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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒			QUARTERLY REPORT PURSUANT TO THE SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

OR

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-07533

FEDERAL REALTY INVESTMENT TRUST

(Exact Name of Registrant as Specified in its Declaration of Trust)

Maryland												52-0782497
(State of Organization)												(IRS Employer Identification No.)

909 Rose Avenue, Suite 200, North Bethesda, Maryland 20852

(Address of Principal Executive Offices) (Zip Code)

(301) 998-8100

(Registrant’s Telephone Number, Including Area Code)

Title of Each Class			Trading Symbol			Name of Each Exchange On Which Registered
Common Shares of Beneficial Interest			FRT			New York Stock Exchange
$.01 par value per share, with associated Common Share Purchase Rights
Depositary Shares, each representing 1/1000 of a share			FRT-C			New York Stock Exchange
of 5.00% Series C Cumulative Redeemable Preferred Stock, $.01 par value per share

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.:

Large Accelerated Filer			☒			Accelerated filer			☐
Non-Accelerated Filer			☐			Smaller reporting company			☐
						Emerging growth company			☐
If an emerging growth company, indicate by checkmark if the registrant has elected not use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.									☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

The number of registrant’s common shares outstanding on November 1, 2021 was 77,789,491.

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FEDERAL REALTY INVESTMENT TRUST

QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2021

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
			Item 1.			Financial Statements			3
						Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020			3
						Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended September 30, 2021 and 2020			4
						Consolidated Statements of Shareholders' Equity (unaudited) for the three and nine months ended September 30, 2021 and 2020			5
						Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2021 and 2020			7
						Notes to Consolidated Financial Statements (unaudited)			8
			Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
			Item 3.			Quantitative and Qualitative Disclosures about Market Risk			32
			Item 4.			Controls and Procedures			33
PART II. OTHER INFORMATION									34
			Item 1.			Legal Proceedings			34
			Item 1A.			Risk Factors			34
			Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			34
			Item 3.			Defaults Upon Senior Securities			35
			Item 4.			Mine Safety Disclosures			35
			Item 5.			Other Information			35
			Item 6.			Exhibits			35
SIGNATURES									2

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Federal Realty Investment Trust

Consolidated Balance Sheets

			September 30,						December 31,
			2021						2020
			(In thousands, except share and per share data)
			(Unaudited)
ASSETS
Real estate, at cost
Operating (including $2,188,736 and $1,703,202 of consolidated variable interest entities, respectively)			$	8,730,079					$	7,771,981
Construction-in-progress (including $28,277 and $44,896 of consolidated variable interest entities, respectively)			662,643						810,889
			9,392,722						8,582,870
Less accumulated depreciation and amortization (including $374,970 and $335,735 of consolidated variable interest entities, respectively)			(2,501,622)						(2,357,692)
Net real estate			6,891,100						6,225,178
Cash and cash equivalents			177,591						798,329
Accounts and notes receivable, net			159,840						159,780
Mortgage notes receivable, net			9,521						39,892
Investment in partnerships			12,079						22,128
Operating lease right of use assets			91,836						92,248
Finance lease right of use assets			50,153						51,116
Prepaid expenses and other assets			242,322						218,953
TOTAL ASSETS			$	7,634,442					$	7,607,624
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Mortgages payable, net (including $388,489 and $413,681 of consolidated variable interest entities, respectively)			$	457,203					$	484,111
Notes payable, net			301,462						402,776
Senior notes and debentures, net			3,405,685						3,404,488
Accounts payable and accrued expenses			244,272						228,641
Dividends payable			85,680						83,839
Security deposits payable			24,933						20,388
Operating lease liabilities			73,609						72,441
Finance lease liabilities			72,037						72,049
Other liabilities and deferred credits			210,429						152,424
Total liabilities			4,875,310						4,921,157
Commitments and contingencies (Note 6)
Redeemable noncontrolling interests			212,950						137,720
Shareholders’ equity
Preferred shares, authorized 15,000,000 shares, $.01 par:
5.0% Series C Cumulative Redeemable Preferred Shares, (stated at liquidation preference $25,000 per share), 6,000 shares issued and outstanding			150,000						150,000
5.417% Series 1 Cumulative Convertible Preferred Shares, (stated at liquidation preference $25 per share), 399,896 shares issued and outstanding			9,997						9,997
Common shares of beneficial interest, $.01 par, 100,000,000 shares authorized, 77,774,645 and 76,727,394 shares issued and outstanding, respectively			782						771
Additional paid-in capital			3,398,851						3,297,305
Accumulated dividends in excess of net income			(1,095,741)						(988,272)
Accumulated other comprehensive loss			(2,726)						(5,644)
Total shareholders’ equity of the Trust			2,461,163						2,464,157
Noncontrolling interests			85,019						84,590
Total shareholders’ equity			2,546,182						2,548,747
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY			$	7,634,442					$	7,607,624

