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, 2022 filed with the Securities and Exchange Commission (the “SEC”) on February 8, 2023.

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:

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• 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, 2022 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 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 Operating Partnership. We specialize in the ownership, management, and redevelopment of high quality retail and mixed-use properties. As of September 30, 2023, we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as 102 predominantly retail real estate projects comprising approximately 26.1 million square feet. In total, the real estate projects were 94.0% leased and 92.3% occupied at September 30, 2023.

General Economic Conditions

Given the higher levels of inflation, rising interest rates, and potentially worsening economic conditions, we continue to monitor and address risks related to the general state of the economy. 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 2022 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 current economic conditions 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 2022 Annual Report on Form 10-K.

Property Acquisition and Disposition

On January 31, 2023, we acquired the 168,000 square foot portion of Huntington Square shopping center that was not previously owned, as well as the fee interest in the land underneath the portion of the shopping center which we controlled under a long-term ground lease for $35.5 million. As a result of this transaction, we now own the entire fee interest in this

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243,000 square foot property and the "operating lease right of use assets" on our consolidated balance sheet decreased by $5.3 million.

On May 26, 2023, we exercised our option and acquired the 22.3% tenancy in common ("TIC") interest from our co-owner at Escondido Promenade for $30.5 million, bringing our ownership interest to 100%. As a result of the transaction, we gained control of this property, and effective May 26, 2023, we have consolidated this property.

During the nine months ended September 30, 2023, we sold one retail property for $13.2 million, resulting in a gain on sale of $1.6 million.

On October 12, 2023, we acquired the fee interest under a portion of our Mercer on One (formerly known as Mercer Mall) property for $55.0 million pursuant to the purchase option included in the master lease.

On October 27, 2023, we sold a building in Santa Monica, California for $17.2 million.

Debt and Equity Transactions

For the three months ended September 30, 2023, we issued 95,013 common shares at a weighted average price per share of $103.69 for net cash proceeds of $9.7 million including paying $0.1 million in commissions and $0.1 million in additional offering expenses related to the sales of these common shares. For the nine months ended September 30, 2023, we issued 152,047 common shares at a weighted average price per share of $106.67 for net cash proceeds of $15.9 million including paying $0.2 million in commissions and $0.2 million in additional offering expenses related to the sales of these common shares. We have the remaining capacity to issue up to $435.8 million in common shares under our ATM equity program as of September 30, 2023.

On April 12, 2023, we issued $350.0 million of fixed rate senior unsecured notes that mature on May 1, 2028 and bear interest at 5.375%. The notes were offered at 99.590% of the principal amount with a yield to maturity of 5.468%. The net proceeds, after issuance discount, underwriting fees, and other costs were $345.7 million. The net proceeds of these notes, or "green bonds," will be allocated to the financing and refinancing of recently completed and future eligible green projects, which includes (i) investments in acquisitions of buildings; (ii) building developments or redevelopments; (iii) renovations in existing buildings; and (iv) tenant improvement projects, in each case that have received, or are expected to receive, in the three years prior to the issuance of the notes or during the term of the notes, a LEED Gold or Platinum certification (or environmentally equivalent successor standards). Net proceeds will be available for repayment of indebtedness, or may be invested in short-term income-producing investments or may be used to temporarily repay current and/or future amounts outstanding under our revolving credit facility.

Effective May 4, 2023, our Declaration of Trust was amended to increase the number of authorized common shares of beneficial interest to 200,000,000.

On June 1, 2023, we repaid our $275.0 million 2.75% senior unsecured notes at maturity.

Recently Issued Accounting Pronouncements

See Note 2 to the consolidated financial statements.

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 $155 million and $7 million, respectively, for the nine months ended September 30, 2023, and $208 million and $8 million for the nine months ended September 30, 2022. We capitalized external and internal costs related to other property improvements of $66 million and $3 million, respectively, for the nine months ended September 30, 2023, and $76 million and $3 million, respectively, for the nine months ended September 30, 2022. We capitalized external and internal costs related to leasing activities of $13 million and $3 million, respectively, for the nine months ended September 30, 2023, and $14 million and $3 million, respectively, for the nine months ended September 30, 2022. The amount of capitalized internal costs for salaries and related benefits for development and redevelopment activities, other property improvements, and leasing activities were $7 million, $3 million, and $3 million, respectively, for the nine months ended September 30, 2023 and $8 million, $2 million, and $3 million, respectively, for the nine months ended September 30, 2022. Total capitalized costs were $247 million and $312 million for the nine months ended September 30, 2023 and 2022, respectively.

