Federal Realty Investment Trust 10-Q for FY2020 Q1

Federal Realty Investment Trust (FRT)

10-Q 2020-05-06 For: 2020-03-31

Added on April 09, 2026

About this 10-Q

Federal Realty Investment Trust filed this 10-Q on May 6, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $231.56M; down 0.3% from $232.23M a year earlier
Net income: $54.76M; down 8.9% from net income of $60.14M a year earlier
Diluted EPS: $0.70; down 10.3% from $0.78 a year earlier

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Maryland				52-0782497
(State of Organization)				(IRS Employer Identification No.)



Title of Each Class	Trading Symbol	Name of Each Exchange On Which Registered
Common Shares of Beneficial Interest	FRT	New York Stock Exchange
$.01 par value per share, with associated Common Share Purchase Rights

Depositary Shares, each representing 1/1000 of a share	FRT-C	New York Stock Exchange
of 5.00% Series C Cumulative Redeemable Preferred Stock, $.01 par value per share



Large Accelerated Filer	☒	Accelerated filer	☐

Non-Accelerated Filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by checkmark if the registrant has elected not use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			☐



PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements	3
		Consolidated Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019	3
		Consolidated Statements of Comprehensive Income (unaudited) for the three months ended March 31, 2020 and 2019	4
		Consolidated Statements of Shareholders' Equity (unaudited) for the three months ended March 31, 2020 and 2019	5
		Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2020 and 2019	6
		Notes to Consolidated Financial Statements (unaudited)	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25
	Item 4.	Controls and Procedures	25

PART II. OTHER INFORMATION			26
	Item 1.	Legal Proceedings	26
	Item 1A.	Risk Factors	26
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
	Item 3.	Defaults Upon Senior Securities	26
	Item 4.	Mine Safety Disclosures	27
	Item 5.	Other Information	27
	Item 6.	Exhibits	27

SIGNATURES			29



	March 31,			December 31,
	2020			2019
	(In thousands, except share and per share data)
	(Unaudited)
ASSETS
Real estate, at cost
Operating (including $1,751,718 and $1,676,866 of consolidated variable interest entities, respectively)	$	7,774,485		$	7,535,983
Construction-in-progress (including $84,034 and $102,583 of consolidated variable interest entities, respectively)	671,486			760,420
Assets held for sale	5,796			1,729
	8,451,767			8,298,132
Less accumulated depreciation and amortization (including $306,861 and $296,165 of consolidated variable interest entities, respectively)	(2,258,994		)	(2,215,413		)
Net real estate	6,192,773			6,082,719
Cash and cash equivalents	994,688			127,432
Accounts and notes receivable, net	153,243			152,572
Mortgage notes receivable, net	30,332			30,429
Investment in partnerships	25,960			28,604
Operating lease right of use assets	94,147			93,774
Finance lease right of use assets	52,079			52,402
Prepaid expenses and other assets	216,692			227,060
TOTAL ASSETS	$	7,759,914		$	6,794,992
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Mortgages payable, net (including $476,944 and $469,184 of consolidated variable interest entities, respectively)	$	552,813		$	545,679
Notes payable, net	993,752			3,781
Senior notes and debentures, net	2,807,848			2,807,134
Accounts payable and accrued expenses	245,968			255,503
Dividends payable	81,899			81,676
Security deposits payable	21,941			21,701
Operating lease liabilities	74,082			73,628
Finance lease liabilities	72,059			72,062
Other liabilities and deferred credits	150,410			157,938
Total liabilities	5,000,772			4,019,102
Commitments and contingencies (Note 6)
Redeemable noncontrolling interests	159,534			139,758
Shareholders’ equity
Preferred shares, authorized 15,000,000 shares, $.01 par:
5.0% Series C Cumulative Redeemable Preferred Shares, (stated at liquidation preference $25,000 per share), 6,000 shares issued and outstanding	150,000			150,000
5.417% Series 1 Cumulative Convertible Preferred Shares, (stated at liquidation preference $25 per share), 399,896 shares issued and outstanding	9,997			9,997
Common shares of beneficial interest, $.01 par, 100,000,000 shares authorized, 75,622,504 and 75,540,804 shares issued and outstanding, respectively	760			759
Additional paid-in capital	3,166,899			3,166,522
Accumulated dividends in excess of net income	(818,284		)	(791,124		)
Accumulated other comprehensive loss	(7,265		)	(813		)
Total shareholders’ equity of the Trust	2,502,107			2,535,341
Noncontrolling interests	97,501			100,791
Total shareholders’ equity	2,599,608			2,636,132
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	7,759,914		$	6,794,992



