Federal Realty Edges Past Estimates

Federal Realty Investment Trust (FRT - Analyst Report), a leading real estate investment trust (REIT), reported third quarter 2011 FFO (funds from operations) of $63.9 million or $1.01 per share compared with $58.8 million or $0.95 per share in the year-earlier quarter.

Fund from operations, 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. The reported quarterly FFO beat the Zacks Consensus Estimate by 2 cents.

Total revenue during the reported quarter increased to $137.7 million from $133.4 million in the year-ago quarter. The reported revenue were marginally ahead of the Zacks Consensus Estimate of $137.0 million.

Despite challenging market conditions, Federal Realty executed healthy leasing activities during the quarter. The company signed 92 leases spanning 385,000 square feet of retail space during third quarter 2011.

On a same-store basis, the company leased 353,000 square feet at an average cash-basis contractual rent increase of 8.0% per square foot. The average same-store contractual rent for the first year of new leases was $31.62 per square foot, compared to $29.24 for the last year of the prior leases.

Same-store rents per square foot (GAAP) increased 18.0% on an average during the quarter. As of September 30, 2011, Federal Realty's average contractual, cash basis minimum rent for retail and commercial space was $23.04 per square foot.

Same-store net operating income, excluding redevelopment and expansion properties increased 2.4% on a year-over-year basis. The overall portfolio was 93.3% leased at the end of the quarter, compared with 93.9% in the prior-year quarter, while the same-store portfolio was 94.0% leased compared with 94.5% in the year-ago period.

Federal Realty continues to focus on a low-risk business strategy of growth through prudent leasing of assets and completion of redevelopment projects at high risk-adjusted returns. The company is strengthening its presence in the core markets by acquiring new assets, which would eventually lead to better operational and ownership flexibility throughout the entire portfolio.

Federal Realty maintained its quarterly dividend rate of 69 cents per share or $2.76 per share on an annualized basis. At quarter-end, the company had cash and cash equivalents of $22.1 million. With strong quarterly results, Federal Realty increased its FFO guidance for full year 2011 from the earlier range of $3.95 – $4.02 per share to $4.02 – $4.04. In addition, the company provided an initial FFO guidance for fiscal 2012 in the range of $4.16 – $4.22 per share.

We maintain our ‘Neutral’ recommendation on Federal Realty, which currently retains a Zacks #3 Rank that translates into a short-term ‘Hold’ rating. We also have a ‘Neutral’ recommendation and a Zacks #2 Rank (short-term ‘Buy’) for Acadia Realty Trust (AKR - Snapshot Report), one of the competitors of Federal Realty.