Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, 2021 filed with the Securities and Exchange Commission (the “SEC”) on February 10, 2022.

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 the Company 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;

• 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 the Trust's 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 the Trust's 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, 2021 and under Part II, Item 1A in this Quarterly Report on Form 10-Q, before making any investments in us.

Overview

Federal Realty Investment Trust (the "Parent Company" or the “Trust”) is an equity real estate investment trust (“REIT”). Federal Realty OP LP (the "Operating Partnership") is the entity through which the Trust conducts substantially all of its operations and owns substantially all of its assets. The Trust owns 100% of the limited liability company interests of, and is sole member of and exercises exclusive control over Federal Realty GP LLC ("the General Partner"), which in turn, is the sole general partner of the Operating Partnership. Unless stated otherwise or the context otherwise requires, "we," "our," and "us" means the Trust and its business and operations conducted through its directly and indirectly owned subsidiaries, including the

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Operating Partnership. We specialize in the ownership, management, and redevelopment of high quality retail and mixed-use properties As of March 31, 2022, we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as 104 predominantly retail real estate projects comprising approximately 24.9 million square feet. In total, the real estate projects were 93.7% leased and 91.2% occupied at March 31, 2022.

Impacts of COVID-19 Pandemic

We continue to monitor and address risks related to the COVID-19 pandemic, which we have been impacted by since March 2020. 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, and the effectiveness of vaccines against variants are impacting the pace of recovery. Our results have continued to improve and collectibility related impacts have continued to decrease as businesses have re-opened and COVID-19 restrictions are generally lifted since the onset of the pandemic. While improving, our cash flow and results of operations in the three months ended March 31, 2022 continued to be 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 positioned many of our tenants to be able to return to payment of contractual rent as soon as possible after the initial impacts from the pandemic have started to subside.

Our collection of rents has continued to improve including collecting rents related to prior periods. As a result, our collectibility related adjustments were immaterial during the three months ended March 31, 2022, as compared to collectibility related adjustments of $14.8 million during the three months ended March 31, 2021, which reflected lower levels of cash collections and elevated levels of rent abatements and disputes directly related to COVID-19. As of March 31, 2022, the revenue from approximately 33% 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 2021 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.

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 2021 Annual Report on Form 10-K.

2022 Acquisition

On April 20, 2022, we acquired the fee interest in a 227,000 square foot shopping center in Kingstowne, Virginia for $100.0 million. In July 2022, we expect to close on the second phase of this acquisition for an additional purchase price of $100.0 million, subject to customary closing conditions. Once the remaining acquisition is complete, the property will comprise 410,000 total square feet.

2022 Equity Transactions

On February 14, 2022, we replaced our existing ATM equity program with a new ATM equity program under which we may from time to time offer and sell common shares having an aggregate offering price of up to $500.0 million. The 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 three months ended March 31, 2022, we settled forward sales agreements by issuing 729,751 common shares for net proceeds of $82.7 million. We have outstanding forward sales agreements covering 1,473,904 common shares for potential net proceeds at March 31, 2022 of $178.4 million. The open forward shares agreements may be settled at any time on or before various required settlement dates ranging from August 2022 to December 2022. 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. We have the full remaining capacity to issue up to $500.0 million in common shares under our ATM equity program as of March 31, 2022.

Recently Issued Accounting Pronouncements

See Note 2 to the consolidated financial statements.

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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 $69 million and $3 million, respectively, for the three months ended March 31, 2022, and $82 million and $2 million for the three months ended March 31, 2021. We capitalized external and internal costs related to other property improvements of $22 million and $1 million, respectively, for the three months ended March 31, 2022, and $16 million and $1 million for the three months ended March 31, 2021. We capitalized external and internal costs related to leasing activities of $4 million and $1 million, respectively, for the three months ended March 31, 2022, and $2 million and $1 million, respectively, for the three months ended March 31, 2021. 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 both the three months ended March 31, 2022 and 2021. Total capitalized costs were $99 million and $104 million for the three months ended March 31, 2022 and 2021, 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 redevelopments and expansions, 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 10, 2022, for discussion of our long-term strategies.

