Federal Realty Announces Closing of Offering of 3.25% Exchangeable Senior Notes due 2029
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Insights
From a financial perspective, the closure of a $485 million offering of 3.25% Exchangeable Senior Notes by Federal Realty Investment Trust is indicative of the company's proactive capital management strategy. The use of proceeds to repay debt and for general corporate purposes suggests a focus on maintaining a healthy balance sheet and possibly reducing interest expenses. The full exercise of the initial purchasers' option to buy additional notes reflects strong market demand and investor confidence in Federal Realty's creditworthiness.
The exchangeable nature of the notes, with the option to convert into common shares, introduces a potential future dilution of equity but is mitigated by the capped call transactions. These capped calls are a strategic hedge, designed to minimize the impact of dilution on existing shareholders and manage the potential increase in cash outflows due to exchanges. The cap price set at a 40% premium indicates a calculated bet on the company's stock performance, aligning investor interests with the company's growth trajectory.
Redemption options and repurchase obligations under certain 'fundamental change' conditions provide flexibility to the company while offering protection to investors. These terms reflect a balanced approach to risk management for both the issuer and the note holders.
The issuance of exchangeable senior notes by a real estate investment trust (REIT) such as Federal Realty is a significant event that may influence the market's perception of the company's growth prospects and risk profile. The transaction's structure, including the exchange feature and the capped call transactions, suggests that Federal Realty is leveraging financial instruments to manage its capital structure dynamically.
Investor response to such offerings can serve as a barometer of the real estate market's health and the appetite for REIT investments. The 20% exchange premium over the closing price on January 8, 2024, indicates an expectation of asset appreciation. The adjustment mechanisms for the exchange rate and the cap price in the capped call transactions are critical for investors to understand as they can significantly affect the potential returns and the risk of the investment.
Secondary market activities by the option counterparties could influence Federal Realty's stock price, which is an important consideration for investors. These activities are standard in managing hedged positions but can introduce volatility in the stock's market price, affecting not only the noteholders but also the broader shareholder base.
The legal implications of the offering are rooted in the compliance with securities regulations, specifically Rule 144A under the Securities Act of 1933. This rule allows for a private placement of securities to qualified institutional buyers, bypassing the need for a public offering registration, which can be a more expedient and less costly process for the issuer.
The notes' status as senior unsecured obligations places them high in the repayment hierarchy, which is an important consideration for investors assessing the risk of their investment. The terms governing the notes and the conditions under which they can be exchanged or repurchased are detailed in the indenture, a legally binding document that outlines the rights and obligations of both the issuer and the noteholders.
The safe harbor statement at the end of the press release is a standard disclaimer aimed at limiting the company's liability for forward-looking statements. It serves as a reminder to investors that such statements are predictions and not guarantees of future performance.
The notes are the Partnership's senior unsecured obligations and accrue interest payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2024, at a rate of
Prior to the close of business on the business day immediately preceding July 15, 2028, the notes will be exchangeable at the option of holders only upon certain circumstances and during certain periods. On or after July 15, 2028, the notes will be exchangeable at the option of the holders at any time prior to the close of business on the second scheduled trading day preceding the Maturity Date. The Partnership will settle exchanges of notes by delivering cash up to the principal amount of the notes exchanged and, in respect of the remainder of the exchange value, if any, in excess thereof, cash or common shares of beneficial interest, par value
In the event of a fundamental change (as defined in the indenture that will govern the notes), subject to certain conditions, holders of the notes may require the Partnership to repurchase for cash all or any portion of their notes at a repurchase price equal to
The Partnership may redeem the notes, at its option, in whole or in part, on any business day on or after January 20, 2027, if the last reported sale price of the common shares has been at least
The Partnership used a portion of the net proceeds from the Offering to pay the cost of the capped call transactions described below. The Partnership intends to use the remainder of the net proceeds from the Offering for the repayment of indebtedness and for general corporate purposes. Pending such use, the net proceeds may be invested in short-term, income-producing investments or the Partnership may use the net proceeds to temporarily repay current and/or future amounts outstanding under its revolving credit facility.