☒	QUARTERLY REPORT PURSUANT TO THE SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934



	Three Months Ended March 31,
	2020			2019
	(In thousands, except per share data)
REVENUE
Rental income	$	230,798		$	231,492
Mortgage interest income	759			735
Total revenue	231,557			232,227
EXPENSES
Rental expenses	44,312			44,260
Real estate taxes	29,064			27,687
General and administrative	10,251			9,565
Depreciation and amortization	62,188			59,622
Total operating expenses	145,815			141,134

OPERATING INCOME	85,742			91,093

OTHER INCOME/(EXPENSE)
Other interest income	308			177
Interest expense	(28,445		)	(28,033		)
Loss from partnerships	(1,164		)	(1,434		)
NET INCOME	56,441			61,803
Net income attributable to noncontrolling interests	(1,678		)	(1,659		)
NET INCOME ATTRIBUTABLE TO THE TRUST	54,763			60,144
Dividends on preferred shares	(2,010		)	(2,010		)
NET INCOME AVAILABLE FOR COMMON SHAREHOLDERS	$	52,753		$	58,134
EARNINGS PER COMMON SHARE, BASIC:
Net income available for common shareholders	0.70			0.78
Weighted average number of common shares	75,360			74,200
EARNINGS PER COMMON SHARE, DILUTED:
Net income available for common shareholders	$	0.70		$	0.78
Weighted average number of common shares	75,360			74,200

COMPREHENSIVE INCOME	$	49,989		$	61,594

COMPREHENSIVE INCOME ATTRIBUTABLE TO THE TRUST	$	48,311		$	59,935



	Shareholders’ Equity of the Trust
	Preferred Shares			Common Shares				Additional Paid-in Capital			Accumulated Dividends in Excess of Net Income			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total Shareholders' Equity
	Shares	Amount		Shares		Amount		Additional Paid-in Capital			Accumulated Dividends in Excess of Net Income			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total Shareholders' Equity
	(In thousands, except share data)
BALANCE AT DECEMBER 31, 2019	405,896	$	159,997	75,540,804		$	759	$	3,166,522		$	(791,124	)	$	(813	)	$	100,791		$	2,636,132
January 1, 2020 adoption of new accounting standard - See Note 2	—	—		—		—		—			(510		)	—			—			(510		)
Net income, excluding $1,015 attributable to redeemable noncontrolling interests	—	—		—		—		—			54,763			—			663			55,426
Other comprehensive loss - change in fair value of interest rate swaps	—	—		—		—		—			—			(6,452		)	—			(6,452		)
Dividends declared to common shareholders ($1.05 per share)	—	—		—		—		—			(79,403		)	—			—			(79,403		)
Dividends declared to preferred shareholders	—	—		—		—		—			(2,010		)	—			—			(2,010		)
Distributions declared to noncontrolling interests	—	—		—		—		—			—			—			(783		)	(783		)
Common shares issued, net	—	—		13		—		2			—			—			—			2
Shares issued under dividend reinvestment plan	—	—		3,834		—		446			—			—			—			446
Share-based compensation expense, net of forfeitures	—	—		110,066		1		3,941			—			—			—			3,942
Shares withheld for employee taxes	—	—		(32,213	)	—		(3,982		)	—			—			—			(3,982		)
Redemption of OP units	—	—		—		—		(30		)	—			—			(3,290		)	(3,320		)
Contributions from noncontrolling interests	—	—		—		—		—			—			—			120			120
BALANCE AT MARCH 31, 2020	405,896	$	159,997	75,622,504		$	760	$	3,166,899		$	(818,284	)	$	(7,265	)	$	97,501		$	2,599,608



BALANCE AT DECEMBER 31, 2018	405,896	$	159,997	74,249,633		$	745	$	3,004,442		$	(818,877	)	$	(416	)	$	121,439		$	2,467,330
January 1, 2019 adoption of new accounting standard - See Note 2	—	—		—		—		—			(7,098		)	—			—			(7,098		)
Net income, excluding $876 attributable to redeemable noncontrolling interests	—	—		—		—		—			60,144			—			783			60,927
Other comprehensive loss - change in fair value of interest rate swaps	—	—		—		—		—			—			(209		)	—			(209		)
Dividends declared to common shareholders ($1.02 per share)	—	—		—		—		—			(76,106		)	—			—			(76,106		)
Dividends declared to preferred shareholders	—	—		—		—		—			(2,010		)	—			—			(2,010		)
Distributions declared to noncontrolling interests	—	—		—		—		—			—			—			(1,266		)	(1,266		)
Common shares issued, net	—	—		446,132		5		59,348			—			—			—			59,353
Shares issued under dividend reinvestment plan	—	—		4,273		—		528			—			—			—			528
Share-based compensation expense, net of forfeitures	—	—		100,586		1		3,860			—			—			—			3,861
Shares withheld for employee taxes	—	—		(32,686	)	—		(4,414		)	—			—			—			(4,414		)
Conversion and redemption of OP units	—	—		69,046		1		7,550			—			—			(7,551		)	—
Adjustment to redeemable noncontrolling interests	—	—		—		—		667			—			—			—			667
BALANCE AT MARCH 31, 2019	405,896	$	159,997	74,836,984		752		$	3,071,981		$	(843,947	)	$	(625	)	$	113,405		$	2,501,563



