Federal Realty Marginally Beats

Zacks

Federal Realty Investment Trust (FRT), a real estate investment trust (:REIT), reported third quarter 2012 FFO (funds from operations) of $72.1 million or $1.12 per share compared with $63.9 million or $1.01 per share in the year-earlier quarter. The reported quarterly FFO marginally beat the Zacks Consensus Estimate by a penny.

The increase in year-over-year FFO was primarily due to improved performance in the same-store portfolio and a significant top-line growth. Total revenue during the reported quarter increased to $157.8 million from $137.7 million in the year-ago quarter, representing a year-over-year growth of 14.6%. The reported revenues were well ahead of the Zacks Consensus Estimate of $152.0 million.

Despite challenging market conditions, Federal Realty executed healthy leasing activities during the quarter. The company signed 109 leases spanning 531,573 square feet of retail space during third quarter 2012.

On a same-store basis, the company leased 504,082 square feet at an average cash-basis contractual rent increase of 11.0% per square foot. The average same-store contractual rent for the first year of new leases was $28.43 per square foot, compared to $25.63 for the last year of the prior leases.

Same-store rents per square foot (:GAAP) increased 25.0% on an average during the quarter. As of September 30, 2012, Federal Realty's average contractual cash basis minimum rent for retail and commercial space was $23.95 per square foot.

Same-store net operating income, excluding redevelopment and expansion properties increased 10.4% on a year-over-year basis. The overall portfolio was 95.1% leased at the end of the quarter, compared with 93.3% in the prior-year quarter, while the same-store portfolio was 95.0% leased, compared with 94.3% in the year-ago period.

Federal Realty continues to focus on a low-risk business strategy of growth through prudent leasing of assets and completion of redevelopment projects at high risk-adjusted returns. The company is strengthening its presence in the core markets by acquiring new assets, which would eventually lead to better operational and ownership flexibility throughout the entire portfolio.

Federal Realty increased its quarterly dividend rate by 5.8% year over year to 73 cents per share or $2.92 on an annualized basis. At quarter-end, the company had cash and cash equivalents of $147.7 million.

With strong quarterly results, Federal Realty revised its FFO guidance for full year 2012 to $4.29 – $4.31 per share. In addition, the company provided an initial FFO guidance for full year 2013 in the range of $4.50 – $4.56 per share.

We maintain our long-term Neutral recommendation on Federal Realty, which currently retains a Zacks #3 Rank that translates into a short-term Hold rating. We also have a Neutral recommendation and a Zacks #3 Rank for National Retail Properties, Inc. (NNN), one of the close competitors of 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.

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