In connection with the pricing of the notes and the exercise by the initial purchasers of their option to purchase additional notes, Federal Realty and the Partnership entered into privately negotiated capped call transactions relating to the notes with one or more of the initial purchasers of the notes or their respective affiliates and/or other financial institutions (the "option counterparties"). The capped call transactions cover, subject to customary adjustments, the number of Federal Realty's common shares that initially underlie the notes.
The cap price of the capped call transactions initially is approximately
The capped call transactions are expected generally to reduce the potential dilution to Federal Realty's common shares upon exchange of any notes and/or offset any cash payments the Partnership is required to make in excess of the principal amount of exchanged notes, as the case may be, with such reduction and/or offset subject to a cap.
The option counterparties or their respective affiliates may modify or unwind their hedge positions by entering into or unwinding various derivatives with respect to Federal Realty's common shares and/or purchasing or selling Federal Realty's common shares or other securities of Federal Realty or the Partnership in secondary market transactions following the pricing of the notes and prior to the maturity of the notes (and are likely to do so following any fundamental change repurchase, redemption or early exchange of the notes and during the 40 trading day period beginning on the 41st scheduled trading day prior to the maturity date of the notes, or, to the extent the Partnership exercises the relevant election under the capped call transactions, following any other repurchase of the notes). This activity could also cause, reduce the extent of or avoid an increase or a decrease in the market price of Federal Realty's common shares or the notes, which could affect a noteholder's ability to exchange the notes, and, to the extent the activity occurs following exchange or during any observation period related to an exchange of notes, it could affect the number of common shares, if any, and value of the consideration that noteholders will receive upon exchange of the notes.
Neither the notes nor the common shares issuable upon exchange of the notes have been registered under the Securities Act or any state securities laws, and unless so registered, may not be offered or sold in
This press release does not constitute an offer to sell or a solicitation of an offer to buy, nor shall there be any offer or sale of, the notes in any jurisdiction in which the offer, solicitation or sale of the notes would be unlawful prior to the registration or qualification thereof under the securities laws of any such state or jurisdiction.
Safe Harbor Statement
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements may be identified by use of terms such as "propose," "will," "expect," "shall," and similar terms or the negative of such terms, and include, without limitation, statements regarding the expected use of the net proceeds of the Offering, and other information that is not historical information. Actual results or developments may differ materially from those projected or implied in these forward-looking statements. More information about the risks and uncertainties faced by Federal Realty and the Partnership is contained in the section captioned "Risk Factors" in Federal Realty's and the Partnership's Securities and Exchange Commission ("SEC") filings, including their Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as well as subsequent SEC filings. The forward-looking statements contained in this release are as of the date of this release, and, except as required by law, neither Federal Realty nor the Partnership undertakes any obligation to update any such statements, whether as a result of new information, future events or otherwise.
About Federal Realty
Federal Realty is a recognized leader in the ownership, operation and redevelopment of high-quality retail-based properties located primarily in major coastal markets from
Federal Realty has increased its quarterly dividends per common share for 56 consecutive years on an annualized basis, the longest record in the REIT industry. Federal Realty is an S&P 500 index member and its shares are traded on the NYSE under the symbol FRT.
Investor Inquiries: | Media Inquiries: |
Leah Andress Brady | Brenda Pomar |
Vice President, Investor Relations | Senior Director, Corporate Communications |
301.998.8265 | 301.998.8316 |
lbrady@federalrealty.com | bpomar@federalrealty.com |
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SOURCE Federal Realty Investment Trust
FAQ
What is the latest offering from Federal Realty Investment Trust (NYSE: FRT)?
How long will the notes mature?
What are the exchange options for the notes?
How will the Partnership settle exchanges of notes?
What did the Partnership use the net proceeds from the offering for?
