Federal Realty Investment Trust — Form 10-Q Summary
Period: Three months ended March 31, 2013, compared with the three months ended March 31, 2012. The source filing reports 2013 Q1, notwithstanding the 2012 Q1 period in the request metadata.
Business context
Federal Realty is an equity REIT focused on owning, managing, and redeveloping retail and mixed-use properties. At quarter-end, it operated 88 predominantly retail projects totaling approximately 19.5 million square feet; the portfolio was 95.1% leased and 94.5% occupied. Its 30%-owned joint venture held seven properties and was 86.4% leased and 86.2% occupied.
Financial performance
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Total revenue | $157.8 million | $146.3 million | +7.8% |
| Rental income | $153.2 million | $140.7 million | +8.9% |
| Property operating income | $110.6 million | $104.1 million | +6.2% |
| Operating income | $62.9 million | $60.5 million | +3.9% |
| Income from continuing operations | $35.8 million | $32.3 million | +11.1% |
| Net income attributable to the Trust | $34.6 million | $43.0 million | -19.5% |
| Diluted EPS | $0.53 | $0.67 | Down $0.14 |
| FFO available to common shareholders, diluted | $74.1 million; $1.14 per share | $66.7 million; $1.04 per share | FFO per share +9.6% |
Lower reported net income and EPS primarily reflect the absence of the $11.9 million gain on a real estate partnership sale recognized in Q1 2012. Rental income growth reflected same-center increases, 2012 acquisitions, and redevelopment lease-up. Same-center rental income rose $8.3 million, including higher rental rates and occupancy. Property expenses increased 11.9%, faster than revenue, partly due to snow removal costs and higher real estate taxes; rental expenses rose to 18.9% of rental income plus other property income from 18.0%.
Operating cash flow was $67.7 million versus $69.5 million. Investing cash use was $45.7 million versus $39.3 million, largely reflecting higher capital investment. Financing cash use was $27.7 million versus $28.8 million. Cash declined $5.7 million during the quarter to $31.3 million.
Balance sheet, debt, and liquidity
- Total assets were $3.91 billion and total liabilities were $2.48 billion at March 31, 2013. Mortgages payable were $748.0 million, notes payable $299.6 million, senior notes and debentures $1.08 billion, and capital lease obligations $71.7 million.
- Total debt and capital lease obligations were reported as approximately $2.20 billion. The filing reports $9.4 million of variable-rate debt at quarter-end; the $275 million term loan was effectively fixed at 3.17% through interest-rate swaps. The revolving facility had no quarter-end balance.
- Approximately $154 million of debt matured during the remainder of 2013, including $135 million of 5.40% senior notes due in December. Management said operating cash flow, cash, the credit facility, ATM equity capacity, and capital-market access were expected to fund operations, debt service, and planned investment.
- After quarter-end, on April 22, the revolving facility was increased from $400 million to $600 million and extended to April 21, 2017, with a one-year extension option. The filing also describes an accordion option, subject to bank approval, to increase the facility to $1.0 billion.
- Quarterly common dividends were $0.73 per share, up from $0.69; preferred dividends were $0.339 per share. The Trust issued approximately 302,000 shares through its ATM program for $32.2 million net proceeds and had $180.7 million of remaining program capacity at quarter-end.
Outlook, developments, and risks
- Management described itself as cautiously optimistic about tenant and leasing trends, while noting that some tenants remained affected by economic conditions and bankruptcies. It expected 2013 leasing volume near historical averages and rental income increases from leasing activity and improved occupancy.
- Comparable retail leases signed in Q1 covered 254,000 square feet and achieved average rent increases of 12% on a cash basis and 22% on a straight-line basis. New leases produced increases of 24% cash and 32% straight-line; renewals produced 4% cash and 15% straight-line. Management cautioned that leases may take time to commence and that signed tenants may not take possession or pay all rent.
- Planned investment included approximately $100–$115 million at Assembly Row and $75–$110 million at Pike & Rose in 2013, plus continued work on a 212-unit Santana Row residential project. Management expected to invest approximately $400 million over two years in current phases of these projects. Assembly Row and Pike & Rose phases were expected to stabilize in 2015 and 2015/2016, respectively; these are expectations, not guarantees.
- Subsequent events included a $47.3 million acquisition of a 95,000-square-foot property in Darien, Connecticut, and a $6.5 million sale of a fee interest at Village of Shirlington, with an approximately $5 million gain.
- Key risks include tenant nonpayment, vacancies and lease renewals; redevelopment delays, cost overruns, approvals and returns; development dependence on third parties and public funding; acquisition pricing; access to capital and refinancing; interest rates and debt covenants; local economic conditions; environmental matters; and maintaining REIT qualification. The Trust reported covenant compliance at quarter-end. It said pending legal matters were not expected to have a material adverse effect, while acknowledging litigation uncertainty.
Important facts for investors to verify
- Whether higher occupancy and signed rent increases translate into collected rent and continued same-center growth.
- Execution, total costs, public-funding assumptions, leasing, and stabilization timing for Assembly Row, Pike & Rose, and Santana Row.
- Refinancing plans for 2013 maturities and subsequent changes to credit-facility terms and borrowing costs.
- The effect of ATM share issuance and planned capital spending on per-share returns, liquidity, and dividend coverage.
- Tenant credit conditions, development and redevelopment risks, debt-covenant headroom, and the ability to maintain REIT status.