What's in the Cards for Federal Realty's (FRT) Q2 Earnings?

Federal Realty Investment Trust FRT is set to report second-quarter 2020 earnings on Aug 5, after the bell. The company’s quarterly results might display year-over-year declines in revenues and funds from operations (FFO) per share.

In the last reported quarter, this retail real estate investment trust (REIT) reported a negative surprise of 1.96% in terms of FFO per share. Results reflected fall in property operating income.

Over the last four quarters, it surpassed estimates on one occasion, reported in-line numbers in another and missed in the other two, the average negative surprise being 0.49%. The graph below depicts the surprise history of the company:

Federal Realty Investment Trust Price and EPS Surprise

Federal Realty Investment Trust Price and EPS Surprise

Federal Realty Investment Trust price-eps-surprise | Federal Realty Investment Trust Quote

Let’s see how things have shaped up for this announcement.

Key Factors

The retail real estate market had already been bearing the brunt of declining traffic, store closures and retailer bankruptcies, and now the pandemic has only added to its woes. In the second quarter, the escalating number of coronavirus cases forced several retailers to close stores. Some retailers also reduced their store hours, while many others kept the e-retail operations running, as consumers are increasingly opting for online purchases to avoid gathering in public spaces.

Per a report from CBRE Group, the overall retail availability rate in second-quarter 2020 expanded 3 basis points to 6.4%, while retail properties witnessed their first quarterly decline in net absorption since early 2011. Neighborhood, community & strip centers resulted in majority of the decrease in net absorption.

Federal Realty too was not spared. Moreover, with the tenant roster having exposure to lifestyle and entertainment-oriented restaurants, and retailers that are not essential for consumers during pandemic, rent collection is a key concern.

In its Jun 1 operational update, Federal Realty announced that the company has collected roughly 54% of total May 2020 billed recurring rents, as of May 29. The company also noted that this is ahead of the pace for April’s rent collections at the end of the month. Further, based on the annualized base rent, roughly 54% of its commercial tenants are open and operating.

The company also noted that construction activity has resumed at Santana West and Assembly Row, as well as in other smaller redevelopments. Though construction activities continue at Pike & Rose, CocoWalk& Darien, the pace is slower amid observations of COVID-19 safety protocols at all sites.

The Zacks Consensus Estimate for quarterly revenues is pegged at $212.5 million, calling for a 7.8% decline from the year-ago period. Moreover, Federal Realty’s activities during the quarter were inadequate to win analyst confidence. The consensus estimate for second-quarter FFO per share has been revised 3.2% downward to $1.21 in a week’s time. This also suggests a year-over-year decline of 24.4%.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for Federal Realty this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Federal Realty currently carries a Zacks Rank #5 (Sell) and has an Earnings ESP of -8.59%.

Stocks to Consider

Here are a few stocks in the broader real estate sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Healthcare Trust of America, Inc. HTA, set to report quarterly numbers on Aug 6, currently has an Earnings ESP of +0.96% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Public Storage PSA, slated to release results on Aug 5, has an Earnings ESP of +0.41% and carries a Zacks Rank of 3, at present.

National Storage Affiliates Trust NSA, scheduled to announce earnings figures on Aug 6, has an Earnings ESP of +0.44% and holds a Zacks Rank of 3 currently.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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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 Nasdaq, Inc.

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