Neutral Stance on Federal Realty - Analyst Blog

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On Jan 16, 2013, we reinstated our long-term recommendation on Federal Realty Investment Trust ( FRT ) - a retail real estate investment trust (REIT) - at Neutral. The decision was based on the company's notable third-quarter performance, guidance increase and continued strategic portfolio enhancement activity.

Yet, stiff competition and rise in online purchases somewhat restrict its growth. Also, huge development and redevelopment pipeline is a concern.

Why the Reiteration?

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. Moreover, the company has been focusing on expansion opportunities in premium markets, which generates income growth and long-term value creation potential. In relation to that, acquisition of controlling stake in 2 N.J.-based upscale shopping centers on Jan 6 is notable. In addition, the company has a diversified tenant base comprising grocery stores and low-end discount retailers such as Wal-Mart Stores Inc. ( WMT ) and Best Buy Co., Inc. ( BBY ).

Furthermore, Federal Realty's third-quarter 2013 core funds from operations (FFO) per share of $1.16 surpassed the Zacks Consensus Estimate by a whisker and the year-ago quarter figure by 4 cents. The healthy results came on the back of improved performance in the same-store portfolio and notable top-line growth. Also, Federal Realty raised its 2013 FFO per share outlook which boosted investors' confidence.

Yet, Federal Realty's active development and redevelopment pipelines increase its operational risks. Additionally, a rise in customer purchases through catalogs and the Internet remain a headwind for the demand of its properties. Also, tough competition somewhat restricts the Federal Realty's growth.

Over the last 60 days, the Zacks Consensus Estimate for 2013 FFO per share moved north by a cent to $4.60. Also, for 2014, it upped by a cent to $4.89. Thus, Federal Realty now carries a Zacks Rank #2 (Buy).

Other Stock to Consider

Other players in REIT-Equity Trust - Retail industry, which look attractive at current levels includes Cedar Realty Trust, Inc. ( CDR ), which has the same rank as Federal Realty.

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.



BEST BUY (BBY): Free Stock Analysis Report

CEDAR SHOPN CTR (CDR): Free Stock Analysis Report

FED RLTY INV (FRT): Free Stock Analysis Report

WAL-MART STORES (WMT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: BBY , CDR , FRT , WMT

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