Balanced View on Federal Realty - Analyst Blog

On Apr 4, 2014, we issued an updated research report on Federal Realty Investment Trust FRT, a Rockville, MD-based retail real estate investment trust (REIT).

On Feb 11, 2014, Federal Realty reported fourth-quarter 2013 results with core FFO (funds from operations) per share of $1.18, exceeding the year-ago figure by 7 cents and in line with the Zacks Consensus Estimate. Decent results came on the back of notable leasing activity, rent escalations and improved same-store portfolio performance. Also, Federal Realty raised its 2014 FFO per share outlook.

We believe Federal Realty's expansion strategy has strong potential and promises steady income growth in the long run. Moreover, the company'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 for growth.

Although the significant construction pipeline of Federal Realty bodes well for long-term growth, it increases operational risks and tends to drag margins in the near term. Furthermore, rising online sales that adversely affect the demand for retail space remains a concern and an anticipated increase in interest rate may dent its financial results going forward.

Over the last 30 days, the Zacks Consensus Estimate for 2014 FFO per share remained stable at $4.92. On the other hand, for 2015, it moved north by 2 cents to $5.37 per share. The stock currently has a Zacks Rank #3 (Hold).

Stocks that Warrant a Look

Better-ranked stocks in the retail REIT space include Simon Property Group Inc. SPG. It currently carries a Zacks Rank #2 (Buy).

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