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Federal Realty (FRT) Q4 FFO Meets, Revenues Top Estimates

Zacks

Retail REIT — Federal Realty Investment Trust FRT — reported fourth-quarter 2017 adjusted funds from operations (FFO) per share of $1.47, meeting the Zacks Consensus Estimate. Adjusted FFO per share also compared favorably with the prior-year quarter tally of $1.45.

Results reflect growth in revenues. However, the company’s proactive releasing efforts to reposition properties had an adverse effect on its quarterly results.

Total revenues for the quarter grew 9.7% year over year to $224 million. Moreover, the top line surpassed the Zacks Consensus Estimate of $218.7 million.

During the reported quarter, Federal Realty signed 91 lease deals for 344,768 square feet of retail space. As of Dec 31, 2017, the company’s overall portfolio was 95.3% leased compared to 94.4% as of Dec 31, 2016.

For full-year 2017, adjusted FFO per share came in at $5.91, well ahead of the prior-year tally of $5.65. This was backed by 7% year-over-year growth in total revenues to $857.3 million.

Quarter in Details

On a comparable-space basis, Federal Realty leased 300,511 square feet, at an average cash-basis contractual rent escalation of 15% and 27% on a GAAP basis.

Same-center property operating income (including redevelopments) improved 2.6% year over year. However, excluding such properties, same-center property operating income improved 1.0%. As of Dec 31, 2017, Federal Realty’s same-center portfolio was 96.3% leased, rising from 95.9% reported in the year-ago period.

Federal Realty exited 2017 with cash and cash equivalents of approximately $15.2 million, decreasing from $23.4 million at the end of 2016.

Outlook

For 2018, Federal Realty issued its FFO per share guidance in the range of $6.08-$6.24. The Zacks Consensus Estimate for the same is currently pegged at $6.17, which is within the company’s guided range.

Dividend Update

Concurrently, Federal Realty announced a quarterly cash dividend of $1.00 per share. The dividend will be paid on Apr 16, 2018 to shareholders on record as of Mar 14.

Our Take

Federal Realty’s portfolio of premium retail assets — mainly situated in the major coastal markets from Washington, D.C. to Boston, San Francisco and Los Angeles — along with a diverse tenant base, positions it well for decent growth.

Nevertheless, decreasing footfall at malls amid shift of consumers toward online channels, store closures and bankruptcy of retailers are likely to continue to hurt performance of this retail REIT. While the company’s proactive releasing efforts to reposition properties are a strategic fit for the long run, short-term impacts on earnings cannot be bypassed.

Federal Realty currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We now look forward to the earnings releases of DDR Corp. DDR, Kimco Realty Corporation KIM and Digital Realty Trust, Inc. DLR, all of which are scheduled to report their numbers on Feb 15.

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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