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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.

Although the general economic impacts of the elevated levels of inflation and rising interest rates are impacting us in the short-term, our long-term focus has not changed. See our Annual Report on Form 10-K filed on February 8, 2023, for discussion of our long-term strategies.

Our comparable property growth is primarily driven by increases in rental rates on new leases and lease renewals, changes in portfolio occupancy, and the redevelopment of those assets. Over the long-term, the infill nature and strong demographics of our properties provide a strategic advantage allowing us to maintain relatively high occupancy and generally increase rental rates. We continue to experience 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 1.7% spread between our leased rate of 94.0% and our occupied rate of 92.3%. During 2023, we have seen an uptick in tenants filing for bankruptcy compared to the prior two years. As a result, approximately 250,000 square feet of anchor space became vacant during the third quarter. This will negatively impact our occupancy and net income in the short term, however, we expect to be able to re-lease the space at similar or better aggregate rents over the next several quarters, and we are actively in negotiations with replacement tenants. Additionally, the effects of high levels of inflation and rising interest rates continue to negatively impact our business with the largest current impacts being higher interest costs, increased material costs, and higher operating costs. We continue to see impacts of increased costs for certain construction and other materials that support our development and redevelopment activities. Worsening supply chain disruptions could also 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, staffing issues due to labor shortages, or are otherwise impacted by worsening economic conditions, 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 current economic environment 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 IV at Pike & Rose is a 276,000 square foot office building (which includes 10,000 square feet of ground floor retail space). Approximately 160,000 square feet of the office space is leased to two tenants, and approximately 8,000 square feet of retail space is pre-leased. The building is expected to cost between $185 million and $200 million, and began delivering in late September 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 $315 million and $330 million.

• Throughout the portfolio, we currently have redevelopment projects underway with a projected total cost of approximately $228 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 broader, as well as local, economic conditions, inflation, higher interest rates, and higher operating costs.

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

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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 September 30, 2023, the leasable square feet in our properties was 94.0% leased and 92.3% 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 third quarter of 2023, we signed leases for a total of 565,000 square feet of retail space including 553,000 square feet of comparable space leases (leases for which there was a prior tenant) at an average rental increase of 11% on a cash basis. New leases for comparable spaces were signed for 411,000 square feet, with an average rental increase of 13% on a cash basis. Renewals for comparable spaces were signed for 142,000 square feet at a 7% average rental increase on a cash basis. Tenant improvements and incentives for comparable spaces were $31.19 per square foot, of which $41.23 per square foot was for new leases and $2.21 per square foot was for renewals for the three months ended September 30, 2023.

For the nine months ended September 30, 2023, we signed leases for a total of 1,693,000 square feet of retail space including 1,634,000 square feet of comparable space leases (leases for which there was a prior tenant) at an average rental increase of 9% on a cash basis. New leases for comparable spaces were signed for 781,000 square feet, with an average rental increase of 12% on a cash basis. Renewals for comparable spaces were signed for 852,000 square feet at a 8% average rental increase on a cash basis. Tenant improvements and incentives for comparable spaces were $28.61 per square foot, of which $57.43 per square foot was for new leases and $2.18 per square foot was for renewals for the nine months ended September 30, 2023.

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, excluding leases at properties sold during the quarter or under contract to be sold. 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. 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. 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 2023 will be in line with these historical averages. 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 2023 generally become effective over the following two years though some may not become effective until 2026 and beyond. Further, there is a 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 and nine months ended September 30, 2023, all or a portion of 95 and 94 properties, respectively, were considered comparable properties and eight properties were considered non-comparable properties. For the three months ended September 30, 2023, one property was moved from comparable properties to non-comparable properties, four properties

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and two portions of properties were moved from acquisitions to comparable properties, and one property was removed from comparable properties, as it was sold; all compared to the designations as of December 31, 2022. For the nine months ended September 30, 2023, one property was moved from comparable properties to non-comparable properties, four properties and one portion of a property were moved from acquisitions to comparable properties, and one property was removed from comparable properties, as it was sold; all compared to the designations as of December 31, 2022. 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 on 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 SEPTEMBER 30, 2023 AND 2022