The COVID-19 pandemic continues to negatively impact our business with the largest current impacts being lower occupancy, the timing and level of rent collections, and supply chain disruptions. At March 31, 2022, our commercial space is 91.2% occupied, which is below historical levels largely due to tenant failures as a result of the pandemic. This lower occupancy will adversely impact our results until we can release the space and the tenant commences paying rent, as well as limit future vacancies caused by the pandemic. We are, however, experiencing strong demand for our commercial space as evidenced by the 2.0 million square feet of comparable space leasing we've completed in the last twelve months, and the 2.5% spread between our leased rate of 93.7% and our occupied rate of 91.2%. Our percentage of contractual rents actually collected continued to increase since the low point in April 2020, including some tenants paying past due amounts. While increasing monthly cash collection rates is a positive, we expect our rent collections may continue to be below our tenants' contractual rent obligations and historical levels in 2022, which will continue to adversely impact our results of operations. We continue to see impacts of overall supply chain disruptions affecting the broader economy, including significantly longer lead times, limited availability, and increased costs for certain construction and other materials that support our development and redevelopment activities. If disruptions continue to worsen, they could result in extended timeframes and/or increased costs for completion of our projects and tenant build-outs, which could delay the commencement of rent payments under new leases. Similarly, if our tenants experience significant disruptions in supply chains supporting their own products, or staffing issues due to labor shortages, their ability to pay rent may be adversely affected. We continue to monitor these macroeconomic developments and are working with our tenants and our vendors to limit the overall impact to our business.

The duration and severity of the economic impact from COVID-19 will depend on future developments, which are highly uncertain and cannot be fully predicted, however, we seek to position the Company to continue to participate in the resulting economic recovery.

We continue to have several development projects in process being delivered as follows:

• Phase III of Assembly Row includes 277,000 square feet of office space, 56,000 square feet of retail space, and 500 residential units. The expected costs for Phase III are between $465 million and $485 million, with spaces being delivered beginning in the second quarter of 2021. At March 31, 2022, 236,000 square feet of office space has been delivered, all of the units in the residential building have been delivered, and 33,000 square feet of retail space has opened.

• Phase III at Pike & Rose includes a 212,000 square foot office building (which includes 7,000 square feet of ground floor retail space). The building is expected to cost between $128 million and $135 million. At March 31, 2022, approximately 162,000 square feet of office and retail has been delivered, of which approximately 45,000 square feet is our new corporate headquarters.

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• Phase IV at Pike & Rose is a 276,000 square foot office building (which includes 10,000 square feet of ground floor retail space). Approximately 105,000 square feet of the office space is pre-leased to a single tenant. The building is expected to cost between $185 million and $200 million, and begin delivering in late 2023.

• The first phase of construction on Santana West includes an eight story 376,000 square foot office building, which is expected to cost between $300 million and $315 million.

• Throughout the portfolio, we currently have redevelopment projects underway with a projected total cost of approximately $218 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 may be further impacted by the current environment including the duration and severity of the economic impacts of COVID-19, supply chain disruptions affecting the broader economy, and inflation.

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 units in the Operating Partnership, as well as through assumed mortgages and property sales.

At March 31, 2022, the leasable square feet in our properties was 93.7% leased and 91.2% 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 2022, we signed leases for a total of 460,000 square feet of retail space including 444,000 square feet of comparable space leases (leases for which there was a prior tenant) at an average rental increase of 7% on a cash basis. New leases for comparable spaces were signed for 176,000 square feet at an average rental increase of 14% on a cash basis. Renewals for comparable spaces were signed for 268,000 square feet at a 2% average rental increase on a cash basis. Tenant improvements and incentives for comparable spaces were $32.55 per square foot, of which, $78.65 per square foot was for new leases and $2.23 per square foot was for renewals for the three months ended March 31, 2022.

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 the rent for expiring leases and new leases is determined by including contractual rent on the expiring lease, including percentage rent, and the comparable annual 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 since the pandemic started than in prior years in order to appropriately reflect the comparability of rents 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. Rent abatement and short term rent restructuring agreements that are a result of COVID-19 impacts are not included in this calculation. 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 an inducement to sign a lease that do not represent building improvements. Costs related to tenant improvements require judgement by management in determining what are costs specific to the tenant and not deferred maintenance on the space.

