Federal Realty Investment Trust

Greetings. Welcome to Federal Realty Investment Trust Fourth Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note that today's conference is being recorded. I will now turn the conference over to Leah Brady. Leah, please go ahead.

Hi, everyone. Thanks for joining us today for Federal Realty's fourth quarter 2020 earnings conference call. Joining me on the call are Don Wood, Dan Gee, Jeff Berkus, Wendy Sear, John Becker, and Melissa Solis. They will be available to take your questions at the conclusion of our prepared remarks. A reminder that 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 that 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 in our forward-looking statements, and we can give no assurance that these expectations can be attained. 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 condition and results operations. We do ask that given the number of participants that you limit your questions to one or two per person during the Q&A portion of the call. Feel free to jump back in the queue if you have additional questions. And with that, I will turn the call over to Don Wood to begin the discussion of our fourth quarter results. Don?

Thanks, Leah, and good evening, everyone. We closed out 2020 just about as we thought we would, with fourth quarter FFO per share of $1.14 and the total year at $4.52, roughly 29% off 2019's record results. The fourth quarter and total year number bonds, and as miserable as 2020 was, and it was pretty miserable, we're very clear as to our priorities and can see our path forward. There's no doubt that the second wave of government shutdowns in our coastal markets that ramped up around Thanksgiving last year and largely continued through today, so there are at least some encouraging signs of some loosening of late, have and continue to hurt us in terms of rent collection and the likely business failures that will come from them. Yet despite that, our growth prospects are really strong when the following three things happen. One, vaccinations are delivered to a large segment of the population in our markets. Number two, our coastal markets actually reopen. And number three, that consumer behavior reverts to uninhibited freedom and the spending that goes with it. Behavior that we are supremely confident will happen. And while that's certainly not the environment that we're living through or operating in yet, The sheer volume of leasing and other transactions that we executed at the end of last year, 103 retail deals for 469,000 square feet, coupled with the strong leasing demand environment that is evident by the many substantive discussions we're having today, and some very important management promotions and alignments that we've just announced, set us up extremely well for a strong post-COVID recovery as those conditions prevail. All right. So where do we go from here? Well, as previously announced, the sale of Sunset Place and two other shopping centers in December effectively generated $170 billion of proceeds in debt relief. We put out a press release in January that you should check out for more detail if you haven't seen it. Using that capital, along with cash on the balance sheet, we repaid $500 billion of senior unsecured notes, half of which were retired early, the result of which means that we have no public bonds maturing until June of 2023. So with little debt due in the next two and a half years, along with nearly $800 million in cash remaining on the balance sheet and a completely untapped billion-dollar credit facility, we've got something of a war chest on hand. Should we find retail opportunities that fit our business model in 21 and 22? And make no mistake, we're actively looking, including in markets with hot job and income growth where we haven't looked before. A little more geographic diversity in our income stream, carefully considered, is an objective of ours. But today, with a day trader's mentality so prevalent in so many corners of the investor and analyst worlds, it's hard to look past short-term results, particularly those of higher multiple companies who are far from immune from the economically devastating effects of government-imposed shutdowns, most notably seen in the heavily populated coastal markets. 85% of federal's property operating income comes from California, Massachusetts, particularly Somerville, New York, New Jersey, Metropolitan Philadelphia, Maryland, and Northern Virginia. These markets have the most restrictive government-imposed COVID laws in the country, by far. And they make 2021 more uncertain than at some of our peers. Nothing we can do about that. Serenity prayer comes to mind every day that I grapple with that. But those restrictions sure don't diminish the quality of the real estate that we own in these first-range suburbs of major metropolitan areas, nor the tenant demand for a spot in these properties in the future, as evidenced by the leasing volume we're doing, along with the conversations we're having with many retailers about their future real estate plans. So here's an interesting fact. When you bifurcate our entire portfolio, between the 75% or so of essential service type shopping centers that we own and the retail component of the 25% or so of our properties that are mixed use or lifestyle oriented, performance varies greatly as far as percentage of rent collected or percentage of operating income diminution from last year, pre-COVID. Predictably, it's what you would think. The mixed use and lifestyle tendency, heavy in restaurants, theaters, gyms, and the like, has been disproportionately hurt by the shutdowns. There's no real news there. You all know that. But the irony is that those assets represent not only some of the best real estate that federal realty owns, but arguably some of the best, most desirable retail real estate in the country. That's not changing. So in a nutshell, 75% of our properties, the necessity-based ones, are performing in line or arguably better than other necessity-based REITs despite being in government-restricted coastal markets. Think about that. In and of itself, that's pretty impressive to us. The remaining 25% of our properties, the mixed-use and lifestyle ones, have been disproportionately hurt because of their merchandising mix, but represent our best, most desirable real estate, and therefore naturally have superior growth prospects, particularly from the beaten-down levels they're currently performing at. That cash flow growth formula feels like a winning one to us when vaccinations are delivered to a large segment of the population in our markets, when our coastal markets reopen, and when consumer behavior reverts to uninhibited freedom in the spending that goes with it. Everything we see suggests that it should be a strong 2022. We'll talk more about that in Dan's comments. And on a celebratory note, I hope you'll join me in congratulating Jeff Berkus, and our other executives who've been promoted effective with our board meeting earlier this week. I hope you saw the press release that we just put out. Many of you have gotten to know Jeff over the years, and I'm sure you share my appreciation for his intelligence, for his real estate savvy, without question for his unimpeachable integrity. Jeff and I have been close partners for over 20 years now, and this elevation and responsibility comes at a crucial time given the expected post-COVID retail real estate environment. We need to be as tight and productive as humanly possible. Now, to head off the inevitable speculation, let me get it out there by saying that forming the position of company president and chief operating officer shouldn't be construed to mean that I have plans of going anywhere anytime soon. I don't. But as I've continually talked about and acted upon, career development and succession planning are always top of mind at every level in our company. This new position is a great training ground. I'm sure there will be lots of questions following our prepared remarks, so I'll cut it short today, end mine there, and turn it over to Dan for his comments on the quarter before we open the lines to your questions.