Forward-Looking Statements
The following discussion should be read in conjunction with the consolidated
interim financial statements and notes thereto appearing in Item 1 of this
report and the more detailed information contained in our Annual Report on Form
10-K for the year ended December 31, 2020 filed with the Securities and Exchange
Commission (the "SEC") on February 11, 2021.
Certain statements included in this Quarterly Report on Form 10-Q are
forward-looking statements. Those statements include statements regarding the
intent, belief or current expectations of Federal Realty Investment Trust ("we"
"our" or "us") and members of our management team, as well as the assumptions on
which such statements are based, and generally are identified by the use of
words such as "may," "will," "seeks," "anticipates," "believes," "estimates,"
"expects," "plans," "intends," "should" or similar expressions. Actual results
may differ materially from those contemplated by such forward-looking
statements. Further, forward-looking statements speak only as of the date they
are made, and we undertake no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated
events or changes to future operating results over time, unless required by law.
The following are some of the risks and uncertainties, although not all risks
and uncertainties, that could cause our actual results to differ materially from
those presented in our forward-looking statements:
•risks that our tenants will not pay rent, may vacate early or may file for
bankruptcy or that we may be unable to renew leases or re-let space at favorable
rents as leases expire;
•risks that we may not be able to proceed with or obtain necessary approvals for
any redevelopment or renovation project, and that completion of anticipated or
ongoing property redevelopment or renovation projects that we do pursue may cost
more, take more time to complete or fail to perform as expected;
•risk that we are investing a significant amount in ground-up development
projects that may be dependent on third parties to deliver critical aspects of
certain projects, requires spending a substantial amount upfront in
infrastructure, and assumes receipt of public funding which has been committed
but not entirely funded;
                                       12
--------------------------------------------------------------------------------
Table of Contents
•risks normally associated with the real estate industry, including risks that
occupancy levels at our properties and the amount of rent that we receive from
our properties may be lower than expected, that new acquisitions may fail to
perform as expected, that competition for acquisitions could result in increased
prices for acquisitions, that costs associated with the periodic maintenance and
repair or renovation of space, insurance and other operations may increase, that
environmental issues may develop at our properties and result in unanticipated
costs, and, because real estate is illiquid, that we may not be able to sell
properties when appropriate;
•risks that our growth will be limited if we cannot obtain additional capital;
•risks of financing on terms which are acceptable to us, our ability to meet
existing financial covenants and the limitations imposed on our operations by
those covenants, and the possibility of increases in interest rates that would
result in increased interest expense;
•risks related to our status as a real estate investment trust, commonly
referred to as a REIT, for federal income tax purposes, such as the existence of
complex tax regulations relating to our status as a REIT, the effect of future
changes in REIT requirements as a result of new legislation, and the adverse
consequences of the failure to qualify as a REIT;
•risks related to natural disasters, climate change and public health crises
(such as the outbreak and worldwide spread of COVID-19), and the measures that
international, federal, state and local governments, agencies, law enforcement
and/or health authorities implement to address them, may precipitate or
materially exacerbate one or more of the above-mentioned risks, and may
significantly disrupt or prevent us from operating our business in the ordinary
course for an extended period.
Given these uncertainties, readers are cautioned not to place undue reliance on
any forward-looking statements that we make, including those in this Quarterly
Report on Form 10-Q. You should carefully review the risks and the risk factors
included in our Annual Report on Form 10-K for the year ended December 31, 2020
and under Part II, Item 1A in this Quarterly Report on Form 10-Q, before making
any investments in us.
Overview
We are an equity real estate investment trust ("REIT") specializing in the
ownership, management, and redevelopment of high quality retail and mixed-use
properties located primarily in communities where we believe retail demand
exceeds supply, in strategically selected metropolitan markets in the Northeast
and Mid-Atlantic regions of the United States, California, and South Florida. As
of March 31, 2021, we owned or had a majority interest in community and
neighborhood shopping centers and mixed-use properties which are operated as 101
predominantly retail real estate projects comprising approximately 23.3 million
square feet. In total, the real estate projects were 91.8% leased and 89.5%
occupied at March 31, 2021.
Impacts of COVID-19 Pandemic
We continue to monitor and address risks related to the novel coronavirus
disease ("COVID-19") pandemic. Since March 2020 when the World Health
Organization characterized COVID-19 as a global pandemic, we have been and
continue to be impacted by COVID-19 and the actions taken by federal, state, and
local government to prevent its spread. These actions range from closure of
nonessential businesses and ordering residents to generally stay at home at the
onset of the pandemic to phased re-openings and capacity limitations as COVID-19
vaccines are rolled out and infection rates start to decline. These actions,
along with general concern over the spread of COVID-19, required a significant
number of tenants to close their operations or to significantly limit the amount
of business they are able to conduct. These closures and restrictions have
impacted the tenants' ability to timely pay rent as required under our leases
and also caused many tenants to close their business permanently. As a result,
our cash flow and results of operations in the three months ended March 31, 2021
continued to be materially adversely impacted, with vacancy levels remaining
above historical levels. Although virtually all of our leases required the
tenants to pay rent even while they were not operating, we entered into numerous
agreements to abate, defer, and/or restructure tenant rent payments for varying
periods of time, all with the objective of collecting as much cash as reasonably
possible and maintaining occupancy to the maximum extent. We believe those
actions will position many of our tenants to be able to return to payment of
contractual rent as soon as possible after the impacts from the pandemic have
subsided.
During the three months ended March 31, 2021, we recognized collectibility
related adjustments of $14.8 million. This includes not only the impact of
tenants recognized on a cash basis but also changes in our collectibility
assessments from probable to not probable, disputed rents, and any rent
abatements directly related to COVID-19. As of March 31, 2021, the revenue from
approximately 34% of our tenants (based on total commercial leases) is being
recognized on a cash basis.
We believe that the actions we have taken to improve our financial position and
maximize our liquidity, as described further in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in our 2020 Annual
Report on   Form 10-K  , will continue to mitigate the impact to our cash flow
caused by tenants not timely paying contractual rent.
See further discussion of the impact of COVID-19 on our business throughout Item
2.

