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ROCKVILLE, MD-Fewer gains on real estate sales caused third-quarter earnings to drop 21% at Federal Realty Trust but the company says the strength of its acquisition, leasing and redevelopment business increased funds from operations by 12%.

Net income for the period ended September 30 decreased to $22.1 million, or 41 cents per share, a drop of more than $5 million compared to the $27.8 million, or 52 cents per share, earned during last year’s third quarter.

Funds from operations rose to $45.8 million, or 85 cents per share, for the quarter, an increase over the $41 million, or 77 cents per share, recorded during last yea’s third quarter. Quarterly revenue was up 14% to $110.5 million, an increase over the $96.8 million in revenue achieved in the same quarter a year earlier.

Donald C. Wood, president and chief executive officer of Federal Realty, called the third quarter results “impressive” and said they spanned the firm’s three key business areas, including acquisitions, redevelopment and leasing.

The company also said it signed about 75 leases during the third quarter to fill about 395,000 sf of retail space. The firm also sold all 219 units at a mixed use community in San Jose, CA known as Santana Row with proceeds from that sale expected to be about $153 million. Federal Realty said it also recently acquired Melville Mall, a full-leased, 250,000 sf grocery anchored community shopping center in Huntington, NY under a master lease and secondary financing with a private owner. Under the terms of that lease, Federal Realty has the option to acquire the property’s fee interest in 15 years.

Company officials also said a lawsuit filed to halt the sale of Assembly Square in Somerville, MA will be dropped, removing an impediment to the development in that area.

The company said it had changed its funds from operations guidance for 2006 from a range of $3.33 to $3.35 per share to $3.34 or $3.35 per share and increased its 2006 earnings per share guidance to between $2 to $2.01 per share from its previous $1.97 to $1.99 per share.

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