															Change
			2023						2022						Dollars						%
			(Dollar amounts in thousands)
Rental income			$	286,323					$	273,179					$	13,144					4.8		%
Mortgage interest income			281						272						9						3.3		%
Total property revenue			286,604						273,451						13,153						4.8		%
Rental expenses			58,595						58,809						(214)						(0.4)		%
Real estate taxes			33,045						32,803						242						0.7		%
Total property expenses			91,640						91,612						28						—		%
Property operating income (1)			194,964						181,839						13,125						7.2		%
General and administrative expense			(13,149)						(13,100)						(49)						0.4		%
Depreciation and amortization			(81,731)						(77,109)						(4,622)						6.0		%
Gain on deconsolidation of VIE			—						70,374						(70,374)						(100.0)		%
Gain on sale of real estate			—						29,723						(29,723)						(100.0)		%
Operating income			100,084						191,727						(91,643)						(47.8)		%
Other interest income			721						234						487						208.1		%
Interest expense			(42,726)						(35,060)						(7,666)						21.9		%
Income from partnerships			1,313						1,873						(560)						(29.9)		%
Total other, net			(40,692)						(32,953)						(7,739)						23.5		%
Net income			59,392						158,774						(99,382)						(62.6)		%
Net income attributable to noncontrolling interests			(2,344)						(2,636)						292						(11.1)		%
Net income attributable to the Trust			$	57,048					$	156,138					$	(99,090)					(63.5)		%

(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 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 September 30, 2023 and 2022 is as follows:

			2023						2022
			(in thousands)
Operating income			$	100,084					$	191,727
General and administrative			13,149						13,100
Depreciation and amortization			81,731						77,109
Gain on deconsolidation of VIE			—						(70,374)
Gain on sale of real estate			—						(29,723)
Property operating income			$	194,964					$	181,839

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Property Revenues

Total property revenue increased $13.2 million, or 4.8%, to $286.6 million in the three months ended September 30, 2023 compared to $273.5 million in the three months ended September 30, 2022. The percentage occupied at our shopping centers was 92.3% and 92.1% at September 30, 2023 and 2022, respectively. 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 $13.1 million, or 4.8%, to $286.3 million in the three months ended September 30, 2023 compared to $273.2 million in the three months ended September 30, 2022 due primarily to the following:

• an increase of $7.8 million from comparable properties primarily related to a $2.8 million increase in recoveries from tenants, higher rental rates of $2.2 million, higher average occupancy of approximately $1.4 million, and a $1.1 million increase in termination fee income.

• an increase of $4.0 million from 2022 and 2023 acquisitions,

• an increase of $3.2 million from non-comparable properties primarily driven by occupancy increases at Darien Commons, Assembly Row Phase III, CocoWalk, and Pike & Rose Phase III, and

• an increase of $1.2 million from Escondido Promenade, which was reconsolidated in the second quarter of 2023 after we gained control of the property (see Note 3 to the consolidated financial statements for additional information,

partially offset by

• a decrease of $3.5 million from property sales.

Property Expenses

Total property expenses were $91.6 million for both the three months ended September 30, 2023 and 2022. Changes in the components of property expenses are discussed below.

Rental Expenses

Rental expenses decreased $0.2 million, or 0.4%, to $58.6 million in the three months ended September 30, 2023 compared to $58.8 million in the three months ended September 30, 2022. This decrease is primarily due to the following:

• a decrease of $1.5 million from property sales,

partially offset by

• an increase of $0.8 million from 2022 and 2023 acquisitions, and

• an increase of $0.6 million from comparable properties due primarily to an increase in insurance costs and an increase in management fees on higher revenues.

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 20.5% in the three months ended September 30, 2023 from 21.5% in the three months ended September 30, 2022.

Real Estate Taxes

Real estate tax expense increased $0.2 million, or 0.7%, to $33.0 million in the three months ended September 30, 2023 compared to $32.8 million in the three months ended September 30, 2022. This increase is primarily due to the following:

• an increase of $1.0 million from comparable properties primarily due to higher assessments and

• an increase of $0.5 million from 2022 acquisitions,

partially offset by

• a decrease of $1.0 million from non-comparable properties due primarily to a successful tax appeal recorded during 2023, and

• a decrease of $0.3 million from property sales.

Property Operating Income

Property operating income increased $13.1 million, or 7.2%, to $195.0 million in the three months ended September 30, 2023 compared to $181.8 million in the three months ended September 30, 2022. This increase is primarily driven by higher rental rates and occupancy, 2022 and 2023 acquisitions, the 2022 openings at Assembly Row Phase III, Pike & Rose Phase III, and CocoWalk, the 2023 openings at Darien Commons and Huntington Shopping Center, termination fee income at comparable

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properties, and the reconsolidation of Escondido Promenade during the second quarter of 2023 when we gained control of the property, partially offset by 2022 property sales.