                                       13
--------------------------------------------------------------------------------
Table of Contents
Business Continuity
We transitioned our entire workforce to remote work in March 2020 with the
exception of those employees who were critical to providing the necessary
day-to-day property management functions required to keep our properties open
and operating for essential businesses such as grocery stores and drug stores,
and a few employees who were needed to carry out critical corporate functions.
Although all of our corporate offices have reopened with capacity limitations,
approximately 25% of our workforce continues to work remotely on a regular
basis. We have not laid off, furloughed, or terminated any employees nor have we
modified the compensation of any of our employees as a result of COVID-19, and
the transition to a largely remote workforce has not had any material adverse
impacts on our financial reporting systems, our internal controls, or disclosure
controls and procedures.
Critical Accounting Policies
There have been no significant changes to the critical accounting policies
disclosed in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in our 2020 Annual Report on   Form 10-K  .
2021 Acquisitions and Disposition
On January 4, 2021, we acquired our partner's 20% interest in our joint venture
arrangement related to the Pike & Rose hotel for $2.3 million, and repaid the
$31.5 million mortgage loan encumbering the hotel. As a result of the
transaction, we gained control of the hotel, and effective January 4, 2021, we
have consolidated the asset. We also recognized a gain on acquisition of the
controlling interest of $2.1 million related to the difference between the
carrying value and fair value of the previously held equity interest.
On February 22, 2021, we acquired the fee interest on Mount Vernon Plaza for
$5.6 million. As a result of this transaction, the "operating lease right of use
assets" and "operating lease liabilities" on our consolidated balance sheet
decreased by $9.8 million. We now own the entire fee interest on this property.
On March 19, 2021, we sold a portion of Graham Park Plaza in Falls Church,
Virginia for $20.3 million, resulting in a gain on sale of $15.6 million.
On April 30, 2021, we acquired the fee interest in a 90,000 square foot,
shopping center in McLean, Virginia for $32.1 million. The acquisition was
completed through a newly formed joint venture, in which we own an 80%
controlling interest.
2021 Debt and Equity Transactions
On February 5, 2021, we repaid the $16.2 million mortgage loan on Sylmar Towne
Center, at par, prior to its original maturity date.
On February 24, 2021, we replaced our existing at-the-market ("ATM") equity
program with a new ATM equity program in which we may from time to time offer
and sell common shares having an aggregate offering price of up to $500.0
million. The new ATM equity program also allows shares to be sold through
forward sales agreements. We intend to use the net proceeds to fund potential
acquisition opportunities, fund our development and redevelopment pipeline,
repay indebtedness and/or for general corporate purposes.
For the three months ended March 31, 2021, we issued 847,471 common shares at a
weighted average price per share of $104.19 for net cash proceeds of $87.2
million including paying $0.9 million in commissions and $0.2 million in
additional offering expenses related to the sales of these common shares. We
also entered into forward sales agreements for 331,318 shares under our ATM
equity program at an average initial offering price of $106.43, which is net of
approximately $0.4 million of commissions. The forward price that we will
receive upon physical settlement of the agreements is subject to the adjustment
for (i) a floating interest rate factor equal to a specified daily rate less a
spread, (ii) the forward purchasers' stock borrowing costs and (iii) scheduled
dividends during the term of the forward sale agreements. The open forward
shares may be settled at any time on or before multiple required settlement
dates in March 2022. We have remaining capacity to issue up to $404.4 million in
common shares under our ATM equity program as of March 31, 2021.
On April 16, 2021, we repaid $100.0 million of our existing $400.0 million term
loan, amended the agreement on the remaining $300.0 million to lower the current
spread over LIBOR from 135 basis points to 80 basis points based on our current
credit rating, and extended the maturity date to April 16, 2024, along with two
one-year extensions, at our option.
Recently Issued Accounting Pronouncements
See Note 2 to the consolidated financial statements.
                                       14
--------------------------------------------------------------------------------
Table of Contents
Capitalized Costs
Certain external and internal costs directly related to the development,
redevelopment and leasing of real estate, including pre-construction costs, real
estate taxes, insurance, construction costs and salaries and related costs of
personnel directly involved, are capitalized. We capitalized certain external
and internal costs related to both development and redevelopment activities of
$82 million and $2 million, respectively, for the three months ended March 31,
2021, and $114 million and $3 million, respectively, for the three months ended
March 31, 2020. We capitalized external and internal costs related to other
property improvements of $16 million and $1 million, respectively, for the three
months ended March 31, 2021, and $13 million and $1 million for the three months
ended March 31, 2020. We capitalized external and internal costs related to
leasing activities of $2 million and $1 million, respectively, for the three
months ended March 31, 2021, and $3 million and $1 million, respectively, for
the three months ended March 31, 2020. The amount of capitalized internal costs
for salaries and related benefits for development and redevelopment activities,
other property improvements, and leasing activities were $2 million, $1 million,
and $1 million, respectively, for the three months ended March 31, 2021 and $3
million, $1 million, and $1 million, respectively for the three months ended
March 31, 2020. Total capitalized costs were $104 million and $134 million for
the three months ended March 31, 2021 and 2020, respectively.
Outlook
Our long-term growth strategy is focused on growth in earnings, funds from
operations, and cash flows primarily through a combination of the following:
•growth in our comparable property portfolio,
•growth in our portfolio from property developments and redevelopments, and
•expansion of our portfolio through property acquisitions.

