Federal Realty FFO Beats on Higher Revs - Analyst Blog

Federal Realty Investment Trust FRT posted first-quarter 2014 funds from operations (FFO) per share of $1.21, surpassing the Zacks Consensus Estimate of $1.19 by 1.7% and the year-ago quarter figure of $1.14 by 6.1%. Higher revenues, rent escalations and improved same-store portfolio performance aided the results.

Total revenue escalated 8.7% year over year to $170.8 million and also exceeded the Zacks Consensus Estimate of $163 million.

Quarterly in Details

Federal Realty inked 78 lease deals for 364,034 square feet of space. As of Mar 31, 2014, the company's overall portfolio was 95.6% leased, up 50 basis points (bps) on a year-over-year basis. 

Same-center property operating income (excluding assets under redevelopments and expansions) escalated 2.9% year over year. As of Mar 31, 2014, Federal Realty's same-center portfolio was 95.5% leased, up 30 bps year over year.

On a comparable space basis (spaces for which a former tenant was there), Federal Realty leased 328,355 square feet at an average cash-basis contractual rent escalation of 18% per square foot. Rent increases (GAAP basis) for comparable retail space averaged 29% per square foot, compared to 38% in the prior quarter.

Federal Realty 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 and boast outlets of some renowned national and regional retailers such as Coach, Inc. COH, Starbucks Corporation SBUX and ANN INC. ANN.

Federal Realty exited the first quarter with cash and cash equivalents of approximately $75.7 million, compared to $88.9 million at the end of 2013.

2014 Outlook Reiterated

Federal Realty reaffirmed its guidance for full-year 2014 FFO per share in the range of $4.86 – $4.93. The Zacks Consensus Estimate of $4.92 for the same falls within this range.

Dividend

Concurrent with the earnings release, Federal Realty declared a quarterly dividend of 78 cents per share. The dividend is payable on Jul 15, 2014 to shareholders of record as of Jun 23.

Our Viewpoint

Federal Realty bounced back with its earnings surprise streak this season, after posting in line results in the prior quarter, thanks to strong core operating portfolio performance. In particular, the company's portfolio of Class A shopping centers along with the diversified tenant base, comprising grocery stores and low-end discount retailers, position it well to maintain the upward trend. Moreover, the acquisition of New Jersey-based premium assets and the leasing and development progress at 3 properties – Pike & Rose, Assembly Row and The Point – bodes well for this Zacks Rank #3 (Hold) stock.

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.

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