Federal Realty Investment Trust — Form 10-Q Summary
Period note: The supplied filing is for the quarter ended March 31, 2017, not 2016 Q1 as stated in the request metadata. The financial statements are unaudited and results for the quarter are not necessarily indicative of full-year results.
Business context and operating position
Federal Realty is an equity REIT focused on retail and mixed-use properties. At quarter-end, it owned or held a majority interest in 98 projects comprising approximately 23.1 million square feet. The portfolio was 94.6% leased and 93.1% occupied.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Total revenue | $207.4 million | $198.3 million | +4.6% |
| Property operating income | $141.2 million | $132.7 million | +6.4% |
| Operating income | $81.5 million | $76.9 million | +6.0% |
| Income from continuing operations | $57.9 million | $53.3 million | +8.5% |
| Net income attributable to the Trust | $56.2 million | $77.0 million | -27.0% |
| Diluted EPS | $0.78 | $1.10 | Down from prior-year gain |
| FFO available to common shareholders per diluted share | $1.45 | $1.38 | Up from $105.8 million vs. $97.6 million |
| Cash from operating activities | $121.1 million | $104.9 million | +$16.2 million |
| Cash used in investing activities | $278.3 million | $201.7 million | Greater investment spending |
| Cash and cash equivalents at quarter-end | $20.1 million | $19.7 million | — |
Rental income grew 4.7%. Rental expenses fell 4.0%, while real estate taxes rose 10.1%; property operating income increased as revenue growth exceeded property expense growth. Interest expense was $23.8 million, essentially unchanged from $23.7 million. The filing does not provide a single reported company-wide profit margin.
At March 31, total liabilities were $3.44 billion; reported debt and capital lease obligations totaled approximately $3.01 billion. Cash was $20.1 million and borrowings on the $800 million revolving facility were $217.0 million, leaving $583.0 million of nominal facility capacity before other considerations. The Trust reported compliance with debt covenants. It expected to refinance $217.3 million of mortgage debt maturing during the remainder of 2017.
Material changes and notable items
- Net income and EPS declined primarily because Q1 2016 included a $25.7 million gain when the Trust obtained control of six properties; Q1 2017 included only $0.2 million of property-sale gain. Continuing-operations income and FFO both increased.
- Q1 2017 acquisitions included Hastings Ranch Plaza for $29.5 million and Riverpoint Center for $107.0 million.
- Investing outflows increased, mainly due to higher development, redevelopment, and leasing investment and increased property acquisitions.
- On April 4, 2017, the Trust completed the sale of land at Assembly Row for $36.0 million and expected a gain of approximately $18 million. This subsequent event was not included in Q1 results.
- The common dividend declared and paid was $0.98 per share, versus $0.94 a year earlier. The preferred dividend was $0.339 per share in both periods.
- The Trust adopted new share-based compensation guidance and the revised definition of a business effective January 1, 2017. Acquisitions in the quarter were treated as asset acquisitions, with transaction costs capitalized.
Outlook, commentary, and risks
The filing gives no specific full-year earnings or FFO guidance. Management described its growth strategy as same-center rent and occupancy growth, development and redevelopment, and acquisitions. Comparable retail leases signed in Q1 covered 524,000 square feet and had average rent increases of 11% on a cash basis and 23% on a straight-line basis; management cautioned that signed leases may take time to commence and may not all result in rent collections.
Management expected approximately $270 million to $300 million of 2017 investment at Assembly Row and Pike & Rose, net of public funding. Current redevelopment projects had projected costs of approximately $198 million. The Santana Row office project was expected to cost $205 million to $215 million and deliver in 2019. Management said liquidity sources should be sufficient for operations, debt service, and capital expenditures, but noted it could delay projects, limit acquisitions, reduce spending, or reevaluate dividends if market conditions deteriorate.
Risks highlighted include longer tenant leasing decisions and permitting timelines, fewer prospective anchor tenants, increased retail tenant closures or bankruptcies, tenant inability to pay rent, project delays or cost overruns, reliance on third parties and public funding, refinancing and interest-rate exposure, and debt covenant limitations. A 1% increase in rates was estimated to raise annual interest expense by approximately $2.2 million on the $217.0 million of variable-rate debt. No material changes to previously disclosed risk factors or material legal-proceeding developments were reported.
Important facts for investors to verify
- Confirm the reporting period: the filing itself covers Q1 2017, notwithstanding the 2016 Q1 metadata.
- Track occupancy, leasing spreads, tenant closures and bankruptcies, and the pace at which signed leases commence.
- Verify refinancing of the $217.3 million of 2017 mortgage maturities and the effect of additional borrowing on leverage and interest expense.
- Monitor spending, delivery schedules, and funding assumptions for Assembly Row, Pike & Rose, and Santana Row.
- Confirm completion and realized proceeds from the remaining Assembly Row land sales; the approximately $18 million gain related to the April sale was subsequent to quarter-end.
- Assess FFO alongside GAAP earnings and operating cash flow; FFO is a non-GAAP measure and is not equivalent to cash available for dividends or investment.