Federal Realty Investment Trust — Q1 2023 Form 10-Q
Reporting-period note: The supplied filing is for the quarter ended March 31, 2023, not Q1 2022 as stated in the request metadata. It covers the Trust and its operating partnership, which holds substantially all operating assets. Federal Realty owns and operates 102 predominantly retail projects totaling approximately 25.9 million square feet.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $273.1 million | $256.8 million | +6.3% |
| Property operating income | $185.3 million | $170.0 million | +9.0% |
| Operating income | $95.8 million | $86.0 million | +11.4% |
| Net income | $57.7 million | $54.7 million | +5.5% |
| Net income available to common shareholders | $53.3 million | $50.0 million | +6.7% |
| Diluted EPS | $0.65 | $0.63 | +$0.02 |
| FFO available to common shareholders per diluted share | $1.59 | $1.50 | +6.0% |
| Cash provided by operating activities | $143.0 million | $103.1 million | +$39.9 million |
Property operating income was approximately 67.9% of revenue, compared with 66.2% a year earlier; these percentages are calculated from reported figures and are not a company-presented GAAP margin. Revenue growth reflected acquisitions, higher occupancy and rents, and openings at redevelopment projects. Rental expenses declined 1.8%, while real estate taxes rose 6.6% and depreciation and amortization rose 9.7%. Interest expense increased 24.2% to $39.2 million, primarily due to higher borrowing rates and average borrowings.
Balance sheet, cash flow, and capital
- At March 31, 2023, total assets were $8.27 billion and total liabilities were $5.09 billion. Cash and cash equivalents were $99.4 million.
- Total debt, net, was $4.39 billion: $319.9 million of mortgages, $661.4 million of notes payable, and $3.41 billion of senior notes and debentures. The filing reports $660.0 million of variable-rate debt.
- The $1.25 billion revolving credit facility had $60.0 million outstanding at quarter-end; weighted-average borrowing cost for the quarter was 5.4%. The company reported compliance with debt covenants.
- Investing used $100.8 million, including $50.8 million of development and redevelopment spending and $35.3 million for the Huntington Square acquisition. Financing used $31.3 million; cash, cash equivalents, and restricted cash increased $10.9 million to $107.3 million.
- Common dividends declared were $1.08 per share, versus $1.07 in Q1 2022. Dividends paid to common and preferred shareholders were $89.4 million.
Material changes, outlook, and risks
- Comparable leasing in Q1 totaled 505,000 square feet, with an average cash rent increase of 11%: 9% for new leases and 14% for renewals. Portfolio occupancy was 92.6%, and the leased rate was 94.2%, versus 91.2% occupancy a year earlier.
- In January, Federal Realty paid $35.5 million to acquire the remaining 168,000-square-foot portion of Huntington Square and the related land interest. It sold one retail property for $13.2 million, recording a $1.7 million gain.
- Management said inflation and higher interest rates are increasing construction, operating, and financing costs. Supply-chain disruption, tenant financial pressure, and labor shortages could delay projects, increase costs, or affect rent collection. Management cited ongoing demand for space and expects 2023 comparable leasing volume to be in line with historical annual levels of 1.4–2.0 million square feet, while cautioning that rent increases are not assured.
- Projects include Pike & Rose Phase IV, expected to begin delivering in late 2023 at an estimated cost of $185–$200 million; Santana West’s first phase, estimated at $315–$330 million; and approximately $229 million of portfolio redevelopment expected to stabilize over several years. Management estimated remaining costs for development and redevelopment projects at $250 million, with most expected over the next two years. Timing and final costs may change.
- After quarter-end, on April 12, 2023, the company issued $350 million of 5.375% senior notes due May 2028. Management said a portion of proceeds would repay $275 million of 2.75% notes due June 2023. The company reported no other debt maturities for the rest of 2023.
- Management stated that operating cash flow, balance-sheet cash, the revolver, and access to capital markets are expected to support liquidity, while noting new debt could carry higher rates. It may defer projects, limit acquisitions, reduce operating expenses, or reassess dividend policy if needed. No specific full-year earnings or FFO guidance is provided in the supplied filing text.
- The filing reports no material changes to previously disclosed risk factors and no material developments in legal proceedings. It describes ordinary-course litigation and environmental matters, but management does not believe their outcomes would materially adversely affect financial position or operating trends. Interest-rate sensitivity: a 1% increase in rates on reported variable-rate debt would increase annual interest expense by approximately $6.6 million.
Important facts for investors to verify
- Confirm the period: this is a Q1 2023 filing, despite the Q1 2022 request metadata.
- Review lease-up, occupancy, and whether signed leases commence and generate rent as expected; reported lease spreads are not a guarantee of future rent growth.
- Track project budgets, delivery schedules, tenant commitments, and the effects of inflation and financing costs on redevelopment returns.
- Monitor debt maturities and refinancing: the $350 million post-quarter issuance and the planned repayment of $275 million due in June 2023 are key near-term financing events.
- Assess cash generation relative to dividends and capital spending. FFO is a non-GAAP supplemental measure and is not equivalent to operating cash flow or liquidity.