Federal Realty Investment Trust — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Although the request metadata refers to 2020 Q4, this filing reports full-year 2021 results and compares them primarily with 2020. The results are those of the predecessor entity; an UPREIT reorganization completed in January 2022 made the new Federal Realty Investment Trust the successor issuer.
Business context
Federal Realty is an equity REIT that owns, manages, acquires, and redevelops retail-focused and mixed-use properties, mainly in the Northeast and Mid-Atlantic, California, and South Florida. At year-end, it owned or held a majority interest in 104 projects totaling approximately 25.1 million square feet. The portfolio was 93.6% leased and 91.1% occupied. No tenant represented more than 2.7% of annualized base rent. The Trust reported 54 consecutive years of annual common-dividend increases.
Financial and operating performance
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total property revenue | $951.2 million | $835.5 million | +13.9% |
| Rental income | $948.8 million | $832.2 million | +14.0% |
| Property operating income (non-GAAP) | $634.6 million | $545.3 million | +16.4% |
| Operating income | $394.7 million | $289.5 million | +36.3% |
| Net income available to common shareholders | $253.5 million | $123.7 million | +104.9% |
| Diluted earnings per common share | $3.26 | $1.62 | +$1.64 |
| FFO available to common shareholders (non-GAAP) | $434.7 million; $5.57 per diluted share | $333.8 million; $4.38 per diluted share | +30.2% total FFO |
| Net cash from operating activities | $471.4 million | $369.9 million | +$101.4 million |
Property operating income was approximately 66.7% of property revenue, compared with 65.3% in 2020. This derived ratio is not presented by the company as a GAAP margin. Rental expense rose 15.9% to $198.1 million; real estate taxes were $118.5 million, down 0.6%. Interest expense decreased 6.3% to $127.7 million. The 2020 comparison included a $57.2 million impairment charge and an $11.2 million debt-extinguishment charge; neither recurred in 2021.
Cash flow, debt, and liquidity
- Investing activities used $660.1 million in 2021, mainly reflecting property acquisitions and development spending. Financing activities used $453.0 million, versus $661.7 million provided in 2020, when substantial debt issuance proceeds were raised.
- Year-end cash and cash equivalents were $162.1 million; restricted cash was an additional $13.0 million. The $1.0 billion revolving credit facility had no balance outstanding.
- Total debt was approximately $4.05 billion, down from $4.29 billion a year earlier. Management reported 92.6% of debt fixed-rate or fixed through swaps, and a 3.3% weighted-average interest rate on debt.
- The Trust was in compliance with debt covenants at year-end. Scheduled principal maturities were $4.1 million in 2022, $279.3 million in 2023, and $904.3 million in 2024. The revolving facility and term loan mature in 2024, subject to extension options.
- Cash dividends paid in 2021 were approximately $337.4 million. The common dividend declared was $4.26 per share; the annual amount paid was $4.25. FFO per diluted share was $5.57.
Material changes and unusual items
- Results improved as pandemic restrictions eased and rent collection recovered. Rental income benefited from an $82.6 million year-over-year reduction in collectibility-related impacts, including abatements and changes in rent-recognition assessments. Collectibility adjustments were $24.0 million in 2021 versus $106.6 million in 2020.
- Despite improvement, revenue for approximately 34% of commercial tenants was being recognized on a cash basis at year-end. The company reported that about 32% of commercial tenants had agreements to defer rent, largely into 2022 or later. It disclosed $46 million of COVID-related deferred rent, of which approximately $27 million had subsequently been collected, and $26 million of 2021 rent abatements.
- Acquisitions contributed to growth: the company acquired or consolidated several properties and interests, including Grossmont Center, Camelback Colonnade, Hilton Village, Chesterbrook, and Twinbrooke. It also sold two properties and portions of three properties for $141.6 million, recognizing an $88.3 million net gain.
- Comparable retail leases signed in 2021 covered 2.093 million square feet and achieved an average 7% cash rent increase; new leases achieved 10% and renewals 3%. Management cautioned that individual lease spreads may vary and that some signed leases may not commence as planned.
- Year-end development commitments included $319.2 million for redevelopment and capital-expenditure contracts. Projects included Assembly Row and Pike & Rose phases and Santana West; management cited supply-chain constraints, labor shortages, inflation, timing, and cost uncertainty.
Outlook, risks, and contingencies
Management expects rent collections and occupancy to remain below historical levels into 2022, while expressing confidence in leasing demand and the portfolio’s longer-term growth prospects. It expected 2022 comparable leasing volume to be in line with or above historical averages. Investment spending was expected to remain elevated, though somewhat below 2021, and future development phases would depend on market conditions, tenant demand, and expected returns. No specific earnings or FFO guidance was provided in the supplied filing text.
- Key risks include tenant nonpayment or bankruptcy, lease rollover and re-leasing costs, online retail competition, geographically concentrated markets, and the possibility that pandemic effects persist or worsen.
- Development and redevelopment face construction-cost, supply-chain, permitting, financing, leasing, and completion risks. Rising interest rates and the transition away from LIBOR could affect financing costs; a 1% increase in rates was estimated to increase annual interest expense by about $3.0 million on year-end variable-rate debt.
- Potential obligations include a $32.6 million liability related to the San Antonio Center condemnation process and partner put rights with estimated values disclosed for several properties. The filing also identifies a $55 million purchase option for Mercer Mall in 2023 and a $60 million put price in 2025 if the option is not exercised.
- Management did not expect pending ordinary-course legal proceedings or known environmental matters to have a material adverse effect. The independent auditor issued an unqualified opinion; lease collectibility was identified as a critical audit matter.
Most important facts for investors to verify
- Whether deferred rents are collected and cash-basis tenants return to accrual recognition; review subsequent collection data and lease-receivable quality.
- Whether occupancy improves toward the 93.6% leased rate, and whether lease commencements and rent spreads translate into realized cash rent.
- Actual development and redevelopment costs, completion schedules, lease-up, and returns relative to management estimates.
- Debt refinancing plans and covenant headroom around 2023–2024 maturities, including the effect of interest rates and benchmark-rate transition.
- Potential cash needs from partner put options, the San Antonio Center liability, dividends, and remaining forward equity sales, including resulting share dilution.