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Federal Realty (FRT) Beats Q3 FFO Estimates, View Updated

Federal Realty Investment Trust FRT reported third-quarter 2017 funds from operations (“FFO”) per share of $1.50, beating the Zacks Consensus Estimate of $1.47. The figure also came in higher than the prior-year quarter tally of $1.41.

Results were backed by growth in revenues. The company narrowed its guidance for full-year 2017.

Total revenues for the quarter grew 8.3% year over year to $218 million. Moreover, the top line surpassed the Zacks Consensus Estimate of $212 million.

During the reported quarter, Federal Realty signed 90 lease deals for 424,492 square feet of retail space. As of Sep 30, 2017, the company’s overall portfolio was 94.9% leased, compared to 94.3% as of Sep 30, 2016.

Federal Realty Investment Trust Price, Consensus and EPS Surprise

Federal Realty Investment Trust Price, Consensus and EPS Surprise | Federal Realty Investment Trust Quote

Note: The EPS numbers presented in the above chart represent funds from operations (“FFO”) per share.

Quarter in Details

On a comparable-space basis (spaces for which a former tenant was there), Federal Realty leased 399,619 square feet, at an average cash-basis contractual rent escalation of 14%. Rent increases (on a straight-line basis) for comparable retail space averaged 27% for third-quarter 2017.

Same-center property operating income (including redevelopments) improved 4.4% year over year. However, excluding such properties, same-center property operating income improved 2.6%. As of Sep 30, 2017, Federal Realty’s same-center portfolio was 96% leased, increasing from 95.7% in the year-ago period.

Federal Realty exited the third quarter with cash and cash equivalents of approximately $22.9 million, decreasing from $23.4 million at the end of 2016.

Outlook 2017

For 2017, Federal Realty narrowed its FFO per share guidance to $5.89-$5.92 from the previous guidance range of $5.86-$5.94. The Zacks Consensus Estimate for the same is currently pegged at $5.90, 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 Jan 16, 2018 to shareholders on record as of Jan 2.

Our Take

We are encouraged with the better-than-expected performance of Federal Realty in the reported quarter. The company’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, mall traffic continues to dwindle amid a rapid shift in customers’ shopping preferences, with non-store sales rising significantly. This has become a pressing concern for retail REITs like Federal Realty. Furthermore, though anchor-repositioning strategies are a strategic fit in the long run, short-term impacts on earnings cannot be bypassed.

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

Let us now look forward to the earnings releases of Condor Hospitality Trust Inc. CDOR , Apple Hospitality REIT, Inc. APLE and Hospitality Properties Trust HPT , which are expected to report their quarterly figures in the upcoming days.

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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