Standard	Description	Effect on the financial statements or significant matters

Adopted on January 1, 2020:
Financial Instruments - Credit Losses (Topic 326) and related updates: ASU 2016-13, June 2016, Financial Instruments - Credit Losses (Topic 326) ASU 2018-19, November 2018, Codification improvements to Topic 326, Financial Instruments - Credit Losses	This ASU changes the impairment model for most financial assets and certain other instruments, requiring the use of an "expected credit loss" model and adding more disclosure requirements. ASU 2018-19 clarifies that impairment of of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases.	Upon adoption of this standard, we recorded expected losses of $0.5 million in opening accumulated dividends in excess of net income. During the three months ended March 31, 2020, we recorded additional expected losses of $0.4 million, which are included in rental expenses.

ASU 2018-15, August 2018, Intangibles - Goodwill and Other Internal Use Software: Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract	This ASU requires a customer in a cloud computing arrangement (i.e. hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets. Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement. Entities will expense costs during the preliminary project and post-implementation stages as they are incurred. The guidance can be applied prospectively to all implementation costs incurred after the date of adoption or retrospectively in accordance with ASC 250-10-45-5 through ASC 250-10-45-10.	The adoption of this standard does not have a significant impact to our consolidated financial statements.

Issued in 2020:
ASU 2020-04, March 2020, Reference Rate Reform (Topic 848)	This ASU provides companies with optional practical expedients to ease the accounting burden for contract modifications associated with transitioning away from LIBOR and other interbank offered rates that are expected to be discontinued as part of reference rate reform. For hedges, the guidance generally allows changes to the reference rate and other critical terms without having to de-designate the hedging relationship, as well as allows the shortcut method to continue to be applied. For contract modifications, changes in the reference rate or other critical terms will be treated as a continuation of the prior contract. This guidance can be applied immediately, however, is generally only available through December 31, 2022.	We are still evaluating the impact of reference rate reform and whether we will apply any of these practical expedients.



	Three Months Ended
	March 31,
	2020			2019
	(In thousands)
SUPPLEMENTAL DISCLOSURES:
Total interest costs incurred	$	34,159		$	32,580
Interest capitalized	(5,714		)	(4,547		)
Interest expense	$	28,445		$	28,033
Cash paid for interest, net of amounts capitalized	$	29,405		$	32,485
Cash paid for income taxes	$	4		$	7
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
DownREIT operating partnership units issued with acquisition	$	18,920		$	—
Mortgage loans assumed with acquisition	$	8,903		$	—
DownREIT operating partnership units redeemed for common shares	$	—		$	7,551
Shares issued under dividend reinvestment plan	$	429		$	455


(1)	Restricted cash balances are included in "prepaid expenses and other assets" on our consolidated balance sheets.



	March 31, 2020				December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(In thousands)
Mortgages and notes payable	$	1,546,565	$	1,543,402	$	549,460	$	562,049
Senior notes and debentures	$	2,807,848	$	2,968,904	$	2,807,134	$	3,001,216



	March 31, 2020										December 31, 2019
	Level 1		Level 2			Level 3		Total			Level 1		Level 2		Level 3		Total
	(In thousands)
Interest rate swaps	$	—	$	(5,555	)	$	—	$	(5,555	)	$	—	$	130	$	—	$	130


•	On March 16, 2020, we transitioned our work force to work remotely, canceled all non-essential business travel and have canceled company events, or are holding them remotely.


•	We have paused construction activity at many of our construction projects including, without limitation, ongoing construction at Assembly Row, Santana Row, and other redevelopments and smaller projects. Construction activities continue at Pike & Rose and other redevelopments and smaller projects although at a slower pace as we observe COVID-19 safety protocols at all sites.