Historically, we have executed comparable space leases for 1.4 to 2.0 million square feet of retail space each year. We expect the volume in 2022 will be in line with, or potentially exceed, our historical averages given a larger amount of vacancy as a

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result of COVID-19. We expect some rental rates to continue to be negatively impacted by the COVID-19 pandemic, which we started experiencing in the second quarter of 2020. 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 2022 generally become effective over the following two years though some may not become effective until 2025 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, 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, 2022, all or a portion of 95 properties were considered comparable properties and seven properties were considered non-comparable properties. For the three months ended March 31, 2022, one property was moved from comparable properties to non-comparable properties and one property was moved from non-comparable properties to comparable properties, compared to the designations as of December 31, 2021. 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, 2022 AND 2021

															Change
			2022						2021						Dollars						%
			(Dollar amounts in thousands)
Rental income			$	256,507					$	217,135					$	39,372					18.1		%
Mortgage interest income			264						1,026						(762)						(74.3)		%
Total property revenue			256,771						218,161						38,610						17.7		%
Rental expenses			56,211						49,238						6,973						14.2		%
Real estate taxes			30,560						29,420						1,140						3.9		%
Total property expenses			86,771						78,658						8,113						10.3		%
Property operating income (1)			170,000						139,503						30,497						21.9		%
General and administrative expense			(12,342)						(10,258)						(2,084)						20.3		%
Depreciation and amortization			(71,674)						(63,874)						(7,800)						12.2		%
Gain on sale of real estate and change in control of interest			—						17,428						(17,428)						(100.0)		%
Operating income			85,984						82,799						3,185						3.8		%
Other interest income			120						363						(243)						(66.9)		%
Interest expense			(31,573)						(32,085)						512						(1.6)		%
Income (loss) from partnerships			197						(1,338)						1,535						114.7		%
Total other, net			(31,256)						(33,060)						1,804						(5.5)		%
Net income			54,728						49,739						4,989						10.0		%
Net income attributable to noncontrolling interests			(2,744)						(1,503)						(1,241)						82.6		%
Net income attributable to the Trust			$	51,984					$	48,236					$	3,748					7.8		%

(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

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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. The reconciliation of operating income to property operating income for the three months ended March 31, 2022 and 2021 is as follows:

			2022						2021
			(in thousands)
Operating income			$	85,984					$	82,799
General and administrative			12,342						10,258
Depreciation and amortization			71,674						63,874
Gain on sale of real estate and change in control of interest			—						(17,428)
Property operating income			$	170,000					$	139,503

Property Revenues

Total property revenue increased $38.6 million, or 17.7%, to $256.8 million in the three months ended March 31, 2022 compared to $218.2 million in the three months ended March 31, 2021. The percentage occupied at our shopping centers was 91.2% and 89.5% at March 31, 2022 and 2021, respectively. The most significant driver of the increase in property revenues is the generally lifted COVID-19 restrictions during the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, when COVID-19 government imposed closures and restrictions were still in effect. 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 increased $39.4 million, or 18.1%, to $256.5 million in the three months ended March 31, 2022 compared to $217.1 million in the three months ended March 31, 2021 due primarily to the following:

• a $14.9 million decrease in collectibility related impacts across all properties primarily due to higher collection rates and lower rent abatements in the first quarter of 2022 as tenants continue to recover from the initial impacts of COVID-19,

• an increase of $11.7 million from 2021 acquisitions,

• an increase of $7.7 million from non-comparable properties primarily driven by the opening of Phase III at Assembly Row in 2021, redevelopment related occupancy increases at CocoWalk, and the 2021 openings at the Phase III office building at Pike & Rose, partially offset by redevelopment related occupancy decreases at Huntington Shopping Center, and

• an increase of $6.8 million from comparable properties primarily related to higher percentage rent, specialty leasing, and parking income of $3.7 million primarily due to the impacts of COVID-19 related closures and restrictions in the first quarter of 2021, higher rental rates of $2.0 million, higher average occupancy of approximately $1.5 million, and a $1.0 million increase in CAM recoveries on higher CAM costs, partially offset by lower net termination fees and legal fee income of $1.4 million,

partially offset by

• a decrease of $2.6 million from 2021 property sales.

Mortgage Interest Income

Mortgage interest income decreased $0.8 million, or 74.3%, to $0.3 million in the three months ended March 31, 2022 compared to $1.0 million in the three months ended March 31, 2021 primarily due to the repayment of $31.1 million of mortgage notes receivable in May 2021.

