Business context and reporting period
Federal Realty Investment Trust is an equity REIT focused on retail and mixed-use properties in the Mid-Atlantic, Northeast and California. This filing covers the quarter and nine months ended September 30, 2011; the request metadata says 2010 Q3, but the filing itself is for 2011 Q3. At quarter-end, the Trust operated 85 predominantly retail projects totaling approximately 18.6 million square feet; its properties were 93.3% leased and 92.2% occupied.
Financial performance and position
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Total revenue | $137.7 million | $133.4 million | $411.6 million | $404.5 million |
| Income from continuing operations | $33.5 million | $30.7 million | $99.4 million | $91.7 million |
| Net income attributable to the Trust | $47.1 million | $29.6 million | $113.0 million | $90.0 million |
| Basic/diluted EPS | $0.74 / $0.74 | $0.48 / $0.48 | $1.80 / $1.80 | $1.46 / $1.45 |
| FFO available to common shareholders per diluted share | $1.01 | $0.95 | $3.02 | $2.87 |
| Cash from operating activities | Not provided for quarter | Not provided for quarter | $173.0 million | $179.7 million |
For the nine months, property operating income was $284.5 million, up 2.7%; interest expense was $72.7 million, down 5.1%. Rental income rose 2.9%, while other property income fell 41.5%, mainly reflecting lower lease-termination fees. Rental expenses as a share of rental and other property income improved to 19.9% from 20.5%.
At September 30, total assets were $3.255 billion and total liabilities were $1.932 billion. Debt and capital lease obligations totaled approximately $1.731 billion. Cash was $22.1 million; the $400 million unsecured revolver had $158 million drawn, and the Trust reported covenant compliance. Nine-month investing cash use was $101.3 million and financing cash use was $65.4 million. Common dividends declared were $2.03 per share for the nine-month period.
Material changes and unusual items
- Q3 net income attributable to the Trust increased 58.7%, but included a $14.8 million gain on the Feasterville Shopping Center sale. Nine-month results also included a $2.0 million gain from deconsolidating a Norwalk property following mortgage refinancing.
- Feasterville was sold for $20.0 million in July 2011. Tower Shops was acquired in January for a net purchase price of $66.1 million, including assumed mortgage debt; that mortgage was repaid early using revolver borrowings.
- The Trust replaced its $300 million revolver with a $400 million facility in July 2011, maturing in 2015 with a one-year extension option. It issued 1.66 million shares through its ATM program for $139.3 million net proceeds during the first nine months.
- Operating cash flow declined $6.7 million year over year, primarily because of a $16.2 million payment of a previously accrued legal judgment. The judgment related to land adjacent to Santana Row and was paid in March.
- After quarter-end, the Newbury Street joint venture sold its three buildings for $44.0 million; the Trust received $34.6 million of net proceeds, including repayment of its $11.8 million loans.
Outlook, commentary and risks
Management cited redevelopment, acquisitions and same-center growth as its principal growth drivers. It expected redevelopment projects with projected costs of approximately $48 million to stabilize in 2011 and $59 million in 2012. The Trust expected to invest $25–$35 million in Assembly Row in 2011. Although the MBTA received qualified bids for the proposed transit stop within available funding, construction remained contingent on satisfying funding conditions; failure to do so could prevent construction and require an impairment charge.
Management reported positive comparable-space leasing spreads for the nine months: average increases of 8% on a cash basis and 19% on a straight-line basis. It cautioned that signed leases may not commence as planned or produce all contractual rent. Occupancy could decline in the near term as approximately 130,000 square feet vacated after Borders and Blockbuster rejected leases in bankruptcy proceedings; re-leasing could take several quarters. Management said current cash flows, cash on hand, the ATM program and revolver were expected to fund operations and capital expenditures, while noting capital-market, interest-rate, tenant-payment, leasing, development and covenant risks. No material change to previously disclosed risk factors was reported.
Important facts for investors to verify
- Confirm the reporting-period discrepancy: the filing is for the quarter ended September 30, 2011, not 2010 Q3.
- Separate recurring operating performance from sale and deconsolidation gains when assessing earnings growth; compare GAAP results with FFO and cash from operations.
- Track occupancy, the pace of re-leasing the Borders and Blockbuster spaces, and whether signed lease spreads convert into collected rent.
- Monitor Assembly Row funding and transit-stop contingencies, development spending, and any resulting impairment exposure.
- Review debt maturities, revolver usage, interest-rate exposure, ATM share issuance and dilution, and compliance with debt covenants.