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What's in the Cards for Federal Realty's (FRT) Q1 Earnings?

Zacks Equity Research

Federal Realty Investment Trust FRT is set to report first-quarter 2020 earnings on May 6, after the bell. Though the company’s quarterly results will likely reflect a marginal increase in revenues, its funds from operations (FFO) might display a decline, year on year.

In the last reported quarter, this retail real estate investment trust (REIT) reported a negative surprise of 1.25% in terms of FFO per share.

Over the last four quarters, it surpassed estimates on two occasions, reported in-line numbers in another and missed in the other, the average positive surprise being 0.17%. 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.

Factors that Might Have Impacted Q1 Performance

Federal Realty has a portfolio of premium retail assets, along with a diverse tenant base, both national and local. The properties are located in markets with superior demographics, dense population and strong household income. With this, the company has a decent scope of enjoying solid demand.

However, mall traffic continues to suffer amid a rapid shift in customers’ shopping preferences and patterns with online purchases gaining precedence. These have made retailers reconsider their footprint and eventually opt for store closures. Further, retailers unable to cope with competition are filing bankruptcies. This has emerged as a pressing concern for retail REITs like Federal Realty, as the trend is curtailing demand for the retail real estate space considerably. Such events are likely to have affected the company’s performance in the March-end quarter.

Moreover, the escalating number of coronavirus cases has forced several retailers to close their stores, in order to contain the spread of the virus. Some retailers have also reduced store hours, while many others are keeping e-retail operations running as consumers are now increasingly opting for online purchases to avoid gathering in public spaces. Nevertheless, the impact of such shutdowns and store closures are likely to be more pronounced on retail real estate fundamentals in the second quarter than in the first.

Amid these, the Zacks Consensus Estimate for quarterly revenues is pegged at $233.3 million, indicating a 0.5% rise from the year-ago reported figure.

Furthermore, amid the fast-evolving retail environment, Federal Realty is undertaking concerted measures to reposition, redevelop and re-merchandise its portfolio. Although repositioning and redevelopment are a strategic fit for long-term growth, such initiatives involve considerable upfront costs, tend to drag down near-term profitability, and might have curbed the company’s growth tempo in the first quarter.

Federal Realty’s activities during the quarter were inadequate to win analyst confidence. The consensus estimate for first-quarter FFO per share was revised 1.9% downward to $1.54 in a month’s time. This also suggests a year-over-year decline of 1.3%.

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 #3 and has an Earnings ESP of -1.11%.

Stocks That Warrant a Look

Here are a few stocks in the REIT 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:

SBA Communications Corporation SBAC, set to report quarterly numbers on May 5, has an Earnings ESP of +0.67% and carries a Zacks Rank of 3 currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Extra Space Storage Inc. EXR, slated to release first-quarter earnings on May 6, has an Earnings ESP of +0.21% and carries a Zacks Rank of 3 at present.

Americold Realty Trust COLD, scheduled to announce earnings results on May 7, has an Earnings ESP of +9.74% and currently holds a Zacks Rank #3.

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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