Property Expenses

Total property expenses increased $8.1 million, or 10.3%, to $86.8 million in the three months ended March 31, 2022 compared to $78.7 million in the three months ended March 31, 2021. Changes in the components of property expenses are discussed below.

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Rental Expenses

Rental expenses increased $7.0 million, or 14.2%, to $56.2 million in the three months ended March 31, 2022 compared to $49.2 million in the three months ended March 31, 2021. This increase is primarily due to the following:

• an increase of $2.5 million from comparable properties due primarily to higher repairs and maintenance costs, utilities, and management fees, as 2021 had lower costs as a result of COVID-19 impacts, and higher insurance costs, partially offset by lower snow removal costs,

• an increase of $2.2 million from non-comparable properties driven by the 2021 openings at Phase III at Assembly Row, the Phase III office building at Pike & Rose, and CocoWalk, and

• an increase of $1.7 million from 2021 acquisitions,

partially offset by,

• a decrease of $0.5 million from 2021 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 decreased to 21.9% in the three months ended March 31, 2022 from 22.7% in the three months ended March 31, 2021.

Real Estate Taxes

Real estate tax expense increased $1.1 million, or 3.9%, to $30.6 million in the three months ended March 31, 2022 compared to $29.4 million in the three months ended March 31, 2021. This increase is primarily due the following:

• an increase of $1.2 million from 2021 acquisitions, and

• an increase of $0.9 million from non-comparable properties due primarily to the 2021 openings of Phase III at Assembly Row, and CocoWalk,

partially offset by,

• a decrease of $0.6 million from comparable properties primarily due to successful tax appeals, and

• a decrease of $0.3 million from 2021 property sales.

Property Operating Income

Property operating income increased $30.5 million, or 21.9%, to $170.0 million in the three months ended March 31, 2022 compared to $139.5 million in the three months ended March 31, 2021. This increase is primarily due to the lifting of COVID-19 restrictions, which resulted in lower collectibility related adjustments, higher percentage rent, specialty leasing, and parking income compared to the first quarter of 2021 which still had COVID-19 related restrictions. Also contributing to the increase were 2021 acquisitions, the opening of Phase III at Assembly Row in 2021, higher occupancy and rental rates at comparable properties, and redevelopment related occupancy increases at CocoWalk, partially offset by 2021 property sales, higher repairs and maintenance expense, and lower net termination fees and legal fee income.

Other Operating

General and Administrative

General and administrative expense increased $2.1 million, or 20.3%, to $12.3 million in the three months ended March 31, 2022 from $10.3 million in the three months ended March 31, 2021. This increase is due primarily to higher personnel related costs.

Depreciation and Amortization

Depreciation and amortization expense increased $7.8 million, or 12.2%, to $71.7 million in the three months ended March 31, 2022 from $63.9 million in the three months ended March 31, 2021. This increase is due primarily to 2021 acquisitions, the opening of Phase III at Assembly Row, partially offset by 2021 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.

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Operating Income

Operating income increased $3.2 million, or 3.8%, to $86.0 million in the three months ended March 31, 2022 compared to $82.8 million in the three months ended March 31, 2021. This increase is primarily due to the lifting of COVID-19 restrictions, which resulted in lower collectibility related adjustments, higher percentage rent, specialty leasing, and parking income compared to the first quarter of 2021 which still had COVID-19 related restrictions. Also contributing to the increase were 2021 acquisitions, the opening of Phase III at Assembly Row in 2021, higher occupancy and rental rates at comparable properties, and redevelopment related occupancy increases at CocoWalk, partially offset by the gains related to the sale of a portion of Graham Park Plaza and the acquisition of the previously unconsolidated Pike & Rose hotel joint venture in 2021, higher personnel related costs, 2021 property sales, higher repairs and maintenance expense, and lower net termination fees and legal fee income.

Other

Interest Expense

Interest expense decreased $0.5 million, or 1.6%, to $31.6 million in the three months ended March 31, 2022 compared to $32.1 million in the three months ended March 31, 2021. This decrease is due primarily to the following:

• a decrease of $2.0 million due to lower weighted average borrowings, and

• a decrease of $0.4 million due to a lower overall weighted average borrowing rate,

partially offset by,

• a decrease of $1.9 million in capitalized interest.

