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Retail real estate investment trust (REIT) – Federal Realty Investment Trust (FRT - Analyst Report) reported second-quarter 2013 core FFO (funds from operations) per share of $1.14, beating the Zacks Consensus Estimate by a cent and the year-ago quarter figure by 9.6%.

The healthy results came on the back of improved performance in the same-store portfolio and decent top-line growth. It has also marginally raised its outlook for the full year.

Continuing with its effort to enhance shareholders’ wealth, Federal Realty announced a 6.8% hike in its quarterly dividend rate, depicting the 46th consecutive year of dividend hike.

Quarter in Detail

Including certain charges related to the prepayment of seniors notes, Federal Realty’s FFO per share came in at $1.08, up from $1.04 reported in the year-ago quarter.

Total revenue during the reported quarter increased 7.0% year over year to $157.9 million and marginally topped the Zacks Consensus Estimate of $157 million.

Same-center property operating income escalated 5.0% year over year including redevelopment and expansion of properties. As of Jun 30, 2013, the same-center portfolio was 95.3% leased, up 20 basis points (bps) from the prior-quarter end and 30 bps from the year-end 2012.

Federal Realty executed healthy leasing activities in the quarter. The company signed 111 leases spanning 504,605 square feet of retail space. On a comparable space basis (spaces for which a former tenant was there), it leased 470,832 square feet at an average cash-basis contractual rent increase of 15.0% per square foot. Rent increases per square foot (GAAP basis) for comparable retail space averaged 29% for the reported quarter.

Liquidity

Federal Realty exited the quarter with cash and cash equivalents of approximately $108.4 million, up from $37.0 million as of Dec 31, 2012.

During the quarter, Federal Realty closed a $275 million senior unsecured notes offering (due 2013) as well as redeemed senior unsecured notes (due Dec 2013) for an aggregate principal of $135 million.

Recent Developments

In July, Federal Realty accomplished the disposition of 5th Avenue asset in San Diego and penned a deal to vend its Forest Hills asset in Long Island, New York for $36 million in total. The dispositions occur as part of a reverse 1031 exchange related to the Darien, Conn.-based shopping center acquisition in April.

Ups Outlook

Excluding the $3.4 million debt prepayment charge, Federal Realty forecasts 2013 FFO per share in the range of $4.56 – $4.60. This reflects an increase from the prior forecast of $4.55–4.59 in FFO per share.

Raises Dividend

The increased dividend stands at 78 cents per share, up 6.8% from the prior rate of 73 cents. It will be paid on Oct 15, 2013 to shareholders of record as of Sep 23.

In Conclusion

We are encouraged by Federal Realty’s decent performance in another consecutive quarter. The company owns Class A shopping centers in high-barrier, high-growth areas that have fared relatively better during the economic downturn. Moreover, the strategic buyout of the Darien shopping center enhanced its retail dominance in the Connecticut region.

A raise in outlook as well as a dividend hike boost investors’ confidence on the stock. Yet, a huge development pipeline, stiff competition and online purchases somewhat restrict its growth impetus.

Federal Realty currently carries a Zacks Rank #3 (Hold). Other better performing REITs include Kimco Realty Corporation (KIM - Analyst Report), The Macerich Company (MAC - Analyst Report) and Simon Property Group Inc. (SPG - Analyst Report), all carrying a Zacks Rank #2 (Buy), respectively.

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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