The accompanying notes are an integral part of these consolidated statements.

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Federal Realty Investment Trust

Consolidated Statements of Comprehensive Income

(Unaudited)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2021						2020						2021						2020
			(In thousands, except per share data)
REVENUE
Rental income			$	247,024					$	207,410					$	694,954					$	613,687
Mortgage interest income			260						787						2,116						2,294
Total revenue			247,284						208,197						697,070						615,981
EXPENSES
Rental expenses			49,318						41,832						141,474						122,561
Real estate taxes			29,529						30,520						88,272						90,183
General and administrative			12,253						9,308						35,357						29,373
Depreciation and amortization			70,611						65,631						202,160						190,603
Total operating expenses			161,711						147,291						467,263						432,720
Impairment charge			—						(57,218)						—						(57,218)
Gain on sale of real estate and change in control of interest			—						—						17,428						11,682
OPERATING INCOME			85,573						3,688						247,235						137,725
OTHER INCOME/(EXPENSE)
Other interest income			88						538						701						1,355
Interest expense			(32,249)						(36,228)						(95,511)						(98,746)
Income (loss) from partnerships			1,129						(1,621)						(86)						(6,657)
NET INCOME (LOSS)			54,541						(33,623)						152,339						33,677
Net (income) loss attributable to noncontrolling interests			(2,419)						5,334						(5,777)						3,304
NET INCOME (LOSS) ATTRIBUTABLE TO THE TRUST			52,122						(28,289)						146,562						36,981
Dividends on preferred shares			(2,010)						(2,010)						(6,031)						(6,031)
NET INCOME (LOSS) AVAILABLE FOR COMMON SHAREHOLDERS			$	50,112					$	(30,299)					$	140,531					$	30,950
EARNINGS PER COMMON SHARE, BASIC:
Net income (loss) available for common shareholders			$	0.64					$	(0.41)					$	1.81					$	0.40
Weighted average number of common shares			77,485						75,404						77,269						75,386
EARNINGS PER COMMON SHARE, DILUTED:
Net income (loss) available for common shareholders			$	0.64					$	(0.41)					$	1.81					$	0.40
Weighted average number of common shares			77,575						75,404						77,287						75,386
COMPREHENSIVE INCOME (LOSS)			$	55,095					$	(33,165)					$	155,530					$	27,190
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE TRUST			$	52,634					$	(27,831)					$	149,480					$	30,494

The accompanying notes are an integral part of these consolidated statements.

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Federal Realty Investment Trust

Consolidated Statements of Shareholders’ Equity

For the Three and Nine Months Ended September 30, 2021

(Unaudited)

