Federal Realty Investment Trust Announces Third Quarter 2023 Operating Results

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Nov 02, 2023, 16:05 ET

NORTH BETHESDA, Md., Nov. 2, 2023 /PRNewswire/ -- Federal Realty Investment Trust (NYSE:FRT) today reported operating results for its third quarter ended September 30, 2023. For the three months ended September 30, 2023 and 2022, net income available for common shareholders was $0.67 per diluted share and $1.89 per diluted share, respectively. For the three months ended September 30, 2023 and 2022, operating income was $100.1 million and $191.7 million, respectively.

Highlights for the third quarter and subsequent to quarter-end include:

Generated funds from operations available to common shareholders (FFO) per diluted share of $1.65 for the quarter.
Generated 3.8% comparable property operating income (POI) growth for the quarter.
Highest year-to-date comparable leasing volume on record with 1.6 million square feet of comparable space signed in the first nine months of 2023.
Continued robust levels of leasing with 100 signed leases for 552,765 square feet of comparable space in the quarter at a cash basis rollover of 11%.
Federal Realty's portfolio was 92.3% occupied and 94.0% leased. Both metrics reflect a negative impact of approximately 100 basis points resulting from the vacating of the final Bed Bath & Beyond leases.
Continued strong small shop leasing, ending the quarter at 90.7% leased, an increase of 50 basis points quarter-over-quarter and 80 basis points year-over-year.
Tightened and raised 2023 earnings per diluted share guidance to $2.65 - $2.73 and 2023 FFO per diluted share guidance to $6.50 - $6.58.

"In the first nine months of 2023, we achieved a Federal Realty record by leasing over 1.6 million square feet of comparable space," said Donald C. Wood, Federal Realty's Chief Executive Officer. "Our business's strength lies in superior demographics, fueling active leasing at our premium retail destinations. We remain focused on continuing to grow occupancy over the coming quarters."

Financial Results

Net Income

For the third quarter 2023, net income available for common shareholders was $55.0 million and earnings per diluted share was $0.67 versus $154.1 million and $1.89, respectively, for the third quarter 2022.

FFO

For the third quarter 2023, FFO was $135.3 million, or $1.65 per diluted share, compared to $129.3 million, or $1.59 per diluted share for the third quarter 2022.

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.

Operational Update

Occupancy

The portfolio was 92.3% occupied as of September 30, 2023, an increase of 20 basis points year-over-year. The portfolio was 94.0% leased as of September 30, 2023. Both the occupied and leased metrics reflect a negative impact of approximately 100 basis points resulting from the vacating of the final Bed Bath & Beyond leases.

Small shop leased rate was 90.7% as of September 30, 2023, an increase of 50 basis points quarter-over-quarter and 80 basis points year-over-year.

Additionally, our residential properties were 97.8% leased as of September 30, 2023.

Leasing Activity

During the third quarter 2023, Federal Realty signed 105 leases for 565,496 square feet of retail space. On a comparable space basis (i.e., spaces for which there was a former tenant), Federal Realty signed 100 leases for 552,765 square feet at an average rent of $34.51 per square foot compared to the average contractual rent of $31.17 per square foot for the last year of the prior leases, representing a cash basis rollover growth on those comparable spaces of 11%, 21% on a straight-line basis.

Regular Quarterly Dividends

Federal Realty announced today that its Board of Trustees declared a regular quarterly cash dividend of $1.09 per common share, resulting in an indicated annual rate of $4.36 per common share. The regular common dividend will be payable on January 16, 2024 to common shareholders of record as of January 2, 2024.

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 16, 2024 to shareholders of record as of January 2, 2024.

Summary of Other Activities

August 28, 2023 – Federal Realty earned a place on The San Francisco Chronicle's 2023 Top Workplaces list for its commitment to employee well-being and satisfaction.
October 12, 2023 – Federal Realty acquired the fee interest under a portion of its Mercer on One (formerly known as Mercer Mall) property for $55.0 million pursuant to the purchase option included in the master lease.
October 27, 2023 – Federal Realty sold a building on Third Street Promenade in Santa Monica, California for $17.2 million.

Guidance

Federal Realty tightened and raised its 2023 guidance for earnings per diluted share to $2.65 to $2.73 from $2.64 to $2.76 and its 2023 FFO per diluted share to $6.50 to $6.58 from $6.46 to $6.58.

Conference Call Information

Federal Realty's management team will present an in-depth discussion of Federal Realty's operating performance on its third quarter 2023 earnings conference call, which is scheduled for Thursday, November 2, 2023 at 5:00 PM ET. To participate, please call 1-844-826-3035 five to ten minutes prior to the call start time and use the passcode 3535271 (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 16, 2023 by dialing 1-844-512-2921; Passcode: 10182801.

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 102 properties include approximately 3,300 tenants, in 26 million square feet, and approximately 3,100 residential units.

Federal Realty has increased its quarterly dividends to its shareholders for 56 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 8, 2023, 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, or if the costs of capital we obtain are significantly higher than historical levels;
risks associated with general economic conditions, including inflation and 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 8, 2023 and subsequent quarterly reports on Form 10-Q.