While the ongoing COVID-19 pandemic is impacting us in the short-term, our long-term focus has not changed. See our 10-K filed on February 11, 2021, for discussion of our long-term strategies.



Since March 2020, federal, state, and local governments have taken various
actions to mitigate the spread of COVID-19. This includes initially ordering
closures of non-essential businesses and ordering residents to generally stay at
home, and subsequent phased re-openings, as well as the general concern over the
spread of COVID-19, have required a significant number of tenants to close their
operations or to significantly limit the amount of business they are able to
conduct in their stores. These closures and restrictions have impacted the
tenants' ability to timely pay rent as required under our leases and also caused
many tenants to close their business permanently. While approximately 98% of our
retail tenants were open at March 31, 2021, many continue to have both operating
and capacity restrictions in place as mandated by local governments. These
economic hardships have adversely impacted our business, and continue to have a
negative effect on our financial results during the first quarter of 2021. With
very few exceptions, our leases require tenants to continue to pay rent even
while closed as a result of the pandemic, and while many tenants did not pay
rents and other charges during a portion of 2020, the majority of our tenants
have resumed paying all or a portion of their rent and/or other charges as their
businesses were able to reopen. Our percentage of contractual rent actually
collected has continued to increase since the low point in April 2020, including
some tenants paying past due amounts. As of March 31, 2021, we have entered into
agreements with approximately 32% of our tenants (based on total commercial
leases) to defer rent payments to later periods, largely throughout the
remainder of 2021, although some extend beyond, and negotiations with other
tenants are still ongoing. While increasing monthly cash collection rates is a
positive trend driven by government mandated restrictions gradually being
lifted, we expect that our rent collections will continue to be below our
tenants' contractual rent obligations and historical levels, which will continue
to adversely impact our results of operations. The extent of such impact will
depend on future developments, which are highly uncertain and cannot be
predicted. Depending upon the duration of tenant closures, operating
restrictions, and the overall economic downturn resulting from COVID-19, we may
find that even deferred rents are difficult to collect, and we may experience
higher vacancy levels. While the duration and severity of the economic impact
resulting from COVID-19 is unknown, we seek to position the Trust to participate
in the resulting economic recovery.

We continue to have several development projects in process being delivered as
follows:
•The first phase of construction on Santana West 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 expected to
begin 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 the second quarter of 2021.
•Phase III at Pike & Rose includes a 212,000 square foot office building (which
includes 7,000 square feet of ground floor retail space) and over 600 additional
parking spaces. The building is expected to cost between $128 million and
                                       15
--------------------------------------------------------------------------------
Table of Contents
$135 million. At March 31, 2021, approximately138,000 square feet has been
leased, of which approximately 45,000 square feet is our new corporate
headquarters.
•Throughout the portfolio, we currently have redevelopment projects underway
with a projected total cost of approximately $323 million that we expect to
stabilize over the next several years.

The above includes our best estimates based on information currently known,
however, the completion of construction, final costs, and the timing of leasing
and openings will be dependent upon the duration of governmental restrictions
and the duration and severity of the economic impacts of COVID-19.
The development of future phases of Assembly Row, Pike & Rose and Santana Row
will be pursued opportunistically based on, among other things, market
conditions, tenant demand, and our evaluation of whether those phases will
generate an appropriate financial return.
We continue to review acquisition opportunities that complement our portfolio
and provide long-term growth opportunities. Initially, some of our acquisitions
do not contribute significantly to earnings growth; however, we believe they
provide long-term re-leasing growth, redevelopment opportunities, and other
strategic opportunities. Any growth from acquisitions is contingent on our
ability to find properties that meet our qualitative standards at prices that
meet our financial hurdles. Changes in interest rates may affect our success in
achieving earnings growth through acquisitions by affecting both the price that
must be paid to acquire a property, as well as our ability to economically
finance the property acquisition. Generally, our acquisitions are initially
financed by available cash and/or borrowings under our revolving credit facility
which may be repaid later with funds raised through the issuance of new equity
or new long-term debt. We may also finance our acquisitions through the issuance
of common shares, preferred shares, or downREIT units as well as through assumed
mortgages and property sales.
At March 31, 2021, the leasable square feet in our properties was 91.8% leased
and 89.5% occupied. The leased rate is higher than the occupied rate due to
leased spaces that are being redeveloped or improved or that are awaiting
permits and, therefore, are not yet ready to be occupied. Our occupancy and
leased rates are subject to variability over time due to factors including
acquisitions, the timing of the start and stabilization of our redevelopment
projects, lease expirations and tenant closings and bankruptcies.
Lease Rollovers
For the first quarter of 2021, we signed leases for a total of 515,000 square
feet of retail space including 506,000 square feet of comparable space leases
(leases for which there was a prior tenant) at an average rental increase of 9%
on a cash basis. New leases for comparable spaces were signed for 220,000 square
feet at an average rental increase of 18% on a cash basis. Renewals for
comparable spaces were signed for 286,000 square feet at an average rental
increase of 2% on a cash basis. Tenant improvements and incentives for
comparable spaces were $32.06 per square foot, of which, $67.15 per square foot
was for new leases and $5.09 per square foot was for renewals for the three
months ended March 31, 2021.
The rental increases associated with comparable spaces generally include all
leases signed for retail space in arms-length transactions reflecting market
leverage between landlords and tenants during the period. The comparison between
average rent for expiring leases and new leases is determined by including
contractual rent on the expiring lease and annual market rent and in some
instances, projections of percentage rent, to be paid on the new lease. In
atypical circumstances, management may exercise judgment as to how to most
effectively reflect the comparability of spaces reported in this calculation. As
a result of accommodations made to certain tenants to help them to stay open
during and after the COVID-19 pandemic, we have found it necessary to exercise
more judgement in 2020 and 2021 than in prior years in order to appropriately
reflect the comparability of spaces in the calculation. The change in rental
income on comparable space leases is impacted by numerous factors including
current market rates, location, individual tenant creditworthiness, use of
space, market conditions when the expiring lease was signed, capital investment
made in the space and the specific lease structure. Tenant improvements and
incentives include the total dollars committed for the improvement (fit out) of
a space as it relates to a specific lease. Incentives include amounts paid to
tenants as inducement to sign a lease that do not represent building
improvements.
Historically, we have executed comparable space leases for 1.3 to 1.9 million
square feet of retail space each year. We expect some rental rates to continue
to be negatively impacted by the COVID-19 pandemic. We expect the volume for
2021 to be in line with, or potentially exceed our historical averages given a
larger amount of vacancy as a result of COVID-19. Although we expect overall
positive increases in annual rent for comparable spaces, changes in annual rent
for any individual lease or combinations of individual leases reported in any
particular period may be positive or negative and we can provide no assurance
that the annual rents on comparable space leases will continue to increase at
historical levels, if at all.
The leases signed in 2021 generally become effective over the following two
years though some may not become effective until 2024 and beyond. Further, there
is risk that some new tenants will not ultimately take possession of their space
and that tenants for both new and renewal leases may not pay all of their
contractual rent due to operating, financing or other matters. However,
                                       16
--------------------------------------------------------------------------------
Table of Contents
our historical increases in rental rates do provide information about the
tenant/landlord relationship and the potential increase we may achieve in rental
income over time.
Comparable Properties
Throughout this section, we have provided certain information on a "comparable
property" basis. Information provided on a comparable property basis includes
the results of properties that we owned and operated for the entirety of both
periods being compared except for properties that are currently under
development or are being repositioned for significant redevelopment and
investment. For the three months ended March 31, 2021, all or a portion of 98
properties were considered comparable properties and six properties were
considered non-comparable properties. For the three months ended March 31, 2021,
two portions of properties were moved from non-comparable properties to
comparable properties, one property and two portions of properties were moved
from acquisitions to comparable properties, and one portion of a property was
removed from non-comparable properties, as it was sold, compared to the
designations as of December 31, 2020. While there is judgment surrounding
changes in designations, we typically move non-comparable properties to
comparable properties once they have stabilized, which is typically considered
90% physical occupancy or when the growth expected from the redevelopment has
been included in the comparable periods. We typically remove properties from
comparable properties when the repositioning of the asset has commenced and has
or is expected to have a significant impact to property operating income within
the calendar year. Acquisitions are moved to comparable properties once we have
owned the property for the entirety of comparable periods and the property is
not under development or being repositioned for significant redevelopment and
investment.

       RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2021 AND 2020
                                                                                                         Change
                                                          2021                2020             Dollars               %
                                                                          (Dollar amounts in thousands)
Rental income                                         $  217,135          $ 230,798          $ (13,663)              (5.9) %

Mortgage interest income                                   1,026                759                267               35.2  %
Total property revenue                                   218,161            231,557            (13,396)              (5.8) %
Rental expenses                                           49,238             44,312              4,926               11.1  %
Real estate taxes                                         29,420             29,064                356                1.2  %
Total property expenses                                   78,658             73,376              5,282                7.2  %
Property operating income (1)                            139,503            158,181            (18,678)             (11.8) %
General and administrative expense                       (10,258)           (10,251)                (7)               0.1  %
Depreciation and amortization                            (63,874)           (62,188)            (1,686)               2.7  %

Gain on sale of real estate and change in control of
interest                                                  17,428                  -             17,428              100.0  %
Operating income                                          82,799             85,742             (2,943)              (3.4) %
Other interest income                                        363                308                 55               17.9  %
Interest expense                                         (32,085)           (28,445)            (3,640)              12.8  %
Loss from partnerships                                    (1,338)            (1,164)              (174)              14.9  %

Total other, net                                         (33,060)           (29,301)            (3,759)              12.8  %

Net income                                                49,739             56,441             (6,702)             (11.9) %

Net income attributable to noncontrolling interests (1,503)

  (1,678)               175              (10.4) %
Net income attributable to the Trust                  $   48,236          $  54,763          $  (6,527)             (11.9) %