			Shareholders’ Equity of the Trust
			Preferred Shares												Common Shares												Additional Paid-in Capital						Accumulated Dividends in Excess of Net Income						Accumulated Other Comprehensive Loss						Noncontrolling Interests						Total Shareholders' Equity
			Shares						Amount						Shares						Amount
			(In thousands, except share data)
BALANCE AT DECEMBER 31, 2020			405,896						$	159,997					76,727,394						$	771					$	3,297,305					$	(988,272)					$	(5,644)					$	84,590					$	2,548,747
Net income, excluding $3,472 attributable to redeemable noncontrolling interests			—						—						—						—						—						146,562						—						2,305						148,867
Other comprehensive income - change in fair value of interest rate swaps, excluding $273 attributable to redeemable noncontrolling interest			—						—						—						—						—						—						2,918						—						2,918
Dividends declared to common shareholders ($3.19 per share)			—						—						—						—						—						(248,000)						—						—						(248,000)
Dividends declared to preferred shareholders			—						—						—						—						—						(6,031)						—						—						(6,031)
Distributions declared to noncontrolling interests, excluding $3,045 attributable to redeemable noncontrolling interests			—						—						—						—						—						—						—						(3,282)						(3,282)
Common shares issued, net			—						—						847,528						9						87,057						—						—						—						87,066
Shares issued under dividend reinvestment plan			—						—						15,710						—						1,507						—						—						—						1,507
Share-based compensation expense, net of forfeitures			—						—						163,092						2						10,872						—						—						—						10,874
Shares withheld for employee taxes			—						—						(28,563)						—						(2,939)						—						—						—						(2,939)
Conversion and redemption of OP units			—						—						49,484						—						5,049						—						—						(5,148)						(99)
Contributions from noncontrolling interests, excluding $74,530 attributable to redeemable noncontrolling interests			—						—						—						—						—						—						—						6,554						6,554
BALANCE AT SEPTEMBER 30, 2021			405,896						$	159,997					77,774,645						$	782					$	3,398,851					$	(1,095,741)					$	(2,726)					$	85,019					$	2,546,182

BALANCE AT JUNE 30, 2021			405,896						$	159,997					77,760,588						$	782					$	3,395,189					$	(1,062,641)					$	(3,238)					$	85,750					$	2,575,839
Net income, excluding $1,595 attributable to redeemable noncontrolling interests			—						—						—						—						—						52,122						—						824						52,946
Other comprehensive income - change in fair value of interest rate swaps, excluding $42 attributable to redeemable noncontrolling interest			—						—						—						—						—						—						512						—						512
Dividends declared to common shareholders ($1.07 per share)			—						—						—						—						—						(83,212)						—						—						(83,212)
Dividends declared to preferred shareholders			—						—						—						—						—						(2,010)						—						—						(2,010)
Distributions declared to noncontrolling interests, excluding $1,310 attributable to redeemable noncontrolling interests			—						—						—						—						—						—						—						(1,555)						(1,555)
Common shares issued, net			—						—						19						—						(67)						—						—						—						(67)
Shares issued under dividend reinvestment plan			—						—						4,194						—						488						—						—						—						488
Share-based compensation expense, net of forfeitures			—						—						10,907						—						3,367						—						—						—						3,367
Shares withheld for employee taxes			—						—						(1,063)												(126)						—						—						—						(126)
BALANCE AT SEPTEMBER 30, 2021			405,896						$	159,997					77,774,645						$	782					$	3,398,851					$	(1,095,741)					$	(2,726)					$	85,019					$	2,546,182

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Federal Realty Investment Trust

Consolidated Statements of Shareholders’ Equity

For the Three and Nine Months Ended September 30, 2020

(Unaudited)

			Shareholders’ Equity of the Trust
			Preferred Shares												Common Shares												Additional Paid-in Capital						Accumulated Dividends in Excess of Net Income						Accumulated Other Comprehensive Loss						Noncontrolling Interests						Total Shareholders' Equity
			Shares						Amount						Shares						Amount
			(In thousands, except share data)
BALANCE AT DECEMBER 31, 2019			405,896						$	159,997					75,540,804						$	759					$	3,166,522					$	(791,124)					$	(813)					$	100,791					$	2,636,132
January 1, 2020 adoption of new accounting standard			—						—						—						—						—						(510)						—						—						(510)
Net income, excluding $1,627 attributable to redeemable noncontrolling interests			—						—						—						—						—						36,981						—						(4,931)						32,050
Other comprehensive loss - change in fair value of interest rate swaps			—						—						—						—						—						—						(6,487)						—						(6,487)
Dividends declared to common shareholders ($3.16 per share)			—						—						—						—						—						(238,980)						—						—						(238,980)
Dividends declared to preferred shareholders			—						—						—						—						—						(6,031)						—						—						(6,031)
Distributions declared to noncontrolling interests, excluding $999 attributable to redeemable noncontrolling interests			—						—						—						—						—						—						—						(2,465)						(2,465)
Common shares issued, net			—						—						57						—						5						—						—						—						5
Shares issued under dividend reinvestment plan			—						—						17,669						—						1,461						—						—						—						1,461
Share-based compensation expense, net of forfeitures			—						—						115,368						1						10,143						—						—						—						10,144
Shares withheld for employee taxes			—						—						(32,824)						—						(4,035)						—						—						—						(4,035)
Redemption of OP units			—						—						—						—						(30)						—						—						(3,290)						(3,320)
Contributions from noncontrolling interests, excluding $19,335 attributable to redeemable noncontrolling interests			—						—						—						—						—						—						—						120						120
BALANCE AT SEPTEMBER 30, 2020			405,896						$	159,997					75,641,074						$	760					$	3,174,066					$	(999,664)					$	(7,300)					$	90,225					$	2,418,084

