Federal Realty Upgraded to Buy - Analyst Blog

On Mar 12, 2014, Zacks Investment Research upgraded Federal Realty Investment Trust FRT to a Zacks Rank #2 (Buy). The upgrade of this healthcare real estate investment trust (REIT) came on the back of its decent fourth-quarter 2013 results, improving operating fundamentals and guidance raise.

Why the Upgrade?

Federal Realty has been witnessing positive estimate revisions thanks to decent fourth-quarter 2013 results, improving operating fundamentals and guidance increase. The company reported adjusted fourth-quarter 2013 core FFO (funds from operations) per share of $1.18, in line with the Zacks Consensus Estimate and higher than the year-ago quarter figure of $1.11.

The decent results came on the back of notable leasing activity, rent escalations and improved same-store portfolio performance. Also, Federal Realty increased its guidance for full-year 2014 FFO per share in the range of $4.86 – $4.93, from $4.84 – $4.92 forecasted earlier. A raise in the outlook boosts investors' confidence in the stock.

Federal Realty's portfolio of high quality shopping centers along with the diversified tenant base, comprising grocery stores and low-end discount retailers such as Wal-Mart Stores, Inc. WMT and Target Corp. TGT, position it well to grow.

Additionally, Federal Realty's successful expansion strategy has long-term value potential and promises steady income growth. In January, the company disclosed the buyout of a controlling stake in two shopping centers –The Grove at Shrewsbury and Brook 35 – in New Jersey for $161 million. These properties serve the flourishing NY Metro area.

Owing to these bullish factors, the tendency for an upward estimate revision has been obvious in recent times. Over the last 30 days, 6 out of 12 estimates have moved up and none moved down for 2014. The Zacks Consensus Esimate for 2014 climbed 2 cents to $4.92 per share while that for 2015 increased a notch to $5.37 per share.

Additionally, the long-term earnings growth forecast for Federal Realty is 6.62%. These made way for the upgrade in the rank.

Another Stock to Consider

Apart from Federal Realty, investors interested in the retail REIT industry may consider Simon Property Group Inc. SPG. The stock has a Zacks Rank #2 (Buy).


Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.