On Oct 8, 2013, we reinstated our long-term recommendation on
Federal Realty Investment Trust
) - a retail real estate investment trust (REIT) -¬¬ at Neutral.
The decision was based on improved performance of the company's
same-center portfolio, dividend hike and strategic buyouts
completed in the past quarters.
Yet, stiff competition and rise in online purchases somewhat
restrict its growth. Also, an uptick in interest rates and market
volatility may dent Federal Realty's profitability.
Federal Realty's portfolio of high-quality shopping centers,
which is located in 20 upscale U.S. markets, has enabled the
company to charge higher rental rates and steadily maintain the
upward trend. In addition, the company has a diversified tenant
base comprising grocery stores and low-end discount retailers -
Wal-Mart Stores Inc.
The TJX Companies, Inc.
). Moreover, the company's successful expansion strategy has
long-term value potential and promises steady income growth.
Moreover, Federal Realty reported second-quarter 2013 core FFO
(funds from operations) per share of $1.14, beating the Zacks
Consensus Estimate by a cent and the year-ago quarter figure by
9.6%. The healthy results came on the back of improved
performance in the same-store portfolio and decent top-line
growth. It has also marginally raised its outlook for full-year
2013 and hiked its quarterly dividend by 6.8%, depicting the 46th
consecutive year of dividend hike.
However, Federal Realty's active development and redevelopment
pipelines expose it to various risks such as rising construction
costs, entitlement delays and lease-ups. Additionally, an uptick
in customer buyouts through catalogs and the Internet could hurt
the demand for the company's properties. Also, a rising interest
rate scenario could adversely affect the company's borrowing
expenses, which may in turn hinder its portfolio repositioning
Over the last 60 days, the Zacks Consensus Estimate for 2013
funds from operations (FFO) per share moved south 0.2% to $4.58.
Also, for 2014, it dipped marginally by 0.2% to $4.88. Thus,
Federal Realty now carries a Zacks Rank #3 (Hold).
Other Stock to Consider
The retail REIT that is currently performing better includes
Simon Property Group Inc.
), which has a Zacks Rank #2 (Buy).
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.
FED RLTY INV (FRT): Free Stock Analysis
SIMON PROPERTY (SPG): Free Stock Analysis
TJX COS INC NEW (TJX): Free Stock Analysis
WAL-MART STORES (WMT): Free Stock Analysis
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