Other Operating

Depreciation and Amortization

Depreciation and amortization expense increased $4.6 million, or 6.0%, to $81.7 million in the three months ended September 30, 2023 from $77.1 million in the three months ended September 30, 2022. This increase is due primarily to the reconsolidation of Escondido Promenade during the second quarter of 2023, our investment in comparable properties, property acquisitions, and placing redevelopment properties into service, partially offset by 2022 property sales.

Gain on deconsolidation of VIE

The $70.4 million gain on deconsolidation of VIE for the three months ended September 30, 2022 is the result of the deconsolidation of Escondido Promenade during the third quarter of 2022.

Gain on sale of real estate

The $29.7 million gain on sale of real estate for the three months ended September 30, 2022 is due primarily to a net gain of $20.4 million related to the sales of one residential property (including an adjacent retail pad) and one retail property, and a $9.3 million gain related to the reduction of our liability for estimated condemnation and transaction costs associated with the sale under threat of condemnation in December 2019 at San Antonio Center.

Operating Income

Operating income decreased $91.6 million, or 47.8%, to $100.1 million in the three months ended September 30, 2023 compared to $191.7 million in the three months ended September 30, 2022. This decrease is primarily driven by the prior year gain on the deconsolidation of a VIE, the prior year gain on sale of real estate, and 2022 property sales, partially offset by higher rental rates and occupancy, 2022 and 2023 acquisitions, the 2022 openings at Assembly Row Phase III, Pike & Rose Phase III, and CocoWalk, the 2023 openings at Darien Commons and Huntington Shopping Center, higher termination fee income at comparable properties, and the reconsolidation of Escondido Promenade during the third second quarter of 2023 when we gained control of the property.

Other

Other Interest Income

Other interest income increased $0.5 million to $0.7 million in the three months ended September 30, 2023 compared to $0.2 million in the three months ended September 30, 2022. This increase is primarily driven by higher interest earned due to higher interest rates on cash accounts.

Interest Expense

Interest expense increased $7.7 million, or 21.9%, to $42.7 million in the three months ended September 30, 2023 compared to $35.1 million in the three months ended September 30, 2022. This increase is due primarily to the following:

• an increase of $7.4 million due to a higher overall weighted average borrowing rate, and

• an increase of $1.6 million due to higher weighted average borrowings,

partially offset by,

• an increase of $1.3 million in capitalized interest.

Gross interest costs were $48.7 million and $39.8 million in the three months ended September 30, 2023 and 2022, respectively. Capitalized interest was $6.0 million and $4.7 million for the three months ended September 30, 2023 and 2022, respectively.

Income from Partnerships

Income from partnerships decreased $0.6 million, or 29.9%, to $1.3 million in the three months ended September 30, 2023 compared to $1.9 million in the three months ended September 30, 2022. This decrease is primarily driven by lower income at our restaurant joint ventures largely attributable to forgiveness of certain loans in the prior year.

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RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

															Change
			2023						2022						Dollars						%
			(Dollar amounts in thousands)
Rental income			$	839,509					$	793,516					$	45,993					5.8		%
Mortgage interest income			833						805						28						3.5		%
Total property revenue			840,342						794,321						46,021						5.8		%
Rental expenses			169,410						166,189						3,221						1.9		%
Real estate taxes			97,992						94,628						3,364						3.6		%
Total property expenses			267,402						260,817						6,585						2.5		%
Property operating income (1)			572,940						533,504						39,436						7.4		%
General and administrative expense			(37,607)						(39,046)						1,439						(3.7)		%
Depreciation and amortization			(239,342)						(223,244)						(16,098)						7.2		%
Gain on deconsolidation of VIE			—						70,374						(70,374)						(100.0)		%
Gain on sale of real estate			1,702						29,723						(28,021)						(94.3)		%
Operating income			297,693						371,311						(73,618)						(19.8)		%
Other interest income			3,775						487						3,288						675.2		%
Interest expense			(124,835)						(98,707)						(26,128)						26.5		%
Income from partnerships			3,494						4,878						(1,384)						(28.4)		%
Total other, net			(117,566)						(93,342)						(24,224)						26.0		%
Net income			180,127						277,969						(97,842)						(35.2)		%
Net income attributable to noncontrolling interests			(7,245)						(8,171)						926						(11.3)		%
Net income attributable to the Trust			$	172,882					$	269,798					$	(96,916)					(35.9)		%

(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 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 nine months ended September 30, 2023 and 2022 is as follows:

			2023						2022
			(in thousands)
Operating income			$	297,693					$	371,311
General and administrative			37,607						39,046
Depreciation and amortization			239,342						223,244
Gain on deconsolidation of VIE			—						(70,374)
Gain on sale of real estate			(1,702)						(29,723)
Property operating income			$	572,940					$	533,504

Property Revenues

Total property revenue increased $46.0 million, or 5.8%, to $840.3 million in the nine months ended September 30, 2023 compared to $794.3 million in the nine months ended September 30, 2022. The percentage occupied at our shopping centers was 92.3% and 92.1% at September 30, 2023 and 2022, respectively. 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 $46.0 million, or 5.8%, to $839.5 million in the nine months ended September 30, 2023 compared to $793.5 million in the nine months ended September 30, 2022 due primarily to the following:

• an increase of $23.3 million from 2022 and 2023 acquisitions,

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• an increase of $17.6 million from comparable properties primarily related to higher rental rates of $12.2 million, higher average occupancy of approximately $4.5 million, a $4.3 million increase in recoveries from tenants, and a $1.0 million increase in specialty leasing income and parking income, partially offset by a $2.9 million decrease in termination fee income and a $1.5 million increase in collectibility related adjustments,

• an increase of $16.4 million from non-comparable properties primarily driven by occupancy increases at Assembly Row Phase III, Darien Commons, CocoWalk, and Pike & Rose Phase III, and

• an increase of $2.0 million from higher demand at our Pike & Rose hotel,

partially offset by

• a decrease of $10.8 million from property sales, and

• a decrease of $2.9 million from Escondido Promenade, which was deconsolidated in the third quarter of 2022 and recorded as an equity method investment through May 2023. Effective May 26, 2023, we gained control and reconsolidated the property (see Note 3 to the consolidated financial statements for additional information).

Property Expenses

Total property expenses increased $6.6 million, or 2.5%, to $267.4 million in the nine months ended September 30, 2023 compared to $260.8 million in the nine months ended September 30, 2022. Changes in the components of property expenses are discussed below.

Rental Expenses

Rental expenses increased $3.2 million, or 1.9%, to $169.4 million in the nine months ended September 30, 2023 compared to $166.2 million in the nine months ended September 30, 2022 due primarily to the following:

• an increase of $4.2 million from 2022 acquisitions,

• an increase of $1.5 million from non-comparable properties driven by openings at Darien Commons, CocoWalk, and Assembly Row Phase III,

• an increase of $1.4 million from comparable properties due primarily to higher repairs and maintenance costs and other operating costs driven by inflationary impacts, higher insurance costs and utilities, and an increase in management fees on higher revenues, partially offset by lower snow removal costs, and

• an increase of $0.6 million increase in operating expenses at our Pike & Rose hotel as a result of higher occupancy,

partially offset by

• a decrease of $4.2 million from property sales, and

• a decrease of $0.5 million from the deconsolidation of Escondido Promenade during the third quarter of 2022 through May 26, 2023, when we gained control and reconsolidated the property.

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 20.2% in the nine months ended September 30, 2023 from 20.9% in the nine months ended September 30, 2022.

Real Estate Taxes

Real estate tax expense increased $3.4 million, or 3.6%, to $98.0 million in the nine months ended September 30, 2023 compared to $94.6 million in the nine months ended September 30, 2022. This increase is primarily due to the following:

• an increase of $3.4 million from 2022 acquisitions, and

• an increase of $2.0 million from comparable properties primarily due to successful tax appeals recorded during 2022 and higher assessments,

partially offset by

• a decrease of $1.3 million from property sales, and

• a decrease of $0.4 million from non-comparable properties due primarily to a successful tax appeal recorded during 2023, partially offset by higher assessments and the opening of Assembly Row Phase III.

Property Operating Income

Property operating income increased $39.4 million, or 7.4%, to $572.9 million in the nine months ended September 30, 2023 compared to $533.5 million in the nine months ended September 30, 2022. This increase is primarily driven by higher rental rates and occupancy, 2022 and 2023 acquisitions, the 2022 openings at Assembly Row Phase III, Pike & Rose Phase III, and CocoWalk, and the 2023 openings at Darien Commons and Huntington Shopping Center, partially offset by 2022 property

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sales, lower termination fee income at comparable properties, and the deconsolidation of Escondido Promenade during the third quarter of 2022 through May 26, 2023, when we gained control and reconsolidated the property.

Other Operating

General and Administrative

General and administrative expense decreased $1.4 million, or 3.7%, to $37.6 million in the nine months ended September 30, 2023 compared to $39.0 million in the nine months ended September 30, 2022. This decrease is due primarily to higher amounts allocated to operations as a result of higher revenues, partially offset by higher personnel related costs.

