On Jan 16, 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 the company's notable third-quarter
performance, guidance increase and continued strategic portfolio
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.
Best Buy Co., Inc.
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.
), which has the same rank as Federal Realty.
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
FED RLTY INV (FRT): Free Stock Analysis
WAL-MART STORES (WMT): Free Stock Analysis
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