Gross interest costs were $36.2 million and $38.6 million in the three months ended March 31, 2022 and 2021, respectively. Capitalized interest was $4.6 million and $6.5 million for the three months ended March 31, 2022 and 2021, respectively.

Income (loss) from partnerships

Income from partnerships increased $1.5 million, or 114.7%, to $0.2 million in the three months ended March 31, 2022 compared to a loss of $1.3 million in the three months ended March 31, 2021. This increase is due primarily to improved operating results at our restaurant joint ventures and at our Assembly Row hotel joint venture, largely the result of the easing of COVID-19 closures and restrictions.

Net income attributable to noncontrolling interests

Net income attributable to noncontrolling interests increased $1.2 million, or 82.6%, to $2.7 million in the three months ended March 31, 2022 compared to $1.5 million in the three months ended March 31, 2021. The increase is primarily due to 2021 acquisitions.

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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, the Trust is 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, 2022 were approximately $86.1 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.

During the first quarter of 2022, we have continued to see improvements in overall cash collections from tenants with collection rates nearing pre-pandemic levels. We have also taken multiple steps over the past two years to strengthen our financial position, maximize liquidity, and to provide maximum flexibility during these uncertain times, including maintaining levels of cash in excess of the cash balances we have historically maintained.

During the three months ended March 31, 2022, there were no borrowings on our $1.0 billion unsecured revolving credit facility, and as of March 31, 2022, we had cash and cash equivalents of $157.9 million. We also had outstanding forward equity sales agreements for net proceeds of $178.4 million as of March 31, 2022, and the capacity to issue up to $500.0 million in common shares under our ATM equity program. Additionally, we have no debt maturing until the second quarter of 2023.

Our overall capital requirements for the remainder of 2022 will be impacted by the extent and duration of COVID-19 related closures and restrictions, impacts on our cash collections, and overall economic impacts that might occur including supply chain issues. 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 continue to see elevated levels of investment as we continue to invest in our overall portfolio to better position our properties for a post-COVID environment, costs to prepare vacant space for new tenants, and investments to complete the current phase and start the next phase of our larger mixed-use development projects although at a slightly reduced level from 2021, largely due to deliveries in 2021 of our third phase of Assembly Row.

We believe cash flow from operations, the cash on our balance sheet, and our $1.0 billion revolving credit facility will allow us to continue to operate our business through the remainder of the COVID-19 pandemic. Given our past 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, reduce our operating expenditures, or re-evaluate our dividend policy. While we have seen significant improvements from the initial negative impacts of the COVID-19 pandemic, it has continued to affect our overall business, and we expect it will continue to negatively impact our business in the short term. However, we intend to operate with and to 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.

Summary of Cash Flows

			Three Months Ended March 31,
			2022						2021
			(In thousands)
Net cash provided by operating activities			$	103,069					$	115,106
Net cash used in investing activities			(88,194)						(74,841)
Net cash used in financing activities			(11,849)						(48,719)
Increase (decrease) in cash, cash equivalents and restricted cash			3,026						(8,454)
Cash, cash equivalents, and restricted cash at beginning of year			175,163						816,896
Cash, cash equivalents, and restricted cash at end of period			$	178,189					$	808,442

Net cash provided by operating activities decreased $12.0 million to $103.1 million during the three months ended March 31, 2022 from $115.1 million during the three months ended March 31, 2021. The decrease was primarily attributable to collections of year end real estate tax reconciliation billings during the three months ended March 31, 2021 and the timing of payments, partially offset by higher net income before non-cash items, as COVID-19 related restrictions were largely still in place for the quarter ended March 31, 2021.

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Net cash used in investing activities increased $13.4 million to $88.2 million during the three months ended March 31, 2022 from $74.8 million during the three months ended March 31, 2021. The increase was primarily attributable to:

• $19.9 million of net proceeds from the sale of a portion of Graham Park Plaza in Falls Church, Virginia in March 2021,

partially offset by,

• a $5.7 million decrease in acquisitions of real estate due to the February 2021 acquisition of the fee interest at our Mount Vernon Plaza property in Alexandria, Virginia.