BALANCE AT JUNE 30, 2020			405,896						$	159,997					75,633,140						$	760					$	3,170,480					$	(889,195)					$	(7,758)					$	96,817					$	2,531,101
Net income (loss), excluding $470 attributable to redeemable noncontrolling interests			—						—						—						—						—						(28,289)						—						(5,804)						(34,093)
Other comprehensive income - change in fair value of interest rate swaps			—						—						—						—						—						—						458						—						458
Dividends declared to common shareholders ($1.06 per share)			—						—						—						—						—						(80,170)						—						—						(80,170)
Dividends declared to preferred shareholders			—						—						—						—						—						(2,010)						—						—						(2,010)
Distributions declared to noncontrolling interests, excluding $152 attributable to redeemable noncontrolling interests			—						—						—						—						—						—						—						(788)						(788)
Common shares issued, net			—						—						28						—						3						—						—						—						3
Shares issued under dividend reinvestment plan			—						—						7,064						—						506						—						—						—						506
Share-based compensation expense, net of forfeitures			—						—						1,276						—						3,115						—						—						—						3,115
Shares withheld for employee taxes			—						—						(434)						—						(38)						—						—						—						(38)
BALANCE AT SEPTEMBER 30, 2020			405,896						$	159,997					75,641,074						$	760					$	3,174,066					$	(999,664)					$	(7,300)					$	90,225					$	2,418,084

The accompanying notes are an integral part of these consolidated statements.

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Federal Realty Investment Trust

Consolidated Statements of Cash Flows

(Unaudited)

			Nine Months Ended September 30,
			2021						2020
			(In thousands)
OPERATING ACTIVITIES
Net income			$	152,339					$	33,677
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			202,160						190,603
Impairment charge			—						57,218
Gain on sale of real estate and change in control of interest			(17,428)						(11,682)
Loss from partnerships			86						6,657
Other, net			3,460						5,158
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
Decrease (increase) in accounts receivable, net			4,857						(11,537)
Increase in prepaid expenses and other assets			(6,004)						(7,672)
Increase in accounts payable and accrued expenses			15,505						14,708
Increase (decrease) in security deposits and other liabilities			11,061						(8,708)
Net cash provided by operating activities			366,036						268,422
INVESTING ACTIVITIES
Acquisition of real estate			(366,466)						(9,589)
Capital expenditures - development and redevelopment			(282,833)						(302,666)
Capital expenditures - other			(48,693)						(46,530)
Costs associated with property sold under threat of condemnation, net			—						(12,924)
Proceeds from sale of real estate			19,896						18,096
Investment in partnerships			(2,657)						(1,607)
Distribution from partnerships in excess of earnings			1,868						849
Leasing costs			(14,079)						(8,668)
Repayment (issuance) of mortgage and other notes receivable, net			31,122						(10,533)
Net cash used in investing activities			(661,842)						(373,572)
FINANCING ACTIVITIES
Costs to amend revolving credit facility			—						(638)
Issuance of senior notes, net of costs			—						700,069
Issuance of notes payable, net of costs			—						398,742
Repayment of mortgages, finance leases and notes payable			(160,307)						(4,846)
Issuance of common shares, net of costs			87,279						170
Dividends paid to common and preferred shareholders			(250,849)						(242,853)
Shares withheld for employee taxes			(2,939)						(4,035)
Contributions from noncontrolling interests			104						—
Distributions to and redemptions of noncontrolling interests			(6,473)						(6,634)
Net cash (used in) provided by financing activities			(333,185)						839,975
(Decrease) increase in cash, cash equivalents and restricted cash			(628,991)						734,825
Cash, cash equivalents, and restricted cash at beginning of year			816,896						153,614
Cash, cash equivalents, and restricted cash at end of period			$	187,905					$	888,439

The accompanying notes are an integral part of these consolidated statements.

