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Federal Realty Q2 FFO Beats, Guides Up and Hikes Dividend

Zacks Equity Research

Federal Realty Investment Trust (FRT) posted second-quarter 2014 funds from operations (:FFO) per share of $1.23, surpassing the Zacks Consensus Estimate by 2 cents and the year-ago quarter figure by 15 cents.

The year-over-year FFO increase of 13.9% was aided by higher revenues and improved same-store portfolio performance. Encouragingly, Federal Realty raised its 2014 FFO per share guidance and quarterly dividend rate.

Total revenue increased 6.7% year over year to $167.9 million and also exceeded the Zacks Consensus Estimate of $166 million.

Inside the Headlines

During the second quarter, Federal Realty inked 128 lease deals for 622,916 square feet of space. As of Jun 30, 2014, the company’s overall portfolio was 95.3% leased, flat on a year-over-year basis. 

On a comparable space basis (spaces for which a former tenant was there), Federal Realty leased 536,819 square feet at an average cash-basis contractual rent escalation of 16% per square foot. Rent increases (GAAP basis) for comparable retail space averaged 30% per square foot, compared to 29% in the prior quarter.

Same-center property operating income (excluding assets under redevelopments and expansions) escalated 4% year over year in the quarter. As of Jun 30, 2014, Federal Realty’s same-center portfolio was 95.5% leased, up 10 bps year over year.

Federal Realty exited the second quarter with cash and cash equivalents of approximately $41.3 million, compared to $75.7 million at the end of Mar 2014.

Subsequent to end of the second quarter, in July, Federal Realty disclosed that it has booked Bank of America Merrill Lynch, the corporate and investment banking division of Bank of America Corporation (BAC) as anchor office tenant at Pike & Rose in North Bethesda, MD. Also, in July, Federal Realty in collaboration with a discretionary fund, divested Pleasant Shops in South Weymouth, MA for $34.3 million.

2014 Guidance Raised

Federal Realty raised its outlook for full-year 2014 FFO per share to the range of $4.90 – $4.94, from $4.86 – $4.93 guided earlier. The Zacks Consensus Estimate of $4.92 for the same falls within this range.

Dividend Hike

Concurrent with the earnings release, Federal Realty declared a sequential increase of 11.5% in the quarterly dividend rate to 87 cents from 78 cents in the earlier quarter. The dividend is payable on Oct 15, 2014 to shareholders of record as of Sep 22.

Our Take

Federal Realty’s concerted efforts kept its earnings surprise momentum alive this season, thanks to decent core operating portfolio performance. In particular, the company’s portfolio of Class A shopping centers along with the diversified tenant base, comprising grocery stores and low-end discount retailers, position it well to maintain the upward trend. Moreover, the guidance raise boosts investors confidence in the stock. Also, with the dividend hike the company became the only real estate investment trust (:REIT) to increase its dividend for 47 consecutive years, which is encouraging.

Federal Realty currently carries a Zacks Rank #3 (Hold). Investors interested in the retail REIT industry may consider stocks like General Growth Properties, Inc. (GGP) and DDR Corp. (DDR). Both have a Zacks Rank #2 (Buy).

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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