Federal Realty Investment Trust (NYSE:FRT) Q2 2017 Earnings Conference Call - Final Transcript

Aug 03, 2017 • 11:00 am ET


Federal Realty Investment Trust (NYSE:FRT) Q2 2017 Earnings Conference Call - Final Transcript


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Donald C. Wood

we have a meaningful presence. Fourth, the investment committee approval to move forward with redeveloping and repurposing CocoWalk for $75 million or so in Greater Miami. Fifth, the $400 million issuance of 10 and 30-year unsecured debt with a weighted average interest rate of 3.6%.

Sixth, the sale or near sale of a $120 million of real estate as components of Assembly Row and our San Francisco office building at a weighted average low-to-mid forecast. And seventh, a dividend raise for the 50th year in a row, every year since 1967 to $4 a share; the only REIT in any sector to be able to do so and one of the few companies in any business who have done so. By the way those dividends have grown at a CAGR of 7% over those 50 years. That's pretty amazing.

So you take those seven major initiatives, all happening in this retail real estate environment off a base of great quality real estate conservatively capitalized as we report a record earnings quarter of a $1.49 per share, beating consensus and beating the prior year by 5%. That's a lot of stuff going on, much of its short-term dilutive, but all consistent with our mantra of long term increased cash flow and value creation. Of course the retail real estate environment remains tricky, but in our experience it is precisely at times in the cycle like this that higher quality real estate puts some distance between itself and lower quality portfolios. Dan's going to do the heavy lifting on this call and discussing the quarter. My remarks will focus on the reporting in the context of those seven initiatives.

Digging into the reported FFO per share of $1.49, it's comparison to the second quarter of last year and what it means to the rest of the year, really requires an understanding of three competing components. First, the accretion that comes from the beginning of the rent starts and the strong leasing that we've been talking about over the past few quarters, along with meaningful contributions from our accretive capital allocations to development and redevelopment. Second, that accretive earnings positivity is somewhat offset by the loss rent from bankruptcies like Sports Authority and proactive property level with merchandising. That together contributed over $1.5 million in last year's second quarter and a big fat zero to this year's quarter, hence modestly negative same store growth excluding redevelopment.

But that's only part of the story. Those same spaces that were causing over $1.5 million of dilution this quarter have been re-leased -- they're very nearly re-leased to a far stronger tenant with a far better long term prospect, with new quarterly rental obligations of nearly $2.5 million. Trader Joe's or A.C. Moore at Assembly, Amazon Books for Brooks Brothers at Santana, Burlington for Sports Authority also at Assembly; you get the idea. After considering the capital required to get those deals done, value added exceeds $25 million. The net of those two things, rent starts