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Federal Realty Investment Trust

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

NOTE 1—BUSINESS AND ORGANIZATION

Federal Realty Investment Trust (the “Trust”) is an equity real estate investment trust (“REIT”) specializing in the ownership, management, and redevelopment of retail and mixed-use properties. Our properties are located primarily in communities where we believe retail demand exceeds supply, in strategically selected metropolitan markets in the Mid-Atlantic and Northeast regions of the United States, California, and South Florida. As of September 30, 2021, we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as 106 predominantly retail real estate projects.

We operate in a manner intended to enable us to qualify as a REIT for federal income tax purposes. A REIT that distributes at least 90% of its taxable income to its shareholders each year and meets certain other conditions is not taxed on that portion of its taxable income which is distributed to its shareholders. Therefore, federal income taxes on our taxable income have been and are generally expected to be immaterial. We are obligated to pay state taxes, generally consisting of franchise or gross receipts taxes in certain states. Such state taxes also have not been material.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying consolidated balance sheet as of December 31, 2020, which has been derived from audited financial statements, and unaudited interim consolidated financial statements 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 accounting principles generally accepted in the United States (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, 2021 are not necessarily indicative of the results that may be expected for the full year.

Principles of Consolidation

Our consolidated financial statements include the accounts of the Trust, its corporate subsidiaries, and all entities in which the Trust has a controlling interest or has been determined to be the primary beneficiary of a variable interest entity (“VIE”). 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

Since March 2020, we have been, and continue to be, impacted by the novel coronavirus ("COVID-19") pandemic. While we currently expect the impact to our properties to be temporary in nature, the extent of the future effects of COVID-19 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.

Federal, state, and local governments have taken various actions since the onset of the pandemic to mitigate the spread of COVID-19. These actions included the closure of nonessential businesses and ordering residents to generally stay at home at the onset of the pandemic, phased re-openings and capacity limitations, and now generally lifted restrictions. While the overall economy is showing signs of recovery from the initial impacts of COVID-19, workforce shortages, global supply chain bottlenecks and shortages, inflation, as well as COVID-19 variants are impacting the pace of recovery. Closures and

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restrictions, 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 were able to conduct, which impacted their ability to timely pay rent as required under our leases and also caused many tenants to close their businesses permanently. With the re-openings, our results have improved during the first nine months of 2021 and collectibility related impacts have continued to decrease. During the three and nine months ended September 30, 2021, we recognized collectibility related adjustments of $0.6 million and $21.8 million, respectively, as compared to $29.4 million and $87.6 million for the three and nine months ended September 30, 2020, respectively. 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 September 30, 2021, the revenue from approximately 35% of our tenants (based on total commercial leases) is being recognized on a cash basis.

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

Mortgage Notes Receivable

On May 11, 2021, two of our outstanding mortgage notes receivable were repaid. Including interest, the net proceeds were $33.8 million. As a result of the transaction, our mortgage notes receivable, net of valuation allowance, decreased $30.3 million.

Forward Equity Sales

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 contracts. Our forward sales contracts currently meet all the conditions for equity classification; and therefore, we record common stock on the settlement date at the purchase price contemplated by the contract. Furthermore, we consider the potential dilution resulting from forward sales contracts in our earnings per share calculations. We use the treasury method to determine the dilution, if any, from the forward sales contracts during the period of time prior to settlement. As of September 30, 2021, no forward sales contracts have settled.

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 are still evaluating the impact of reference rate reform and whether we will apply any of these practical expedients.
ASU 2021-05, July 2021, Lessors - Certain Leases with Variable Lease Payments (Topic 842)						This ASU amends the lessor lease classification in ASC 842 for leases that include variable lease payments that are not based on an index or rate. Under the amended guidance, lessors will classify a lease with variable payments that do not depend on an index or rate as an operating lease if the lease would have been classified as a sales-type lease or a direct financing lease under the previous ASU 842 classification criteria, and sales-type or direct financing lease classification would result in a Day 1 loss. This guidance is effective for annual periods beginning after December 15, 2021, and interim periods therein.						The adoption of this standard does not have an impact to our consolidated financial statements.

