On this page of StockholderLetter.com we present the latest annual shareholder letter from FEDERAL REALTY INVESTMENT TRUST — ticker symbol FRT. Reading current and past FRT letters to shareholders can bring important insights into the investment thesis.

 •  3/22/2024 Letter Continued (Full PDF)
 •  3/24/2023 FRT Stockholder Letter
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 •  FRT Benford's Law Stock Score = 78

FRT Shareholder/Stockholder Letter Transcript:

FEDERAL REALTY INVESTMENT TRUST
2023 Annual Report
Form 10-K & Proxy Statement


Dear Fellow
Shareholders,
There is no doubt that demand exceeds supply
for high-quality open-air shopping centers in the
close-in suburbs of America   s greatest cities, and
2023 was evidence of that. However, it was not
too long ago that this wasn   t the case. To
understand the evolution to this demand
exceeding supply scenario, it   s essential to delve
into how we arrived here.    Demand Exceeding
Supply    (or vice versa) is as fundamental a
concept as exists in understanding and
increasing the value of any product or business
and it was the single biggest challenge in our
industry for much of our history. For more than
40 years, beginning in the 1960s all the way up
to and through the turn of the century, the pace
of shopping center development was significant.
Spurred at first by the national effort to build our
nation   s interstate highway system and thus
create the suburbs as we know them today,
malls, power centers and lifestyle centers were
popping up everywhere and their footprints
continued to increase in size.
Eventually, and perhaps inevitably, supply readily
outpaced consumer demand nationally resulting in
retail space per capita in the United States that far
outpaced nearly every developed nation on the
globe. The country had clearly become    overretailed    or, as one of my colleagues put it at the
time      under-demolished   . While new shopping
center development slowed in the 2000   s and
even more so after the great financial crisis of
2008-2010, the supply demand damage had been
done. The invention of and growth in the internet
and the eventual proliferation of online shopping
merely exacerbated that imbalance
Those basic business tenets served us well even
as supply exceeded demand nationally. They
continue to and now, after 15 years or so without
new supply coming on and a global pandemic that
was instrumental in creating more demand, we   ve
come to a point where we can proudly and
reasonably claim that    demand exceeds supply   
when it comes to high-quality open-air shopping
centers in the close-in suburbs of America   s
greatest cities. It   s about time.
Demand from tenants for brick-and-mortar real
estate has skyrocketed since the darkest days of
2020 when our citizens were largely quarantined,
and that demand has remained elevated ever
since. The effects of isolation along with huge
amounts of broadly distributed Federal stimulus
were the perfect antidote for reminding
consumers that they are for the most part, social
creatures at heart. Shopping activity surged,
restaurants and health clubs, once left for dead,
filled with customers and improved the mood of
an entire nation. When you add to that the lack of
the addition of any meaningful new retail real
estate supply since the 2000   s and also consider
the migratory trends of millions of Americans
spending big dollars outside of the big cities, you
would expect that Federal Realty would be the
beneficiary of a wonderful recipe for record
setting results. And that   s what has happened.
Three consecutive years of record or near record
levels of leasing and, in 2023, record funds from
operations (FFO) and FFO per share.1
During those decades, Federal Realty worked to
counter this trend by selectively acquiring,
operating, and in some cases developing,
shopping centers only in places where new supply
was more difficult to add and where the local
population was robust and affluent. Lots of people,
with money to spend, in high barriers to entry
markets was our mantra then and still is today.
Our centers needed to be the best in class, the
shopping center of choice in the community, the
most innovative, with the most relevant retailers.
1
FFO is a non-GAAP financial measure. See page 46 of our Form 10-K for information on FFO and
FFO per share.
FEDERAL REALTY |
A N N U A L R E P O R T 2023