(1)Property operating income is a non-GAAP measure that consists of rental
income and mortgage interest income, less rental expenses and real estate taxes.
This measure is used internally to evaluate the performance of property
operations and we consider it to be a significant measure. Property operating
income should not be considered an alternative measure of operating results or
cash flow from operations as determined in accordance with GAAP.
Property Revenues
Total property revenue decreased $13.4 million, or 5.8%, to $218.2 million in
the three months ended March 31, 2021 compared to $231.6 million in the three
months ended March 31, 2020. The percentage occupied at our shopping centers was
89.5% at March 31, 2021 compared to 91.5% at March 31, 2020. The most
significant driver of the decrease in property revenues is the ongoing impact of
COVID-19, as many of our tenants were forced to temporarily or in some cases
permanently
                                       17
--------------------------------------------------------------------------------
Table of Contents
close their businesses in addition to adhering to government imposed capacity
limitations and restrictions resulting in changes in our collectibility
estimates and in some cases rent abatement. Changes in the components of
property revenue are discussed below.
Rental Income
Rental income consists primarily of minimum rent, cost reimbursements from
tenants and percentage rent, and is net of collectibility related adjustments.
Rental income decreased $13.7 million, or 5.9%, to $217.1 million in the three
months ended March 31, 2021 compared to $230.8 million in the three months ended
March 31, 2020 due primarily to the following:
•higher collectibility related impacts including rent abatements across all
properties of $11.8 million primarily the result of COVID-19 impacts,
•a decrease of $4.7 million from 2020 property sales, and
•a decrease of $1.9 million from comparable properties primarily related to
lower average occupancy of approximately $6.7 million and lower parking income
and percentage rent of $1.5 million primarily due to the impacts from COVID-19
related closures and restrictions, partially offset by higher rental rates of
approximately $2.8 million and higher recoveries of $2.4 million primarily the
result of higher snow removal expense,
partially offset by,
•an increase of $4.0 million from non-comparable properties primarily driven by
the opening of our new office building at Santana Row in early 2020 and
redevelopment related occupancy increases at one of our properties, and
•an increase of $0.7 million from acquisitions.
Mortgage interest income
Mortgage interest income increased $0.3 million, or 35.2%, to $1.0 million in
the three months ended March 31, 2021 compared to $0.8 million in the three
months ended March 31, 2020. This increase is due primarily to the acquisition
of two mortgage loans secured by a shopping center in Rockville, Maryland that
is owned by a third party, in September 2020.
Property Expenses
Total property expenses increased $5.3 million, or 7.2%, to $78.7 million in the
three months ended March 31, 2021 compared to $73.4 million in the three months
ended March 31, 2020. Changes in the components of property expenses are
discussed below.
Rental Expenses
Rental expenses increased $4.9 million, or 11.1%, to $49.2 million in the three
months ended March 31, 2021 compared to $44.3 million in the three months ended
March 31, 2020. This decrease is primarily due to the following:
•an increase of $5.7 million from comparable properties due primarily to higher
snow removal expense,
•an increase of $0.8 million from acquisitions, and
•an increase of $0.5 million from non-comparable properties driven by the
opening of our new office buildings at Santana Row and Pike & Rose in 2020,
partially offset by,
•a decrease of $1.6 million from 2020 property sales.
As a result of the changes in rental income and rental expenses as discussed
above, rental expenses as a percentage of rental income increased to 22.7% in
the three months ended March 31, 2021 from 19.2% in the three months ended March
31, 2020.
Real Estate Taxes
Real estate tax expense increased $0.4 million, or 1.2%, to $29.4 million in the
three months ended March 31, 2021 compared to $29.1 million in the three months
ended March 31, 2020. This increase is primarily due the following:
•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, and
•an increase of $0.4 million from comparable properties primarily due to higher
assessments,
partially offset by,
•a decrease of $0.7 million from 2020 property sales.
                                       18
--------------------------------------------------------------------------------
Table of Contents
Property Operating Income
Property operating income decreased $18.7 million, or 11.8%, to $139.5 million
in the three months ended March 31, 2021 compared to $158.2 million in the three
months ended March 31, 2020. This decrease is primarily due to the impact of
COVID-19, which resulted in higher collectibility related adjustments, lower
parking income, and lower percentage rent. Also contributing to the decreases
were higher snow removal costs, and 2020 property sales, partially offset by the
opening of our new office building at Santana Row in early 2020 and
redevelopment related occupancy increases at one of our properties.
Other Operating
Depreciation and Amortization
Depreciation and amortization expense increased $1.7 million, or 2.7%, to $63.9
million in the three months ended March 31, 2021 from $62.2 million in the three
months ended March 31, 2020. This increase is due primarily to accelerated
depreciation related to a vacating tenant, placing redevelopment properties into
service, the opening of our new office building at Santana Row in early 2020,
and the acquisition of the previously unconsolidated Pike & Rose hotel joint
venture in January 2021, partially offset by 2020 property sales.
Gain on Sale of Real Estate and Change in Control of Interest
The $17.4 million gain on sale of real estate and change in control of interest
for the three months ended March 31, 2021 is due primarily to a $15.6 million
gain related to the sale of a portion of Graham Park Plaza in Falls Church,
Virginia and a $2.1 million gain relating to the acquisition of the previously
unconsolidated Pike & Rose hotel joint venture (see Note 3 for additional
disclosure).
Operating Income
Operating income decreased $2.9 million, or 3.4%, to $82.8 million in the three
months ended March 31, 2021 compared to $85.7 million in the three months ended
March 31, 2020. This decrease is primarily due to the impact of COVID-19, which
resulted in higher collectibility related adjustments, lower parking income, and
lower percentage rent. Also contributing to the decrease were higher snow
removal costs and 2020 property sales, partially offset by the gains related to
the sale of a portion of Graham Park Plaza and the previously unconsolidated
Pike & Rose hotel joint venture, the opening of our new office building at
Santana Row in early 2020, and redevelopment related occupancy increases at one
of our properties.
Other
Interest Expense
Interest expense increased $3.6 million, or 12.8%, to $32.1 million in the three
months ended March 31, 2021 compared to $28.4 million in the three months ended
March 31, 2020. This increase is due primarily to the following:
•an increase of $7.4 million from higher weighted average borrowings primarily
from the May 2020 debt issuances in response to the COVID-19 pandemic,
partially offset by,
•a decrease of $2.9 million due to a lower overall weighted average borrowing
rate, and
•an increase of $0.8 million in capitalized interest, primarily attributable to
the development of Phase III of Assembly Row.
Gross interest costs were $38.6 million and $34.2 million in the three months
ended March 31, 2021 and March 31, 2020, respectively. Capitalized interest was
$6.5 million and $5.7 million for the three months ended March 31, 2021 and
March 31, 2020, respectively.