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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,
			2021						2020
			(In thousands)
SUPPLEMENTAL DISCLOSURES:
Total interest costs incurred			$	113,691					$	116,015
Interest capitalized			(18,180)						(17,269)
Interest expense			$	95,511					$	98,746
Cash paid for interest, net of amounts capitalized			$	91,887					$	89,447
Cash paid for income taxes			$	326					$	430
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
DownREIT operating partnership units issued with acquisition			$	—					$	18,920
Mortgage loans assumed with acquisition			$	—					$	8,903
DownREIT operating partnership units redeemed for common shares			$	5,121					$	—
Shares issued under dividend reinvestment plan			$	1,294					$	1,296

			September 30,						December 31,
			2021						2020
			(In thousands)
RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH:
Cash and cash equivalents			$	177,591					$	798,329
Restricted cash (1)			10,314						18,567
Total cash, cash equivalents, and restricted cash			$	187,905					$	816,896

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

NOTE 3—REAL ESTATE

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 this 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 at our Mount Vernon Plaza property in Alexandria, Virginia 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.

Property Acquisitions

During the nine months ended September 30, 2021, we acquired the following properties:

Date Acquired						Property						City/State						Gross Leasable Area (GLA)						Ownership %						Gross Value
																		(in square feet)												(in millions)
April 30, 2021						Chesterbrook (1)						McLean, Virginia						90,000						80		%				$	32.1		(2)
June 1, 2021						Grossmont Center (1)						La Mesa, California						933,000						60		%				$	175.0		(3)
June 14, 2021						Camelback Colonnade (1)						Phoenix, Arizona						642,000						98		%				$	162.5		(4)
June 14, 2021						Hilton Village (1)						Scottsdale, Arizona						93,000						98		%				$	37.5		(5)
September 2, 2021						Twinbrooke Shopping Centre						Fairfax, Virginia						109,000						100		%				$	33.8		(6)

(1)These acquisitions were completed through newly formed joint ventures, for which we own the controlling interest listed above, and therefore, these properties are consolidated in our financial statements.

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(2)Approximately $1.9 million and $0.6 million of net assets acquired were allocated to other assets for "acquired lease costs" and "above market leases," respectively, and $8.0 million of net assets acquired were allocated to other liabilities for "below market leases."

(3)Approximately $12.3 million and $2.6 million of net assets acquired were allocated to other assets for "acquired lease costs" and "above market leases," respectively, and $14.7 million of net assets acquired were allocated to other liabilities for "below market leases."

(4)Approximately $11.6 million of net assets acquired were allocated to other assets for "acquired lease costs" and $28.3 million were allocated to other liabilities for "below market leases."

(5)The land is controlled under a long-term ground lease that expires on December 31, 2076, for which we have recorded a $10.4 million "operating lease right of use asset" (net of a $1.3 million above market liability) and an $11.6 million "operating lease liability." Approximately $2.7 million and $1.1 million of net assets acquired were allocated to other assets for "acquired lease costs" and "above market leases," respectively, and $3.6 million were allocated to other liabilities for "below market leases."

(6)Approximately $0.8 million and $0.3 million of net assets acquired were allocated to other assets for "acquired lease costs" and "above market leases," respectively, and $2.7 million of net assets acquired were allocated to other liabilities for "below market leases."

Property Disposition

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.

NOTE 4—DEBT

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 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 initial maturity date to April 16, 2024, along with two one-year extensions, at our option.

On September 1, 2021, we repaid the $7.9 million mortgage loan on Plaza Del Sol, at par, prior to its original maturity date.

During the three and nine months ended September 30, 2021, there were no borrowings on our $1.0 billion revolving credit facility. Our revolving credit facility, term loan, and certain notes require us to comply with various financial covenants, including the maintenance of minimum shareholders' equity and debt coverage ratios and a maximum ratio of debt to net worth. As of September 30, 2021, we were in compliance with all default related debt covenants.

