Federal Realty wants to expand into new markets with $ 1.8 billion ‘war chest’

Bisnow / Jon Banister

Federal Realty CEO Don Wood in the corner office at the company’s new headquarters.

With its retail portfolio in the coastal US markets still facing pandemic-related constraints, one of the largest exchange-traded retail owners is looking to use capital to expand into new parts of the country.

Federal Realty Investment Trust Manager Don Wood said in the company’s earnings call in the fourth quarter on Friday that it has $ 800 million in cash on hand, an unutilized $ 1B credit facility and relatively little debt in the coming years, giving it the opportunity to make new investments.

“We have something of a war chest at hand if we find retail options that fit our business model in 2021 and 2022,” Wood said during the call, according to a Looking for Alpha printing.

“And make no mistake, we are actively leading, even in markets with hot job and income growth, where we have not seen before,” Wood added. “A little more geographical diversity in our income stream carefully considered is a goal for us.”

About 85 percent of Federal Realty’s operating revenue comes from the coastal markets of California, Massachusetts, New York, New Jersey, Philadelphia, Maryland and northern Virginia, Wood said. He said retail in these markets has been severely affected by the coronavirus pandemic.

“These markets have by far the most restrictive COVID legislation imposed by the state,” Wood said. “And they make 2021 more insecure than with some of our peers, nothing we can do about it. Serenity Prayer comes to mind every day when I struggle with it.”

When asked by analysts what new markets he wants to invest in, Wood Phoenix and South Florida mentioned the markets, adding that he has some other areas in mind.

“It does not mean that we still do not want to look at the markets we are in, as we know, but it does mean that through COVID it is quite darn clear that there will be other job center growth sites that started before -COVID but , as almost everything, is accelerated as a result of it, “Wood said.

While REIT seeks to expand in South Florida, it just took a huge loss on a retail property in Miami.

The stores on Sunset Place in 2016

The company December 31st sold The stores on Sunset Place for $ 65.5 million, after buying it for $ 110 million. In 2015. The sale came after Federal Realty defaulted on a mortgage backed by the mall in October, and that abandoned plans to redevelop the asset in November.

“No, look, we made a bad deal with it,” Wood said after an analyst mentioned the Miami sale. “But that does not change the fact that job growth, migration, business-friendly environment can be good for us in the future.”

REIT is also developing a shopping center in Coconut Grove, Florida, and it owns Tower Shop’s retail center in Davie, Florida, properties, Wood said, are positioned to be two of the company’s strongest assets.

Federal Realty reported a net income of $ 123.7 million. For the full year 2020, down from $ 345.8 million. In 2019.

The company’s portfolio was 92.2% leased per. 31 December, which is a decrease of about two percentage points from the previous year. REIT signed 336 retail agreements in 2020 for a total of DKK 1.8 million. SF, including 103 leasing agreements totaling 469,000 SF in the fourth quarter.

REIT did not provide earnings guidance, something analysts at the call noted as many of the Federal’s peers, after withholding guidance for most of 2020, have begun to make some predictions about the 2021 performance.

Federal Realty Chief Financial Officer Dan Guglielmone said he expects the company’s occupancy will continue to fall this year before reaching a strong 2022. Although not an official guide, he said he expects REITs earnings in the first quarter underperform the 4th quarter.

“While we still expect continued pressure on our occupancy over the next few quarters and expect to dip into the upper 80s at the trough, as we have previously discussed, leasing activity will continue in the volumes we achieved in the second half of 2020, set us up for more significant growth in 2022, ”Guglielmone said on the earnings call.

REIT had charged approx. 89% of 4th quarter rent per. January 31st. It has reached rent arrears agreements totaling $ 36 million. And rent reductions totaling $ 37 million.

The financial consequences of uncollected rents in the 4th quarter amounted to DKK 18.9 million. $ Tab, said REIT. About 85% of this impact came from restaurants, gyms and entertainment rentals.

Wood said the restrictions imposed when COVID-19 cases increased in the final months of the year have hurt tenants’ ability to pay rent.

“There is no doubt that the second wave of government closures in our coastal markets that shot up around Thanksgiving last year and largely continues through today, although there are at least some encouraging signs of secession of late, have and continue with hurting us in terms of of rent collection and the likely business mistakes that come from them, ”Wood said.

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