Net cash used in financing activities decreased $36.9 million to $11.8 million during the three months ended March 31, 2022 from $48.7 million in the three months ended March 31, 2021. The decrease was primarily attributable to:

• a $48.0 million decrease 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

• a $4.5 million decrease in net proceeds from the issuance of common shares under our ATM program for net proceeds of $82.7 million and $87.2 million, respectively, during the three months ended March 31, 2022 and 2021,

• a $2.8 million increase in dividends paid to common and preferred shareholders due to an increase in the number of outstanding shares, as well as an increase to the common share dividend rate, and

• a $2.0 million increase in distributions to and redemptions of noncontrolling interests primarily related to our 2021 property acquisitions.

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Debt Financing Arrangements

The following is a summary of our total debt outstanding as of March 31, 2022:

Description of Debt			Original Debt Issued						Principal Balance as of March 31, 2022						Stated Interest Rate as of March 31, 2022						Maturity Date
			(Dollars in thousands)
Mortgages payable
Secured fixed rate
Azalea			Acquired						$	40,000					3.73		%				November 1, 2025
Bell Gardens			Acquired						12,056						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						56,102						LIBOR + 1.95%						December 15, 2029
Various Hoboken (14 Buildings) (2)			Acquired						31,586						Various						Various through 2029
Chelsea			Acquired						4,751						5.36		%				January 15, 2031
Hoboken (1 Building) (3)			Acquired						16,148						3.75		%				July 1, 2042
Subtotal									340,743
Net unamortized debt issuance costs and premium									(1,507)
Total mortgages payable, net									339,236
Notes payable
Revolving credit facility (4) (6)			1,000,000						—						LIBOR + 0.775%						January 19, 2024
Term loan (5) (6)			400,000						300,000						LIBOR + 0.80%						April 16, 2024
Various			7,239						2,584						11.31%						Various through 2028
Subtotal									302,584
Net unamortized debt issuance costs									(1,044)
Total notes payable, net									301,540
Senior notes and debentures (6)
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									(12,709)
Total senior notes and debentures, net									3,406,491
Total debt, net									$	4,047,267

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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)The maximum amount drawn under our revolving credit facility during the three months ended March 31, 2022 was $38.0 million and the weighted average interest rate on borrowings under our revolving credit facility, before amortization of debt fees, was 1.2%. Effective April 1, 2022, the spread over LIBOR increased to 82.5 basis points as a result of the change in our credit rating.

5)Effective April 1, 2022, the spread over LIBOR increased to 85 basis points as a result of the change in our credit rating.

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6)The Operating Partnership is the obligor under our revolving credit facility, term loan, and senior notes and debentures.

Our revolving credit facility, unsecured term loan, and other debt agreements include financial and other covenants that may limit our operating activities in the future. As of March 31, 2022, 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 a 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, 2022:

			Unsecured						Secured												Total
			(In thousands)
2022			$	693					$	2,515											$	3,208
2023			275,758						3,549												279,307
2024			900,659			(1)(2)			3,688												904,347
2025			383						48,033												48,416
2026			429,254						26,657												455,911
Thereafter			2,115,037						256,301												2,371,338
			$	3,721,784					$	340,743											$	4,062,527		(3)

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1. Our $300.0 million term loan matures on April 16, 2024, plus 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, 2022, 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, 2022.

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 income which is included in "accumulated other comprehensive income (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, 2022, 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, 2022.

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REIT Qualification

We intend to maintain the Trust's 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.

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The reconciliation of net income to FFO available for common shareholders is as follows:

			Three Months Ended
			March 31,
			2022						2021
			(In thousands, except per share data)
Net income			$	54,728					$	49,739
Net income attributable to noncontrolling interests			(2,744)						(1,503)
Gain on sale of real estate and change in control of interest			—						(17,428)
Depreciation and amortization of real estate assets			62,977						57,103
Amortization of initial direct costs of leases			5,793						4,744
Funds from operations			120,754						92,655
Dividends on preferred shares (1)			(1,875)						(2,010)
Income attributable to downREIT operating partnership units			706						785
Income attributable to unvested shares			(436)						(325)
Funds from operations available for common shareholders			$	119,149					$	91,105
Weighted average number of common shares, diluted (1)(2)			79,299						77,582
Funds from operations available for common shareholders, per diluted share (2)			$	1.50					$	1.17

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(1)For the three months ended March 31, 2022, 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 downREIT 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.