NOTE 5—FAIR VALUE OF FINANCIAL INSTRUMENTS

Except as disclosed below, the carrying amount of our financial instruments approximates their fair value. The fair value of our mortgages payable, notes payable and senior notes and debentures is sensitive to fluctuations in interest rates. Quoted market prices (Level 1) were used to estimate the fair value of our marketable senior notes and debentures and discounted cash flow analysis (Level 2) is generally used to estimate the fair value of our mortgages and notes payable. Considerable judgment is necessary to estimate the fair value of financial instruments. The estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments. A summary of the carrying amount and fair value of our mortgages payable, notes payable and senior notes and debentures is as follows:

			September 30, 2021												December 31, 2020
Carrying Value						Fair Value						Carrying Value						Fair Value
(In thousands)
Mortgages and notes payable			$	758,665					$	773,188					$	886,887					$	879,390
Senior notes and debentures			$	3,405,685					$	3,725,056					$	3,404,488					$	3,761,465

As of September 30, 2021, we have two interest rate swap agreements with notional amounts of $56.5 million that are measured at fair value on a recurring basis. The interest rate swap agreements fix the interest rate on $56.5 million of mortgage payables at 3.67% through December 15, 2029. The fair values of the interest rate swap agreements are based on the estimated amounts we would receive or pay to terminate the contracts at the reporting date and are determined using interest rate pricing models and interest rate related observable inputs. The fair value of our swaps at September 30, 2021 was a liability of $2.0 million and

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is included in "other liabilities and deferred credits" on our consolidated balance sheet. For the three and nine months ended September 30, 2021, the value of our interest rate swaps increased $0.4 million and $2.7 million, respectively (including $0.2 million reclassified from other comprehensive income to interest expense for the three months, and $0.7 million reclassified from other comprehensive income to interest expense for the nine months ended September 30, 2021). A summary of our financial liabilities that are measured at fair value on a recurring basis, by level within the fair value hierarchy is as follows:

			September 30, 2021																								December 31, 2020
			Level 1						Level 2						Level 3						Total						Level 1						Level 2						Level 3						Total
			(In thousands)
Interest rate swaps			$	—					$	(1,977)					$	—					$	(1,977)					$	—					$	(4,711)					$	—					$	(4,711)

One of our equity method investees has two interest rate swaps which qualify for cash flow hedge accounting. For the three and nine months ended September 30, 2021, our share of the change in fair value of the related swaps included in "accumulated other comprehensive loss" was an increase of $0.2 million and $0.5 million, respectively.

NOTE 6—COMMITMENTS AND CONTINGENCIES

We are sometimes involved in lawsuits, warranty claims, and environmental matters arising in the ordinary course of business. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters.

We are currently a party to various legal proceedings. We accrue a liability for litigation if an unfavorable outcome is probable and the amount of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, we accrue the best estimate within the range; however, if no amount within the range is a better estimate than any other amount, the minimum within the range is accrued. Legal fees related to litigation are expensed as incurred. We do not believe that the ultimate outcome of these matters, either individually or in the aggregate, could have a material adverse effect on our financial position or overall trends in results of operations; however, litigation is subject to inherent uncertainties. Also under our leases, tenants are typically obligated to indemnify us from and against all liabilities, costs and expenses imposed upon or asserted against us (1) as owner of the properties due to certain matters relating to the operation of the properties by the tenant, and (2) where appropriate, due to certain matters relating to the ownership of the properties prior to their acquisition by us.

Under the terms of certain partnership agreements, the partners have the right to exchange their operating partnership units for cash or common shares, at our option. A total of 694,133 downREIT operating partnership units are outstanding which have a total fair value of approximately $81.9 million, which is calculated by multiplying the outstanding number of downREIT partnership units by our closing stock price on September 30, 2021.

NOTE 7—SHAREHOLDERS’ EQUITY

The following table provides a summary of dividends declared and paid per share:

			Nine Months Ended September 30,
			2021												2020
			Declared						Paid						Declared						Paid
Common shares			$	3.190					$	3.180					$	3.160					$	3.150
5.417% Series 1 Cumulative Convertible Preferred shares			$	1.016					$	1.016					$	1.016					$	1.016
5.0% Series C Cumulative Redeemable Preferred shares (1)			$	0.938					$	0.938					$	0.938					$	0.938

(1)Amount represents dividends per depository share, each representing 1/1000th of a share.