                                       19
--------------------------------------------------------------------------------
Table of Contents
Liquidity and Capital Resources
Due to the nature of our business and strategy, we typically generate
significant amounts of cash from operations which is largely paid to our common
and preferred shareholders in the form of dividends because as a REIT, we are
generally required to make annual distributions to shareholders of at least 90%
of our taxable income (cash dividends paid in the three months ended March 31,
2021 were approximately $83.1 million). Remaining cash flow from operations
after dividend payments is used to fund recurring and non-recurring capital
projects (such as tenant improvements and redevelopments), and regular debt
service requirements (including debt service relating to additional or
replacement debt, as well as scheduled debt maturities). We maintain a $1.0
billion revolving credit facility to fund short term cash flow needs and also
look to the public and private debt and equity markets, joint venture
relationships, and property dispositions to fund capital expenditures on a
long-term basis.

We are currently experiencing lower levels of cash from operations due to lower
rent collections from tenants impacted by the COVID-19 pandemic (see further
discussion under the "Outlook" section of this Item 2). While the overall
economic impacts of the pandemic are unknown, we have taken multiple steps to
strengthen our financial position, maximize liquidity, and to provide maximum
flexibility during these uncertain times, including maintaining levels of cash
significantly in excess of the cash balances we have historically maintained.

During the three months ended March 31, 2021, there were no borrowings on our
$1.0 billion unsecured revolving credit facility, and as of March 31, 2021, we
had cash and cash equivalents of $779.9 million. We also had outstanding forward
sales agreements for proceeds of $35.3 million as of March 31, 2021, and the
capacity to issue up to $404.4 million in common shares both under our ATM
equity program.
On April 16, 2021, we repaid $100.0 million of our existing $400.0 million term
loan, amended the agreement on the remaining $300.0 million to lower the current
spread over LIBOR from 135 basis points to 80 basis points based on our current
credit rating, and extended the maturity date to April 16, 2024, along with two
one-year extensions, at our option. Subsequently, over the next 12 months, we
have $124.2 million of secured debt maturing, which we intend to pay off at
maturity.
Our overall capital requirements for the remainder of 2021 will continue to be
impacted by the extent and duration of COVID-19 related closures, impacts on our
cash collections, and overall economic impacts that might occur. Cash
requirements will also be impacted by acquisition opportunities and the level
and general timing of our redevelopment and development activities. While the
amount of future expenditures will depend on numerous factors, we expect to see
higher levels of capital investments in our properties under development and
redevelopment, as we continue to invest in the current phase of these projects
and are not expecting COVID-19 related halts in construction activities similar
to those experienced in 2020. With respect to other capital investments related
to our existing properties, we expect to incur levels more consistent with prior
years with an overall increase compared to 2020.
We believe that the cash on our balance sheet together with rents we collect, as
well as our $1.0 billion revolving credit facility will allow us to continue to
operate our business in the near-term. Given our recent ability to access the
capital markets, we also expect debt or equity to be available to us. We also
have the ability to delay the timing of certain development and redevelopment
projects as well as limit future acquisitions, as well as limit future
acquisitions, reduce our operating expenditures, or re-evaluate our dividend
policy.

While the COVID-19 pandemic has continued to negatively impact our business
during the quarter ended March 31, 2021, and we expect it will continue to
negatively impact our business in the short term, we maintain our long term
commitment to a conservative capital structure that will allow us to maintain
strong debt service coverage and fixed-charge coverage ratios as part of our
commitment to investment-grade debt ratings.
                                       20
--------------------------------------------------------------------------------

Table of Contents
Summary of Cash Flows
                                                                            Three Months Ended March 31,
                                                                             2021                   2020
                                                                                   (In thousands)
Cash provided by operating activities                                  $      115,106          $   118,749
Cash used in investing activities                                             (74,841)            (151,832)
Cash (used in) provided by financing activities                               (48,719)             898,895

(Decrease) increase in cash, cash equivalents and restricted cash

    (8,454)             865,812
Cash, cash equivalents and restricted cash, beginning of year                 816,896              153,614
Cash, cash equivalents and restricted cash, end of period              $    

808,442 $ 1,019,426





Net cash provided by operating activities decreased $3.6 million to $115.1
million during the three months ended March 31, 2021 from $118.7 million during
the three months ended March 31, 2020. The decrease was primarily attributable
to lower net income before non-cash items, partially offset by timing of cash
receipts including lower prepaid rent balances in 2020 as a result of the
COVID-19 pandemic.
Net cash used in investing activities decreased $77.0 million to $74.8 million
during the three months ended March 31, 2021 from $151.8 million during the
three months ended March 31, 2020. The decrease was primarily attributable to:
•a $38.6 million decrease in capital expenditures as we prepare to deliver
portions of Phase III of both our Assembly Row and Pike & Rose projects,
•$19.9 million of net proceeds from the sale of a portion of Graham Park Plaza
in Falls Church, Virginia in March 2021, and
•$17.4 million for net costs paid in 2020 relating to the partial sale under
threat of condemnation at San Antonio Center in 2019.
Net cash provided by financing activities decreased $947.6 million to $48.7
million used during the three months ended March 31, 2021 from $898.9 million
provided in the three months ended March 31, 2020. The decrease was primarily
attributable to:
•$990.0 million in borrowings on our revolving credit facility in 2020 to
provide maximum flexibility and liquidity at the beginning of the COVID-19
pandemic, and
•a $47.3 million increase in repayment of mortgages, finance leases, and notes
payable primarily due to the $31.5 million repayment of the mortgage loan
related to the Pike & Rose hotel in January 2021 and the $16.2 million repayment
of the mortgage loan on Sylmar Towne Center in February 2021,
partially offset by
•an $87.3 million increase in net proceeds from the issuance of common shares
under our ATM program during the three months ended March 31, 2021.
                                       21
--------------------------------------------------------------------------------
Table of Contents
Debt Financing Arrangements
The following is a summary of our total debt outstanding as of March 31, 2021:
                                                  Original             Principal Balance         Stated Interest
                                                    Debt                as of March 31,            Rate as of
Description of Debt                                Issued                    2021                March 31, 2021                 Maturity Date
                                                    (Dollar amounts in thousands)
Mortgages payable
Secured fixed rate

