Rental expenses	54,484		41,909		140,182		126,587
Real estate taxes	29,030		29,086		81,883		85,841
General and administrative	11,060		7,638		32,047		23,980
Depreciation and amortization	59,648		60,778		178,327		177,269
Total operating expenses	154,222		139,411		432,439		413,677

Gain on sale of real estate, net of tax	14,293		3,125		30,490		10,413

OPERATING INCOME	94,018		93,467		294,690		276,796

OTHER INCOME/(EXPENSE)
Other interest income	389		319		755		657
Interest expense	(27,052)		(28,166)		(82,567)		(82,116)
Loss from partnerships	(249)		(1,440)		(1,302)		(2,693)
NET INCOME	67,106		64,180		211,576		192,644
Net income attributable to noncontrolling interests	(1,641)		(1,622)		(5,065)		(5,244)
NET INCOME ATTRIBUTABLE TO THE TRUST	65,465		62,558		206,511		187,400
Dividends on preferred shares	(2,010)		(2,010)		(6,031)		(6,031)
NET INCOME AVAILABLE FOR COMMON SHAREHOLDERS	$	63,455	$	60,548	$	200,480	$	181,369
EARNINGS PER COMMON SHARE, BASIC:
Net income available for common shareholders	$	0.84	$	0.82	$	2.68	$	2.47
Weighted average number of common shares	74,832		73,400		74,584		73,100
EARNINGS PER COMMON SHARE, DILUTED:
Net income available for common shareholders	$	0.84	$	0.82	$	2.68	2.47
Weighted average number of common shares	74,832		73,408		74,584		73,136

Federal Realty Investment Trust
Funds From Operations
September 30, 2019
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
	(in thousands, except per share data)
Funds from Operations available for common shareholders (FFO) (1)
Net income	$	67,106	$	64,180	$	211,576	$	192,644
Net income attributable to noncontrolling interests	(1,641)		(1,622)		(5,065)		(5,244)
Gain on sale of real estate, net	(14,293)		(3,125)		(30,490)		(10,413)
Depreciation and amortization of real estate assets	53,441		54,132		160,253		157,494
Amortization of initial direct costs of leases	4,878		5,232		14,165		14,534
Funds from operations	109,491		118,797		350,439		349,015
Dividends on preferred shares	(1,875)		(1,875)		(5,625)		(5,625)
Income attributable to operating partnership units	658		765		2,048		2,299
Income attributable to unvested shares	(314)		(353)		(1,004)		(1,139)
FFO (2)	$	107,960	$	117,334	$	345,858	$	344,550
Weighted average number of common shares, diluted	75,554		74,254		75,342		73,992
FFO per diluted share (2)	$	1.43	$	1.58	$	4.59	$	4.66

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 $0.7 million and $1.7 million for the three and nine months ended September 30, 2019, respectively, from $1.7 million and $5.3 million for the three and nine months ended September 30, 2018, respectively.

2) Funds from operations available for common shareholders includes an $11.9 million charge related to the buyout of the Kmart lease at Assembly Row Marketplace. If this charge was excluded, our FFO, FFO per diluted share, and dividend payout ratio as a percentage of FFO would have been:

	Three Months Ended		Nine Months Ended
	September 30, 2019		September 30, 2019
	(in thousands, except per share data)
FFO	$	119,837	$	357,735
FFO per diluted share	$	1.59	$	4.75

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]