On February 24, 2021, we replaced our existing 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. On May 7, 2021, we amended this ATM equity program, which resets the limit to $500.0 million. The new ATM equity program also allows shares to be sold through forward sales contracts. 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 nine months ended September 30, 2021, we issued 847,471 common shares at a weighted average price per share of $104.19 for net cash proceeds of $87.1 million including paying $0.9 million in commissions and $0.4 million in additional offering expenses related to the sales of common shares. We also entered into forward sales contracts for the three and nine

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months ended September 30, 2021 for 822,678 and 2,348,729 shares, respectively, under our ATM equity program at a weighted average offering price of $121.18 and $117.36, respectively. The forward price that we will receive upon physical settlement of the agreements is subject to the adjustment for (i) commissions, (ii) a floating interest rate factor equal to a specified daily rate less a spread, (iii) the forward purchasers' stock borrowing costs and (iv) 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 ranging from March 2022 to September 2022. We have remaining capacity to issue up to $260.0 million in common shares under our ATM equity program as of September 30, 2021.

NOTE 8—SHARE-BASED COMPENSATION PLANS

A summary of share-based compensation expense included in net income is as follows:

			Three Months Ended												Nine Months Ended
			September 30,												September 30,
			2021						2020						2021						2020
			(In thousands)
Grants of common shares, restricted stock units, and options			$	3,367					$	3,115					$	10,874					$	10,144
Capitalized share-based compensation			(336)						(335)						(1,094)						(977)
Share-based compensation expense			$	3,031					$	2,780					$	9,780					$	9,167

NOTE 9—EARNINGS PER SHARE

We have calculated earnings per share (“EPS”) under the two-class method. The two-class method is an earnings allocation methodology whereby EPS for each class of common stock and participating securities is calculated according to dividends declared and participation rights in undistributed earnings. For the three and nine months ended September 30, 2021, we had 0.3 million and for the three and nine months ended September 30, 2020, we had 0.2 million weighted average unvested shares outstanding, respectively, which are considered participating securities. Therefore, we have allocated our earnings for basic and diluted EPS between common shares and unvested shares; the portion of earnings allocated to the unvested shares is reflected as “earnings allocated to unvested shares” in the reconciliation below.

The following potentially issuable shares were excluded from the diluted EPS calculation because their impact is anti-dilutive:

• exercise of 682 stock options for both the three and nine months ended September 30, 2021 and 2020,

• conversions of downREIT operating partnership units and 5.417% Series 1 Cumulative Convertible Preferred Shares for both the three and nine months ended September 30, 2021 and 2020, and

• the issuance of 0.9 million and 1.7 million shares issuable under forward sales agreements for the three and nine months ended September 30, 2021, respectively.

Additionally, 10,441 unvested restricted stock units are excluded from the diluted EPS calculation as the market based performance criteria in the awards has not yet been achieved.

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			Three Months Ended												Nine Months Ended
			September 30,												September 30,
			2021						2020						2021						2020
			(In thousands, except per share data)
NUMERATOR
Net income (loss)			$	54,541					$	(33,623)					$	152,339					33,677
Less: Preferred share dividends			(2,010)						(2,010)						(6,031)						(6,031)
Less: (Income) loss from operations attributable to noncontrolling interests			(2,419)						5,334						(5,777)						3,304
Less: Earnings allocated to unvested shares			(309)						(249)						(901)						(745)
Net income (loss) available for common shareholders, basic and diluted			$	49,803					$	(30,548)					$	139,630					$	30,205
DENOMINATOR
Weighted average common shares outstanding, basic			77,485						75,404						77,269						75,386
Effect of dilutive securities:
Open forward contracts for share issuances			90						—						18						—
Weighted average common shares outstanding, diluted			77,575						75,404						77,287						75,386
EARNINGS PER COMMON SHARE, BASIC:
Net income (loss) available for common shareholders			$	0.64					$	(0.41)					$	1.81					$	0.40
EARNINGS PER COMMON SHARE, DILUTED:
Net income (loss) available for common shareholders			$	0.64					$	(0.41)					$	1.81					$	0.40

NOTE 10—SUBSEQUENT EVENTS

On October 12, 2021, we repaid the $64.1 million mortgage loan on Montrose Crossing, at par, prior to its original maturity date.

On November 2, 2021, we repaid the $52.7 million mortgage loan on The AVENUE at White Marsh, at par, prior to its original maturity date.