Summary Of Significant Accounting Policies

9 Months Ended

Sep. 30, 2022

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

In January 2022, we completed a reorganization into an umbrella partnership real estate investment trust, or "UPREIT." For additional information on our UPREIT reorganization, please see our Current Reports on Form 8-K filed with the SEC on January 3, 2022 and January 5, 2022, as well our latest Annual Report on Form 10-K filed on February 10, 2022. Immediately following the reorganization, the Parent Company had the same consolidated assets and liabilities as Federal Realty Investment Trust immediately before the reorganization. The Parent Company exercises exclusive control over the General Partner and does not have assets or liabilities other than its investment in the Operating Partnership. As a result, the UPREIT reorganization represented a merger of entities under common control in accordance with accounting principles generally accepted in the United States ("GAAP"). Accordingly, the accompanying consolidated financial statements including the notes thereto, are presented as if the UPREIT reorganization had occurred at the earliest period presented.

The accompanying unaudited interim consolidated financial statements of the Parent Company and Operating Partnership have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in our latest Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) necessary for a fair presentation for the periods presented have been included. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the full year. Certain 2021 amounts have been reclassified to conform to our current period presentation.

Principles of Consolidation

As discussed in the Explanatory Note, we have combined the quarterly reports on Form 10-Q of the Parent Company and the Operating Partnership into this single report. As a result, we present two sets of consolidated financial statements. Both sets of consolidated financial statements include the accounts of the entity, its corporate subsidiaries, and all entities in which it has a controlling interest or has been determined to be the primary beneficiary of a variable interest entity (“VIE”). The Parent Company's consolidated financial statements include the accounts of the Operating Partnership and its subsidiaries as the Parent Company, through its ownership and control over the General Partner, exercises exclusive control over the Operating Partnership. The equity interests of other investors are reflected as noncontrolling interests or redeemable noncontrolling interests. All significant intercompany transactions and balances are eliminated in consolidation. We account for our interests in joint ventures which we do not control using the equity method of accounting.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, referred to as “GAAP,” requires management to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These estimates are prepared using management’s best judgment, after considering past, current and expected events and economic conditions. Actual results could differ from these estimates.

Impacts of COVID-19 Pandemic and General Economic Conditions

Given ongoing workforce shortages, global supply chain bottlenecks and shortages, higher levels of inflation, and rising interest rates, we continue to monitor and address risks related to the global COVID-19 pandemic and the state of the economy. The extent of the future effects of COVID-19 and potentially worsening economic conditions on our business, results of operations, cash flows, and growth prospects is highly uncertain and will ultimately depend on future developments, none of which can be predicted with any certainty.

Our collection of rents has continued to improve including collecting rents related to prior periods. As a result, our collectibility related adjustments resulted in an increase to rental income of $0.9 million and $2.9 million, respectively, during the three and nine months ended September 30, 2022, as compared to a decrease to rental income during the three and nine months ended September 30, 2021 of $0.6 million and $21.8 million, respectively, which reflected lower levels of cash collections and elevated levels of rent abatements and disputes directly related to COVID-19. As of September 30, 2022, the revenue from approximately 31% of our tenants (based on total commercial leases) is being recognized on a cash basis.

As of September 30, 2022, we executed rent deferral agreements related to the COVID-19 pandemic representing approximately $47 million of rent. We have subsequently collected approximately $33 million of those amounts previously deferred.

For more information, see Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Outlook.

Recently Issued Accounting Pronouncements

Standard

Description

Effect on the financial statements or significant matters

ASU 2020-04, March 2020, Reference Rate Reform (Topic 848)

This ASU provides companies with optional practical expedients to ease the accounting burden for contract modifications associated with transitioning away from LIBOR and other interbank offered rates that are expected to be discontinued as part of reference rate reform. For hedges, the guidance generally allows changes to the reference rate and other critical terms without having to de-designate the hedging relationship, as well as allows the shortcut method to continue to be applied. For contract modifications, changes in the reference rate or other critical terms will be treated as a continuation of the prior contract.

This guidance can be applied immediately, however, is generally only available through December 31, 2022.

We expect to apply some of the practical expedients, as we are in the process of transitioning the $55.4 million mortgage loan at Hoboken and the $39.2 million mortgage loan related to the unconsolidated Assembly Row hotel (of which our share is $19.6 million) from LIBOR to alternative interest rates. We do not expect a significant impact to our financial results, financial position, or cash flows from this transition.

ASU 2022-03, June 2022, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (Topic 820)

This ASU clarifies that contractual sale restrictions are not considered in measuring the fair value of equity securities, and requires specific disclosures for all entities with equity securities subject to a contractual sale restriction including (1) the fair value of such equity securities reflected in the balance sheet, (2) the nature and remaining duration of the corresponding restrictions, and (3) any circumstances that could cause a lapse in the restrictions. In addition, the ASU prohibits an entity from recognizing a contractual sale as a separate unit of account.

This guidance is effective in fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with early adoption permitted.

We are assessing the impact of this ASU on OP units issued as consideration in future acquisitions.

Consolidated Statements of Cash Flows—Supplemental Disclosures

The following tables provide supplemental disclosures related to the Consolidated Statements of Cash Flows:


	Nine Months Ended
	September 30,
	2022		2021
	(In thousands)
SUPPLEMENTAL DISCLOSURES:
Total interest costs incurred	$	112,596	$	113,691
Interest capitalized	(13,889)		(18,180)
Interest expense	$	98,707	$	95,511
Cash paid for interest, net of amounts capitalized	$	94,712	$	91,887
Cash paid for income taxes	$	616	$	326
NON-CASH INVESTING AND FINANCING TRANSACTIONS:





DownREIT operating partnership units redeemed for common shares	$	1,385	$	5,121
Shares issued under dividend reinvestment plan	$	1,292	$	1,294
5.417% Series 1 Cumulative Convertible Preferred Shares redeemed for common shares	$	175	$	—


	September 30,		December 31,
	2022		2021
	(In thousands)
RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH:
Cash and cash equivalents	$	146,214	$	162,132
Restricted cash (1)	12,422		13,031
Total cash, cash equivalents, and restricted cash	$	158,636	$	175,163

(1)Restricted cash balances are included in "prepaid expenses and other assets" on our consolidated balance sheets.