Depreciation and Amortization

Depreciation and amortization expense increased $16.1 million, or 7.2%, to $239.3 million in the nine months ended September 30, 2023 from $223.2 million in the nine months ended September 30, 2022. This increase is due primarily to property acquisitions, our investment in comparable properties, placing redevelopment properties into service, Phase III openings at Pike & Rose and Assembly Row, partially offset by 2022 property sales and accelerated depreciation in 2022 as a result of redevelopment activities at Huntington Shopping Center.

Gain on deconsolidation of VIE

The $70.4 million gain on deconsolidation of VIE for the nine months ended September 30, 2022 is the result of the deconsolidation of Escondido Promenade during the third quarter of 2022.

Gain on Sale of Real Estate

The $1.7 million gain on sale of real estate for the nine months ended September 30, 2023 is due primarily to the sale of one retail property.

The $29.7 million gain on sale of real estate for the nine months ended September 30, 2022 is due primarily to a net gain of $20.4 million related to the sales of one residential property (including an adjacent retail pad) and one retail property, and a $9.3 million gain related to the reduction of our liability for estimated condemnation and transaction costs associated with the sale under threat of condemnation in December 2019 at San Antonio Center.

Operating Income

Operating income decreased $73.6 million, or 19.8%, to $297.7 million in the nine months ended September 30, 2023 compared to $371.3 million in the nine months ended September 30, 2022. This decrease is primarily driven by the prior year gain on the deconsolidation of a VIE, lower gains on sale of real estate, 2022 property sales, lower termination fee income, and the deconsolidation of Escondido Promenade during the third quarter of 2022 through May 26, 2023, when we gained control and reconsolidated the property, partially offset by higher rental rates and occupancy, 2022 and 2023 acquisitions, the 2022 openings at Assembly Row Phase III, Pike & Rose Phase III, and CocoWalk, and 2023 openings at Darien Commons and Huntington Shopping Center.

Other

Other Interest Income

Other interest income increased $3.3 million to $3.8 million in the nine months ended September 30, 2023 compared to $0.5 million in the nine months ended September 30, 2022. This increase is primarily driven by interest earned on the proceeds of our April 2023 senior unsecured note issuance until the June 1, 2023 payoff of our 2.75% senior unsecured notes and a higher interest rate earned on cash balances.

Interest Expense

Interest expense increased $26.1 million, or 26.5%, to $124.8 million in the nine months ended September 30, 2023 compared to $98.7 million in the nine months ended September 30, 2022. This increase is due primarily to the following:

• an increase of $21.0 million due to a higher overall weighted average borrowing rate, and

• an increase of $8.4 million due to higher weighted average borrowings,

partially offset by

• an increase of $3.3 million in capitalized interest.

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Gross interest costs were $142.0 million and $112.6 million in the nine months ended September 30, 2023 and 2022, respectively. Capitalized interest was $17.2 million and $13.9 million for the nine months ended September 30, 2023 and 2022, respectively.

Income from Partnerships

Income from partnerships decreased $1.4 million, or (28.4)%, to $3.5 million in the nine months ended September 30, 2023 compared to $4.9 million in the nine months ended September 30, 2022. This decrease is primarily driven by lower income at our restaurant joint ventures largely attributable to higher forgiveness of certain loans in the prior year.

Net income attributable to noncontrolling interests

Net income attributable to noncontrolling interests decreased $0.9 million, or 11.3%, to $7.2 million in the nine months ended September 30, 2023 compared to $8.2 million in the nine months ended September 30, 2022. This decrease is due primarily to the deconsolidation of Escondido Promenade during the third quarter of 2022 through May 26, 2023, when we gained control and reconsolidated the property.

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 nine months ended September 30, 2023 were approximately $269.9 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 an unsecured $1.25 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.

As of September 30, 2023, we had cash and cash equivalents of $98.2 million and $50.5 million outstanding on our $1.25 billion revolving credit facility. For the nine months ended September 30, 2023, the weighted average amount of borrowings outstanding on our revolving credit facility was $34.9 million, and the weighted average interest rate, before amortization of debt fees, was 5.7%. We also have the capacity to issue up to $435.8 million in common shares under our ATM equity program.