•	growth in our comparable property portfolio,


•	growth in our portfolio from property development and redevelopments, and


(1)	Amount represents dividends per depository share, each representing 1/1000th of a share.


•	expansion of our portfolio through property acquisitions.


•	In the 1^st quarter of 2020, we delivered the fully leased eight story, 301,000 square foot office building at Santana Row.


•	The first phase of construction on the 12 acres of land that we control across from Santana Row includes an eight story 376,000 square foot office building, with over 1,700 parking spaces. The building is expected to cost between $250 million and $270 million with openings beginning in 2022.


•	Phase III of Assembly Row includes 277,000 square feet of office space (of which, 150,000 square feet is pre-leased), 56,000 square feet of retail space, 500 residential units, and over 800 additional parking spaces. The expected costs for Phase III are between $465 million and $485 million and is projected to open beginning in 2021.


•	At Pike & Rose, we are continuing construction on a 212,000 square foot office building (which includes 4,000 square feet of ground floor retail space), and will include over 600 additional parking spaces. The building is expected to cost between $128 million and $135 million and is projected to open beginning in 2020.


•	Throughout the portfolio, we currently have redevelopment projects underway with a projected total cost of approximately $315 million that we expect to stabilize over the next several years.



							Change
	2020			2019			Dollars			%
	(Dollar amounts in thousands)
Rental income	$	230,798		$	231,492		$	(694	)	(0.3	)%
Mortgage interest income	759			735			24			3.3	%
Total property revenue	231,557			232,227			(670		)	(0.3	)%
Rental expenses	44,312			44,260			52			0.1	%
Real estate taxes	29,064			27,687			1,377			5.0	%
Total property expenses	73,376			71,947			1,429			2.0	%
Property operating income (1)	158,181			160,280			(2,099		)	(1.3	)%
General and administrative expense	(10,251		)	(9,565		)	(686		)	7.2	%
Depreciation and amortization	(62,188		)	(59,622		)	(2,566		)	4.3	%
Operating income	85,742			91,093			(5,351		)	(5.9	)%
Other interest income	308			177			131			74.0	%
Interest expense	(28,445		)	(28,033		)	(412		)	1.5	%
Loss from partnerships	(1,164		)	(1,434		)	270			(18.8	)%
Total other, net	(29,301		)	(29,290		)	(11		)	—	%
Net income	56,441			61,803			(5,362		)	(8.7	)%
Net income attributable to noncontrolling interests	(1,678		)	(1,659		)	(19		)	1.1	%
Net income attributable to the Trust	$	54,763		$	60,144		$	(5,381	)	(8.9	)%


•	an increase of $5.0 million from acquisitions of Hoboken during the second half of 2019 and early 2020, Georgetowne Shopping Center in November 2019, and Fairfax Junction in February 2019 and January 2020 and,


•	an increase of $2.4 million from non-comparable properties due primarily to the openings of our new office building at Santana Row in early 2020 and Phase II at Assembly Row and Pike & Rose, and the opening of one of our retail redevelopments, partially offset by redevelopment related occupancy decreases at three properties.


•	an increase of $0.9 million from acquisitions of Hoboken during the second half of 2019 and early 2020, Georgetowne Shopping Center in November 2019, and Fairfax Junction in February 2019 and January 2020, and


•	an increase of $0.5 million from non-comparable properties due primarily to the opening of our new office building at Santana Row in early 2020,


•	a decrease of $1.2 million from comparable properties due primarily to lower snow removal expense partially offset by higher repairs and maintenance costs and higher non-recoverable operating expenses, and


•	an increase of $0.8 million from acquisitions of Hoboken during the second half of 2019 and early 2020, Georgetowne Shopping Center in November 2019, and Fairfax Junction in February 2019 and January 2020,


•	an increase of $0.4 million from comparable properties due primarily to higher assessments, and


•	an increase of $0.4 million from non-comparable properties due primarily to the opening of our new office building at Santana Row in early 2020,


•	an increase of $1.6 million due to higher weighted average borrowings primarily from the $400 million issuance of our 3.20% notes in 2019 and $106.9 million of mortgage loans associated with our Hoboken acquisitions, partially offset by the repayment of our $275.0 million term loan in June 2019, and


•	an increase of $0.6 million from higher borrowings on our revolving credit facility in response to the COVID-19 pandemic (see further discussion in Note 4 to our consolidated financial statements),


•	an increase of $1.2 million capitalized interest, primarily attributable to the development of Phase III of Assembly Row and Pike & Rose, and


•	a decrease of $0.6 million due to a lower overall weighted average borrowing rate.