Federal Realty Investment Trust — Form 10-Q Summary
Reporting period: Quarter ended March 31, 2021; year-over-year comparisons are with Q1 2020. The request metadata says “2020 Q1,” but the filing itself is for Q1 2021.
Business context
Federal Realty is an equity REIT focused on owning, managing, and redeveloping retail and mixed-use properties. At quarter-end, it owned or controlled 101 predominantly retail projects totaling approximately 23.3 million square feet. Properties were 91.8% leased and 89.5% occupied.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $218.2 million | $231.6 million | Down 5.8% |
| Net income | $49.7 million | $56.4 million | Down 11.9% |
| Net income attributable to the Trust | $48.2 million | $54.8 million | Down 11.9% |
| EPS, basic and diluted | $0.60 | $0.70 | Down $0.10 |
| FFO available to common shareholders per diluted share | $1.17 | $1.50 | Down $0.33 |
| Cash from operating activities | $115.1 million | $118.7 million | Down $3.6 million |
Property operating income, a non-GAAP measure, was $139.5 million, down 11.8%. Rental expenses rose 11.1%; rental expenses were 22.7% of rental income versus 19.2% a year earlier. Interest expense increased 12.8% to $32.1 million, reflecting higher average borrowings, partly offset by lower borrowing rates. The filing does not provide a single consolidated operating-margin figure.
At March 31, cash and cash equivalents were $779.9 million; the $1.0 billion revolving credit facility had no borrowings. Total debt, net, was $4.275 billion. Total liabilities were $4.926 billion. Cash, cash equivalents, and restricted cash totaled $808.4 million. The Trust declared a common dividend of $1.06 per share for the quarter. It reported compliance with applicable debt covenants.
Operating cash flow was close to the prior-year level. Investing activities used $74.8 million, compared with $151.8 million in Q1 2020; financing activities used $48.7 million, compared with $898.9 million provided in Q1 2020, which included $990 million of revolving-credit borrowings.
Material changes and unusual items
- COVID-19-related collectibility adjustments were $14.8 million. Rental income declined 5.9%, including higher collectibility impacts and rent abatements; occupancy was 89.5%, versus 91.5% a year earlier.
- Approximately 34% of tenants, based on commercial leases, had revenue recognized on a cash basis. Agreements to defer rent covered approximately 32% of tenants as of March 31. Approximately 98% of retail tenants were open, though many faced operating or capacity restrictions.
- Q1 included a $17.4 million gain from the sale of part of Graham Park Plaza and gaining control of the Pike & Rose hotel joint venture. The sale generated $20.3 million; the gain was $15.6 million. The Trust acquired its partner’s 20% hotel interest for $2.3 million and repaid the hotel’s $31.5 million mortgage.
- The Trust issued 847,471 common shares through its ATM program for $87.2 million net proceeds and entered forward-sale agreements for 331,318 shares. Remaining ATM capacity was $404.4 million at quarter-end.
- Subsequent to quarter-end, the Trust repaid $100 million of a $400 million term loan, reduced the spread on the remaining $300 million from 135 to 80 basis points over LIBOR, and extended its maturity to April 2024, with two one-year extension options. It also acquired an 80% controlling interest in a McLean, Virginia shopping center for $32.1 million on April 30.
Outlook, commentary, and risks
Management said the pandemic continued to materially adversely affect cash flow and results, and expected near-term effects to persist. Rent collections had improved from the April 2020 low, but management expected collections to remain below contractual obligations and historical levels. Deferred rent may prove difficult to collect, and vacancy could rise. No specific earnings or FFO guidance was provided.
Management maintained its long-term focus on comparable-property growth, development and redevelopment, and acquisitions. Projects included Santana West, expected to cost $250–$270 million with openings beginning in 2022; Assembly Row Phase III, expected to cost $465–$485 million with openings projected to begin in Q2 2021; and Pike & Rose Phase III, expected to cost $128–$135 million. Redevelopment projects underway had projected costs of approximately $323 million. Costs, completion, leasing, and timing remain subject to economic conditions and pandemic impacts.
Key risks include tenant nonpayment, closures and bankruptcies; rent deferrals and lower occupancy; development cost, schedule, approval, and leasing risks; access to capital and interest-rate exposure; covenant compliance; and broader economic, public-health, environmental, and REIT-qualification risks. Management reported no material change in previously disclosed risk factors, no material legal-proceeding developments, and effective disclosure controls.
Important facts for investors to verify
- How rent collections, deferred balances, tenant credit quality, and cash-basis revenue recognition have changed since March 31.
- Whether occupancy and leasing trends recover, and how new leases, renewals, tenant incentives, and rent growth compare with reported Q1 results.
- Actual costs, leasing progress, and delivery timing for major development and redevelopment projects.
- Debt maturities, refinancing terms, liquidity needs, and the effect of ATM and forward-share issuance on dilution.
- Whether reported earnings and FFO trends improve excluding the $17.4 million property-related gain and considering continued pandemic-related adjustments.