On April 12, 2023, we issued $350.0 million of fixed rate senior unsecured notes that mature on May 1, 2028 and bear interest at 5.375% for net proceeds, after issuance discount, underwriting fees, and other costs of $345.7 million. On June 1, 2023 we repaid our $275.0 million of 2.75% senior unsecured notes at maturity. We have no other debt maturing for the remainder of 2023. During 2024, we have $600.0 million of 3.95% senior unsecured notes maturing. Our $600.0 million unsecured term loan has an initial maturity in April 2024, however, there are two one-year extensions at our option that would extend the maturity to April 2026, if exercised.

Our overall capital requirements for the remainder of 2023 will be impacted by the overall economic environment including impacts of inflation, higher interest rates, and a potential recession, as well as acquisition opportunities and the level and general timing of our redevelopment and development activities. We currently have development and redevelopment projects in various stages of constructions with remaining costs of $180 million. We expect to incur the majority of these costs in the next two years. We expect overall capital costs to be at levels slightly reduced from 2022 as we complete current redevelopment projects, prepare vacant space for new tenants, and complete the current phase and start on the next phase of our larger mixed use development projects.

We believe cash flow from operations, the cash on our balance sheet, and our $1.25 billion revolving credit facility will allow us to continue to operate our business in the short-term. Given our ability to access the capital markets, we also expect debt or equity to be available to us, although newly issued debt would likely be at higher interest rates than we currently have outstanding. 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. We expect these sources of liquidity and opportunities for operating flexibility to allow us to meet our financial obligations over the long term. 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.

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Summary of Cash Flows

			Nine Months Ended September 30,
			2023						2022
			(In thousands)
Net cash provided by operating activities			$	443,215					$	409,293
Net cash used in investing activities			(288,638)						(670,151)
Net cash (used in) provided by financing activities			(148,134)						244,331
Increase (decrease) in cash, cash equivalents and restricted cash			6,443						(16,527)
Cash, cash equivalents, and restricted cash at beginning of year			96,348						175,163
Cash, cash equivalents, and restricted cash at end of period			$	102,791					$	158,636

Net cash provided by operating activities increased $33.9 million to $443.2 million during the nine months ended September 30, 2023 from $409.3 million during the nine months ended September 30, 2022. The increase was primarily attributable to higher net income after adjusting for non-cash items and gains on sale of real estate, as well as higher collections related to year end recovery billings.

Net cash used in investing activities decreased $381.5 million to $288.6 million during the nine months ended September 30, 2023 from $670.2 million during the nine months ended September 30, 2022. The decrease was primarily attributable to:

• a $370.4 million decrease in acquisition of real estate due to the January 2023 Huntington Square acquisition and the acquisition of our partner's 22.3% TIC interest in Escondido Promenade (see Note 3 to the consolidated financial statements for additional information), as compared to 2022 acquisitions, and

• a $51.3 million decrease in capital expenditures and leasing costs,

partially offset by

• a $54.1 million decrease in net proceeds from the sale of real estate primarily due to $12.6 million of net proceeds from the sale of one retail property during the nine months ended September 30, 2023, as compared to $66.7 million of net proceeds from the sale of one residential property (including an adjacent retail pad) and one retail property during the nine months ended September 30, 2022

Net cash provided by financing activities decreased $392.5 million to $148.1 million used during the nine months ended September 30, 2023 from $244.3 million provided during the nine months ended September 30, 2022. The decrease was primarily attributable to:

• a $276.4 million decrease in net proceeds from the issuance of common shares under our ATM program to $15.9 million of net proceeds during the nine months ended September 30, 2023, as compared to $292.3 million of net proceeds during the nine months ended September 30, 2022,

• $275.0 million from the June 2023 repayment of our $275.0 million 2.75% senior unsecured notes,

• a $216.5 million decrease in net borrowings on our revolving credit facility to $50.5 million of net borrowings during the during the nine months ended September 30, 2023, as compared to $267.0 million of net borrowings during the nine months ended September 30, 2022, and

• a $10.6 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,

partially offset by

• $345.7 million in net proceeds from the issuance of $350.0 million of 5.375% senior unsecured notes in April 2023,

• a $23.5 million decrease in distributions to and redemptions of noncontrolling interests primarily related to the July 2022 acquisition of the redeemable noncontrolling interest in the partnership that owns the Plaza El Segundo shopping center for $23.6 million, and

• the $16.1 million mortgage loan repayment on one of the buildings at our Hoboken property in June 2022.

