Federal Realty Investment Trust's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Federal Realty Investment Trust (FRT)

Q2 2012 Earnings Call

August 2, 2012 11:00 AM ET

Executives

Kristina Lennox – IR Coordinator

Andy Blocher – SVP and CFO

Dawn Becker – EVP and COO

Don Wood – President and CEO

Jeff Berkes – VP, Leasing West Coast

Jim Taylor

Analysts

Jeffrey Donnelly – Wells Fargo

Craig Schmidt – Bank of America

Paul Morgan – Morgan Stanley

Alex Goldfarb – Sandler O’Neill

Joe Dazzio – JP Morgan

Tayo Okusanya – Jefferies

Quentin Velleley – Citi

Rich Moore – RBC Capital

Michael Bilerman – Citi

Nathan Isbee – Stifel Nicolaus

Presentation

Operator

Good morning and welcome to the Federal Realty Investment Trust Second Quarter 2012 Earnings Conference Call. (Operator Instructions) This conference is being recorded. If you have any objections you may disconnect at this time.

I would now like to introduce the conference leader Ms. Kristina Lennox. Ma’am you may begin.

Kristina Lennox

Good morning. I’d like to thank everyone for joining us today for Federal Realty’s second quarter 2012 conference call.

Joining me on the call are Don Wood, Dawn Becker, Andy Blocher, Jeff Berkes, Chris Weilminster, Jim Taylor and (inaudible). These and other members of our management team are available to take your questions at the conclusion of our prepared remarks.

Our second quarter 2012 supplemental disclosure package provides a significant amount of valuable information with respect to the Trust’s operating and financial performance. This document is currently available on our website. Certain matters discussed on this call may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any annualized or projected information as well as statements referring to expected or anticipated events or results. Although Federal Realty believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, Federal Realty’s future operations and its actual performance may differ materially from the information contained in our forward-looking statements and we can give no assurance that these expectations will be attained.

Risks inherent in these assumptions include, but are not limited to future economic conditions including interest rates, real estate conditions and the risks and costs of construction. The earnings release and supplemental reporting package that we issued yesterday, our Annual Report filed on Form 10-K and our other financial disclosure documents provide a more in-depth discussion of risk factors that may affect our financial conditions and results of operation.

Now I’d like to turn the call over to Andy Blocher, who will begin our discussion of second quarter 2012 results. Andy?

Andy Blocher

Thanks, Kristina and Good morning, everybody. $1.04 of FFO per share in the second quarter matches our record first quarter 2012 result and again was driven by continued strong internal growth which include a higher portfolio occupancy and a continuation of low level of bad debt.

Let me provide some of the details of the quarter then we can discuss the capital market activities before going through the assumptions behind our increased guidance and the dividend increase. Property operating income increase $8.5 million versus second quarter 2011, $5.1 million came for 2011 acquisition the Plaza El Segundo and Montrose Crossing. On a same-center this property operating income increase 3.5% including redevelopment and 2.7% excluding redevelopment.

Increases in the same center portfolio were driven by improvements in minimum rents through year-over-year occupancy gains and redevelopments coming online such as 300 Santana Row and Levare the latest residential building at Santana Row. Increases in other property income were driven by lease termination fees. You may recall that we’ve been guiding to increase other property income in 2012 and establishing guidance in November.

One, just want to go through our improved 2012 guidance. We continue to see low absolute levels of bad debt. The second quarter bad debt increased on a comparable basis based on the very tough second quarter 2011 comp. So roughly $5 million increase in interest expense for the second quarter ‘11 largely comes from mortgage loans associated with the acquisitions of Plaza El Segundo and Montrose Crossing we did last year.

In total funds from operations increase 3.9% to $66.8 million and 2% on a per share basis to $1.04 results in the second quarter. On a year-to-date basis FFO was up 6.3% and 3.5% on a per share basis. Very strong operating performance reflecting the strength of our market and the relative strength of our properties within those markets.

Moving on to the balance sheet for a moment. In mid July we retired $175 million of 6% notes utilizing proceeds from our $250 million 10-year unsecured notes issuance. The 3% coupon on our notes represents the lowest coupon ever executed by any REIT in the REIT market for a 10-year term. Demand for the issue was significant, which allowed us to increase the targeted size from $150 million to $250 million and tightened pricing significantly throughout the execution process. I couldn’t happier to have this deal be my last step on markets transaction for the Trust as I believe it represents the combination of all the significant positive changes we’ve made at Federal Realty over the nearly 12 years I’ve been.

We also issued another $16 million of common equity through the ATM at an average price of over $101 per share, and we remain in a great balance sheet position with $80 million of cash on the balance sheet, over $400 million of capacity on the credit facility, no significant debt maturities until late 2013 and demonstrated access to both debt and equity capital at historically attractive prices.

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