Plaza Del Sol                                           Acquired       $        7,992                      5.23  %                   December 1, 2021
The AVENUE at White Marsh                            52,705                    52,705                      3.35  %                    January 1, 2022
Montrose Crossing                                    80,000                    65,109                      4.20  %                   January 10, 2022
Azalea                                                  Acquired               40,000                      3.73  %                   November 1, 2025
Bell Gardens                                            Acquired               12,339                      4.06  %                     August 1, 2026
Plaza El Segundo                                    125,000                   125,000                      3.83  %                       June 5, 2027
The Grove at Shrewsbury (East)                       43,600                    43,600                      3.77  %                  September 1, 2027
Brook 35                                             11,500                    11,500                      4.65  %                       July 1, 2029
Hoboken (24 Buildings) (1)                                56,450               56,450                LIBOR + 1.95%                  December 15, 2029
Various Hoboken (14 Buildings) (2)                      Acquired               32,482                      Various               Various through 2029
Chelsea                                                 Acquired                5,140                      5.36  %                   January 15, 2031
Hoboken (1 Building) (3)                                Acquired               16,478                      3.75  %                       July 1, 2042
Subtotal                                                                      468,795
Net unamortized debt issuance costs and premium                             

(1,845)


Total mortgages payable, net                                                  466,950

Notes payable
Term Loan (4)                                       400,000                   400,000                LIBOR + 1.35%                        May 6, 2021
Revolving credit facility (5)                     1,000,000                         -               LIBOR + 0.775%                   January 19, 2024
Various                                               7,239                     3,256                       11.31%               Various through 2028

Subtotal                                                                      403,256
Net unamortized debt issuance costs                                              (175)
Total notes payable, net                                                      403,081

Senior notes and debentures
Unsecured fixed rate

2.75% notes                                         275,000                   275,000                      2.75  %                       June 1, 2023
3.95% notes                                         600,000                   600,000                      3.95  %                   January 15, 2024
1.25% notes                                         400,000                   400,000                      1.25  %                  February 15, 2026
7.48% debentures                                     50,000                    29,200                      7.48  %                    August 15, 2026
3.25% notes                                         475,000                   475,000                      3.25  %                      July 15, 2027
6.82% medium term notes                              40,000                    40,000                      6.82  %                     August 1, 2027
3.20% notes                                         400,000                   400,000                      3.20  %                      June 15, 2029
3.50% notes                                         400,000                   400,000                      3.50  %                       June 1, 2030
4.50% notes                                         550,000                   550,000                      4.50  %                   December 1, 2044
3.625% notes                                        250,000                   250,000                     3.625  %                     August 1, 2046
Subtotal                                                                    3,419,200
Net unamortized debt issuance costs and premium                             

(14,321)


Total senior notes and debentures, net                                      3,404,879

Total debt, net                                                        $    4,274,910


_____________________
1)On November 26, 2019, we entered into two interest rate swap agreements that
fix the interest rate on this mortgage loan at 3.67%
2)The interest rates on these mortgages range from 3.91% to 5.00%.
3)This mortgage loan has a fixed interest rate, however, the rate resets every
five years until maturity. The current interest rate is fixed until July 1,
2022, and the loan is prepayable at par anytime after this date.
4)On April 16, 2021, we repaid $100.0 million of the term loan, amended the
agreement on the remaining $300.0 million to lower the current spread over LIBOR
from 135 basis points to 80 basis points based on our current credit rating, and
extended the maturity date to April 16, 2024, along with two one-year
extensions, at our option.
5)During the three months ended March 31, 2021, there were no borrowings on our
$1.0 billion revolving credit facility.
                                       22
--------------------------------------------------------------------------------
Table of Contents
Our revolving credit facility and other debt agreements include financial and
other covenants that may limit our operating activities in the future. As of
March 31, 2021, we were in compliance with all financial and other covenants
related to our revolving credit facility, term loan, and senior notes.
Additionally, we were in compliance with all of the financial and other
covenants that could trigger loan default on our mortgage loans. If we were to
breach any of these financial and other covenants and did not cure the breach
within an applicable cure period, our lenders could require us to repay the debt
immediately and, if the debt is secured, could immediately begin proceedings to
take possession of the property securing the loan. Many of our debt
arrangements, including our public notes and our revolving credit facility, are
cross-defaulted, which means that the lenders under those debt arrangements can
put us in default and require immediate repayment of their debt if we breach and
fail to cure a default under certain of our other debt obligations. As a result,
any default under our debt covenants could have an adverse effect on our
financial condition, our results of operations, our ability to meet our
obligations and the market value of our shares. Our organizational documents do
not limit the level or amount of debt that we may incur.
The following is a summary of our scheduled principal repayments as of March 31,
2021:

               Unsecured           Secured                 Total
                        (In thousands)
2021         $   400,662   (1)   $  10,861             $   411,523
2022                 751           119,706                 120,457
2023             275,765             3,549                 279,314
2024             600,656   (2)       3,688                 604,344
2025                 333            48,033                  48,366
Thereafter     2,544,289           282,958               2,827,247
             $ 3,822,456         $ 468,795             $ 4,291,251   (3)