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Debt Financing Arrangements

The following is a summary of our total debt outstanding as of September 30, 2023:

Description of Debt			Original Debt Issued						Principal Balance as of September 30, 2023						Stated Interest Rate as of September 30, 2023						Maturity Date
			(Dollars in thousands)
Mortgages payable
Secured fixed rate
Azalea			Acquired						$	40,000					3.73		%				November 1, 2025
Bell Gardens			Acquired						11,608						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						53,978						SOFR + 1.95%						December 15, 2029
Various Hoboken (14 Buildings) (2)			Acquired						30,132						Various						Various through 2029
Chelsea			Acquired						4,127						5.36		%				January 15, 2031
Subtotal									319,945
Net unamortized debt issuance costs and premium									(1,444)
Total mortgages payable, net									318,501
Notes payable
Term loan (3) (5)			600,000						600,000						SOFR + 0.85%						April 16, 2024
Revolving credit facility (3) (5)			(4)						50,500						SOFR + 0.775%						April 5, 2027
Various			7,749						2,503						Various						Various through 2059
Subtotal									653,003
Net unamortized debt issuance costs									(800)
Total notes payable, net									652,203
Senior notes and debentures (5)
Unsecured fixed rate
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
5.375% notes			350,000						350,000						5.375		%				May 1, 2028
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									3,494,200
Net unamortized debt issuance costs and premium									(14,379)
Total senior notes and debentures, net									3,479,821
Total debt, net									$	4,450,525

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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%. The reference rate for the mortgage loan and related interest rate swaps was amended from LIBOR to SOFR in May 2023. The amendment was effective for interest payments subsequent to July 1, 2023.

(2)The interest rates on these mortgages range from 3.91% to 5.00%.

(3)Our revolving credit facility SOFR loans bear interest at Daily Simple SOFR or Term SOFR, and our term loan bears interest at Term SOFR as defined in the credit agreement, plus 0.10%, plus a spread, based on our current credit rating.

(4)The maximum amount drawn under our $1.25 billion revolving credit facility during the nine months ended September 30, 2023 was $80.5 million and the weighted average interest rate on borrowings under our revolving credit facility, before amortization of debt fees, was 5.7%.

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

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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 September 30, 2023, 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 September 30, 2023:

			Unsecured						Secured												Total
			(In thousands)
2023			$	301					$	766											$	1,067
2024			1,200,671			(1)			3,299												1,203,970
2025			418						47,630												48,048
2026			429,276						26,240												455,516
2027			565,537			(2)			178,278												743,815
Thereafter			1,951,000						63,732												2,014,732
			$	4,147,203					$	319,945											$	4,467,148		(3)

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(1)Our $600.0 million term loan matures on April 16, 2024, plus two one-year extensions at our option to April 16, 2026.

(2)Our $1.25 billion revolving credit facility matures on April 5, 2027, plus two six-month extensions at our option to April 5, 2028. As of September 30, 2023, there was $50.5 million outstanding under this credit facility.

(3)The total debt maturities differ from the total reported on the consolidated balance sheets due to the unamortized net debt issuance costs and premium/discount on mortgage loans, notes payable, and senior notes as of September 30, 2023.

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 SOFR 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 September 30, 2023, 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 100% of its outstanding $39.0 million of debt through May 2025 at 6.39%, and 50% of its outstanding debt from June 2025 through May 2028 at 6.03%. All swaps were designated and qualify as cash flow hedges. Hedge ineffectiveness has not impacted earnings as of September 30, 2023.

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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												Nine Months Ended
			September 30,												September 30,
			2023						2022						2023						2022
			(In thousands, except per share data)
Net income			$	59,392					$	158,774					$	180,127					$	277,969
Net income attributable to noncontrolling interests			(2,344)						(2,636)						(7,245)						(8,171)
Gain on deconsolidation of VIE			—						(70,374)						—						(70,374)
Gain on sale of real estate			—						(29,723)						(1,702)						(29,723)
Depreciation and amortization of real estate assets			71,802						67,455						212,792						196,159
Amortization of initial direct costs of leases			8,116						7,454						23,468						19,129
Funds from operations			136,966						130,950						407,440						384,989
Dividends on preferred shares (1)			(1,875)						(1,875)						(5,625)						(5,625)
Income attributable to downREIT operating partnership units			693						704						2,074						2,111
Income attributable to unvested shares			(494)						(449)						(1,481)						(1,353)
Funds from operations available for common shareholders			$	135,290					$	129,330					$	402,408					$	380,122
Weighted average number of common shares, diluted (1)(2)			82,004						81,511						81,942						80,232
Funds from operations available for common shareholders, per diluted share (2)			$	1.65					$	1.59					$	4.91					$	4.74

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(1)For the three and nine months ended September 30, 2023 and 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 number of 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 for all periods presented but is anti-dilutive for the computation of dilutive EPS for the three and nine months ended September 30, 2023.