INDUSTRY-LEADING CONSISTENCY
56 consecutive years
of increased dividends.
$4.36*
$0.12*
1967
2023
*Annualized dividends per share
Performance
2023 was a very strong year for our
Company. In addition to recording FFO per
share of $6.55, the best in our 62-year
history, we were able to increase our
dividends per share to $4.36, the 56th year in
a row to see a dividend increase. Of all our
achievements and milestones, the dividend
record is one that I marvel at most. No other
REIT can match it and in fact, neither can
almost 99% of all publicly traded companies in
any business sector. The    Dividend King   
designation of Federal Realty is a source of
immense pride and one that can only be
accomplished with superior real estate and a
very strong balance sheet not just today, but
through
numerous
and
unpredictable
economic cycles. You can imagine how I felt
one day last fall when a long-term local
shareholder saw me at our Bethesda Row
property and told me that his Federal Realty
shares had been passed down to his children
who planned to pass them down to their
children. It   s great real estate to hold through
the inevitable ups and downs of real estate
cycles.
2023 was a year that also saw near record
comparable leasing activity of 2 million
square feet. It was in fact the third year in a
row of that lofty level and represented 25%
more leasing volume than the 1.6 million
square foot average for the 5 years
immediately preceding the pandemic (20152019). In 2023, those leases were written at,
on average, 10% higher rent than the final
year of the expiring lease and our overall
portfolio stands at 94% leased. Activity like
that bodes well for the future.
Inflation and Higher
Interest Rates
As we sit here in early 2024, much of the
dialogue surrounding inflation and interest
rates is consumed with    the direction of
inflation    or    the timing of impending Fed cuts
in borrowing rates   , both obviously important
metrics that impact decision-making in every
corner of the economy and both trends that
are helpful to us. But no matter what the
current trends are, the historical changes in
prices of the past 3 years have to be dealt
with day in and day out. So, while the pace of
inflation has slowed, the absolute prices of
FEDERAL REALTY |
A N N U A L R E P O R T 2023

nearly everything have risen considerably
over that period. Whether buying a sandwich
at your favorite quick service restaurant, a
pair of workout pants at your favorite
athleisure store, or a metric ton of steel for
use in developing a building, the costs of
doing business are a lot higher than just a few
years ago. If you consider whether materially
higher prices are a positive or a negative for
our business, the answer is both. Let me
explain.
Inflation of this magnitude doesn   t affect
everyone equally. Not all retailers and
restaurants who are paying more for goods
and services (and their own labor) are able to
raise their prices enough to cover those higher
costs, in other words, can their customers
afford to pay more. In some markets and in
some businesses, the answer is yes, and in
other markets and in other businesses, the
answer is no. It   s why those demographic
principles that Federal Realty insists on are so
important in inflationary times. Strong
operators in more affluent markets are far
more likely to be able to pass through price
increases to their customers than in less
affluent areas. We see this most visibly at our
trophy mixed use assets where sales and
traffic continue to be well in excess of 2019
levels. Higher quality real estate in densely
populated affluent areas tend to attract better
operators with pricing power. Those tenants
have generally signed long-term leases with
Federal Realty with fixed rent obligations that
increase each year. That means that as those
obligations expire each year over the next
several, it is likely that we will be able to
continue to raise that fixed rent.
While moderate inflation is a positive for our
real estate, higher interest rates are not, at
least not in the short term and particularly
when raised as quickly as they were in late
2022 and 2023. Accordingly, while still a year
of record FFO per share, higher interest rates
weighed on those earnings to the tune of 27
cents per share. Despite this significant
interest rate headwind, we still grew FFO per
share at 4% highlighted by POI growth of 7%.2
That is not to say that higher interest rates (the
10 Year Treasury is trading at approximately
2
4.3% as of this writing) impede our profitable
growth as we look into 2024 and future years.
We demonstrated our ability to access diverse
and innovative capital sources throughout
cycles over the past year. This included raising
$350 million of 5-year 5.375% notes as a green
bond in April 2023, securing a $200 million
mortgage loan on Bethesda Row in December
2023 and raising $485 million of 5-year 3.25%
Exchangeable Senior Notes in January 2024.
Our debt portfolio is well-laddered with no
significant debt maturing for the next two years
and our overall rents remain below market. But
the importance of stable, predictable capital
markets cannot be overestimated as they relate
to all investment decisions that will lead to
mid-and long-term growth and value creation.
Recent actions by the Fed and stated fiscal
policy have us very encouraged that the desired
balance between the rate of inflation and the
rate and availability of debt capital dovetail
nicely with Federal Realty   s portfolio and ability
to continue to grow.
Growth
There are times in every real estate cycle
when it makes more economic sense to build
rather than buy and times when it makes
more economic sense to buy rather than build
from an investment perspective. And in every
point in the real estate cycle, it makes the
most sense to have groomed great real estate
to be able to generate higher rents while
keeping expenses under control. What makes
Federal Realty so special is that we   re
equipped to do it all. In fact, you HAVE to be
able to do it all if your goal is to provide a
steady stream of growing cash flow to your
shareholders through the inevitable highs and
lows of real estate economic cycles
(remember that 56-year record of increased
dividends).
Our business plan is multi-faceted. By owning
and operating the highest quality retail and
mixed-use real estate portfolio as measured by
spending
power
(the
combination
of
household incomes and population density
plus lower retail supply per capita), our
foundation for growth is strong. Being able to
supplement that portfolio with robust in-house
POI (property operating income) is a non-GAAP financial measure. See page 38 of our 10-K for
information on POI.
FEDERAL REALTY |
A N N U A L R E P O R T 2023



 3/22/2024 Letter Continued (Full PDF)