__________________


1)  This includes our $400.0 million term loan, which was to mature on May 6,
2021. On April 16, 2021, we repaid $100.0 million of the term loan, amended the
agreement on the remaining $300.0 million to lower the current spread over LIBOR
from 135 basis points to 80 basis points based on our current credit rating, and
extended the maturity date to April 16, 2024, along with two one-year
extensions, at our option.
2)  Our $1.0 billion revolving credit facility matures on January 19, 2024, plus
two six-month extensions at our option. As of March 31, 2021, there was no
outstanding balance under this credit facility.
3)  The total debt maturities differ from the total reported on the consolidated
balance sheet due to the unamortized net debt issuance costs and
premium/discount on mortgage loans, notes payable, and senior notes as of
March 31, 2021.
Interest Rate Hedging
We may use derivative instruments to manage exposure to variable interest rate
risk. We generally enter into interest rate swaps to manage our exposure to
variable interest rate risk and treasury locks to manage the risk of interest
rates rising prior to the issuance of debt. We enter into derivative instruments
that qualify as cash flow hedges and do not enter into derivative instruments
for speculative purposes.
Interest rate swaps associated with cash flow hedges are recorded at fair value
on a recurring basis. Effectiveness of cash flow hedges is assessed both at
inception and on an ongoing basis. The effective portion of changes in fair
value of the interest rate swaps associated with cash flow hedges is recorded in
other comprehensive loss which is included in "accumulated other comprehensive
loss" on the balance sheet and statement of shareholders' equity. Cash flow
hedges become ineffective if critical terms of the hedging instrument and the
debt instrument do not perfectly match such as notional amounts, settlement
dates, reset dates, calculation period and LIBOR rate. In addition, we evaluate
the default risk of the counterparty by monitoring the credit-worthiness of the
counterparty which includes reviewing debt ratings and financial performance. If
a cash flow hedge is deemed ineffective, the ineffective portion of changes in
fair value of the interest rate swaps associated with cash flow hedges is
recognized in earnings in the period affected.
As of March 31, 2021, we have two interest rate swap agreements that effectively
fix the rate on a mortgage payable associated with our Hoboken portfolio at
3.67%. Our Assembly Row hotel joint venture is also a party to two interest rate
swap agreements that effectively fix their debt at 5.206%. All swaps were
designated and qualify as cash flow hedges. Hedge ineffectiveness has not
impacted earnings as of March 31, 2021.
                                       23
--------------------------------------------------------------------------------
Table of Contents
REIT Qualification
We intend to maintain our qualification as a REIT under Section 856(c) of the
Code. As a REIT, we generally will not be subject to corporate federal income
taxes on income we distribute to our shareholders as long as we satisfy certain
technical requirements of the Code, including the requirement to distribute at
least 90% of our taxable income to our shareholders.
Funds From Operations
Funds from operations ("FFO") is a supplemental non-GAAP financial measure of
real estate companies' operating performance. The National Association of Real
Estate Investment Trusts ("NAREIT") defines FFO as follows: net income, computed
in accordance with U.S. GAAP, plus real estate related depreciation and
amortization and excluding gains and losses on the sale of real estate or
changes in control, net of tax, and impairment write-downs of certain real
estate assets and investments in entities when the impairment is directly
attributable to decreases in the value of depreciable real estate held by the
entity. We compute FFO in accordance with the NAREIT definition, and we have
historically reported our FFO available for common shareholders in addition to
our net income and net cash provided by operating activities. It should be noted
that FFO:
•does not represent cash flows from operating activities in accordance with GAAP
(which, unlike FFO, generally reflects all cash effects of transactions and
other events in the determination of net income);
•should not be considered an alternative to net income as an indication of our
performance; and
•is not necessarily indicative of cash flow as a measure of liquidity or ability
to fund cash needs, including the payment of dividends.
We consider FFO available for common shareholders a meaningful, additional
measure of operating performance primarily because it excludes the assumption
that the value of the real estate assets diminishes predictably over time, as
implied by the historical cost convention of GAAP and the recording of
depreciation. We use FFO primarily as one of several means of assessing our
operating performance in comparison with other REITs. Comparison of our
presentation of FFO to similarly titled measures for other REITs may not
necessarily be meaningful due to possible differences in the application of the
NAREIT definition used by such REITs.
An increase or decrease in FFO available for common shareholders does not
necessarily result in an increase or decrease in aggregate distributions because
our Board of Trustees is not required to increase distributions on a quarterly
basis. However, we must distribute at least 90% of our annual taxable income to
remain qualified as a REIT. Therefore, a significant increase in FFO will
generally require an increase in distributions to shareholders although not
necessarily on a proportionate basis.
                                       24
--------------------------------------------------------------------------------
Table of Contents
The reconciliation of net income to FFO available for common shareholders is as
follows:

                                                                           Three Months Ended March 31,
                                                                              2021                2020
                                                                         

(In thousands, except per share


                                                                                       data)
Net income                                                               $    49,739          $  56,441
Net income attributable to noncontrolling interests                           (1,503)            (1,678)
Gain on sale of real estate and change in control of interest                (17,428)                 -

Depreciation and amortization of real estate assets                           57,103             56,046
Amortization of initial direct costs of leases                                 4,744              4,900

Funds from operations                                                         92,655            115,709
Dividends on preferred shares (1)                                             (2,010)            (1,875)
Income attributable to operating partnership units                               785                790
Income attributable to unvested shares                                          (325)              (356)
Funds from operations available for common shareholders                  $  

91,105 $ 114,268



Weighted average number of common shares, diluted (1)(2)                      77,582             76,208

Funds from operations available for common shareholders, per diluted
share (3)                                                                $      1.17          $    1.50


_____________________
(1)For the three months ended March 31, 2020, dividends on our Series 1
preferred stock were not deducted in the calculation of FFO available to common
shareholders, as the related shares were dilutive and included in "weighted
average common shares, diluted."
(2)The weighted average common shares used to compute FFO per diluted common
share includes operating partnership units that were excluded from the
computation of diluted EPS. Conversion of these operating partnership units is
dilutive in the computation of FFO per diluted share but is anti-dilutive for
the computation of dilutive EPS for these periods.

© Edgar Online, source Glimpses