Federal Realty Investment Trust
Consolidated Balance Sheets
September 30, 2023
	September 30,	December 31,
	2023	2022
	(in thousands, except share and per share data)
	(unaudited)
ASSETS
Real estate, at cost
Operating (including 2,013,166 and $1,997,583 of consolidated variable interest entities, respectively)	$ 9,848,565	$ 9,441,945
Construction-in-progress (including $11,030 and $8,477 of consolidated variable interest entities, respectively)	619,964	662,554
	10,468,529	10,104,499
Less accumulated depreciation and amortization (including $402,929 and $362,921 of consolidated variable interest entities, respectively)	(2,901,879)	(2,715,817)
Net real estate	7,566,650	7,388,682
Cash and cash equivalents	98,210	85,558
Accounts and notes receivable, net	192,066	197,648
Mortgage notes receivable, net	9,209	9,456
Investment in partnerships	35,463	145,205
Operating lease right of use assets, net	87,597	94,569
Finance lease right of use assets, net	44,762	45,467
Prepaid expenses and other assets	259,736	267,406
TOTAL ASSETS	$ 8,293,693	$ 8,233,991
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgages payable, net (including $189,928 and $191,827 of consolidated variable interest entities, respectively)	$ 318,501	$ 320,615
Notes payable, net	652,203	601,077
Senior notes and debentures, net	3,479,821	3,407,701
Accounts payable and accrued expenses	209,854	190,340
Dividends payable	91,372	90,263
Security deposits payable	30,180	28,508
Operating lease liabilities	76,413	77,743
Finance lease liabilities	67,813	67,660
Other liabilities and deferred credits	229,948	237,699
Total liabilities	5,156,105	5,021,606
Commitments and contingencies
Redeemable noncontrolling interests	176,539	178,370
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 shares issued and outstanding	9,822	9,822
Common shares of beneficial interest, $.01 par, 200,000,000 and 100,000,000 shares authorized, respectively, 81,618,162 and 81,342,959 shares issued and outstanding, respectively	821	818
Additional paid-in capital	3,846,845	3,821,801
Accumulated dividends in excess of net income	(1,132,350)	(1,034,186)
Accumulated other comprehensive income	6,773	5,757
Total shareholders' equity of the Trust	2,881,911	2,954,012
Noncontrolling interests	79,138	80,003
Total shareholders' equity	2,961,049	3,034,015
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 8,293,693	$ 8,233,991

Federal Realty Investment Trust
Consolidated Income Statements
September 30, 2023
	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2023	2022	2023	2022
	(in thousands, except per share data)
	(unaudited)
REVENUE
Rental income	$ 286,323	$ 273,179	$ 839,509	$ 793,516
Mortgage interest income	281	272	833	805
Total revenue	286,604	273,451	840,342	794,321
EXPENSES
Rental expenses	58,595	58,809	169,410	166,189
Real estate taxes	33,045	32,803	97,992	94,628
General and administrative	13,149	13,100	37,607	39,046
Depreciation and amortization	81,731	77,109	239,342	223,244
Total operating expenses	186,520	181,821	544,351	523,107

Gain on deconsolidation of VIE	—	70,374	—	70,374
Gain on sale of real estate	—	29,723	1,702	29,723

OPERATING INCOME	100,084	191,727	297,693	371,311

OTHER INCOME/(EXPENSE)
Other interest income	721	234	3,775	487
Interest expense	(42,726)	(35,060)	(124,835)	(98,707)
Income from partnerships	1,313	1,873	3,494	4,878
NET INCOME	59,392	158,774	180,127	277,969
Net income attributable to noncontrolling interests	(2,344)	(2,636)	(7,245)	(8,171)
NET INCOME ATTRIBUTABLE TO THE TRUST	57,048	156,138	172,882	269,798
Dividends on preferred shares	(2,008)	(2,008)	(6,024)	(6,026)
NET INCOME AVAILABLE FOR COMMON SHAREHOLDERS	$ 55,040	$ 154,130	$ 166,858	$ 263,772

EARNINGS PER COMMON SHARE, BASIC:
Net income available for common shareholders	$ 0.67	$ 1.90	$ 2.04	$ 3.31
Weighted average number of common shares	81,274	80,765	81,210	79,480
EARNINGS PER COMMON SHARE, DILUTED:
Net income available for common shareholders	$ 0.67	$ 1.89	$ 2.04	$ 3.31
Weighted average number of common shares	81,274	81,511	81,210	80,137

Federal Realty Investment Trust
Funds From Operations
September 30, 2023
	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2023	2022	2023	2022
	(in thousands, except per share data)
Funds from Operations available for common shareholders (FFO)
Net income	$ 59,392	$ 158,774	$ 180,127	$ 277,969
Net income attributable to noncontrolling interests	(2,344)	(2,636)	(7,245)	(8,171)
Gain on deconsolidation of VIE	—	(70,374)	—	(70,374)
Gain on sale of real estate	—	(29,723)	(1,702)	(29,723)
Depreciation and amortization of real estate assets	71,802	67,455	212,792	196,159
Amortization of initial direct costs of leases	8,116	7,454	23,468	19,129
Funds from operations	136,966	130,950	407,440	384,989
Dividends on preferred shares (1)	(1,875)	(1,875)	(5,625)	(5,625)
Income attributable to downREIT operating partnership units	693	704	2,074	2,111
Income attributable to unvested shares	(494)	(449)	(1,481)	(1,353)
FFO	$ 135,290	$ 129,330	$ 402,408	$ 380,122
Weighted average number of common shares, diluted (1)(2)	82,004	81,511	81,942	80,232
FFO per diluted share (2)	$ 1.65	$ 1.59	$ 4.91	$ 4.74

Notes:

(1)

For the three and nine months ended September 30, 2023 and 2022, 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 includes downREIT operating partnership units that were excluded from the computation of diluted EPS. 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, 2023.

Investor Inquiries:

Leah Andress Brady

Vice President, Investor Relations

301.998.8265

[email protected]

Media Inquiries:

Brenda Pomar

Senior Director, Corporate Communications

301.998.8316

[email protected]

SOURCE Federal Realty Investment Trust