Federal Realty Marginally Beats

Federal Realty Investment Trust ( FRT - Analyst Report ) , a real estate investment trust (REIT), reported fourth quarter 2012 FFO (funds from operations) per share of $1.11, beating the Zacks Consensus Estimate by a cent and the prior-year quarter figure of 14 cents. The better-than-expected results in the quarter were primarily due to improved performance in the same-store portfolio and decent top-line growth.

For full year 2012, Federal Realty’s FFO stood at $4.31 per share. This exceeded the Zacks Consensus Estimate of $4.30 per share and the year-ago quarter figure of $4.00 per share.

Total revenue during the reported quarter increased 10.5% year over year to $156.4 million and marginally topped the Zacks Consensus Estimate of $155 million. Total revenue for full year 2012 reached $608.0 million, up 9.9% from a year ago and ahead of the Zacks Consensus Estimate of $599 million.

Quarter in Detail

Federal Realty executed healthy leasing activities during the quarter. The company signed 98 leases spanning 485,215 square feet of retail space during fourth quarter 2012.

On a same-store basis, the company leased 478,913 square feet at an average cash-basis contractual rent increase of 12.0% per square foot. The average same-store contractual rent for the first year of the new lease was $32.17 per square foot compared with the average contractual rent of $28.71 per square foot for the last year of the prior lease.

Same-store rents per square foot (GAAP) increased 20.0% on an average during the quarter. As of Dec 31, 2012, Federal Realty's average contractual cash basis minimum rent for retail and commercial space was $23.83 per square foot, as compared with $23.37 per square foot on Dec 31, 2011.

Same-center property operating income in the reported quarter advanced 5.4% including redevelopment and expansion properties, and 4.2% excluding redevelopment and expansion properties, compared to the prior-year quarter.

The overall portfolio was 95.3% leased at the end of the quarter, compared with 93.4% at the end of the year-ago quarter. Moreover, Federal Realty's same-center portfolio was 95.0% leased as of Dec 31, 2012, compared with 94.2% as of Dec 31, 2011.

East Bay Bridge Acquisition

In Dec 2012, Federal Realty acquired a property – East Bay Bridge Shopping Center – located on the Emeryville and Oakland border for $53.7 million. Federal Realty also took on an existing mortgage loan worth $62.9 million secured by the property.

Constructed in 1994, East Bay Bridge boasts a class of industry-leading tenants such as Safeway Inc. ( SWY - Analyst Report ) , Target Corp. ( TGT - Analyst Report ) and The Home Depot, Inc. ( HD - Analyst Report ) . The other noteworthy retailers at the center include Pacific Sales Kitchen and Bath, Sports Authority and Michael's. In our view, the strategic acquisition will boost the company’s rental revenue going forward, considering the upscale premium location of the property and its strong tenant base.

Liquidity

At year-end 2012, Federal Realty had cash and cash equivalents of around $37.0 million, compared with $67.8 million at the prior-year end.

Outlook

Encouragingly, Federal Realty increased its FFO guidance for full year 2013 to $4.53 – $4.58 per share from the prior guidance of $4.50 – $4.56 per share. The updated guidance reflects the impact of the East Bay Bridge acquisition.

Dividend Update

In addition, Federal Realty declared a regular quarterly cash dividend of 73 cents per share on its common shares, or $2.92 on an annualized basis. The dividend will be paid on Apr 15, 2013 to common shareholders of record on Mar 14.

In Conclusion

We are encouraged by Federal Realty’s decent performance. The company owns Class A shopping centers in high-barrier, high-growth areas that have fared relatively better during the economic downturn.

The recent acquisition of East Bay Bridge Shopping Center is also a strategic fit and will help enhance its retail dominance in the Bay area. In addition, Federal Realty has a strong balance sheet and has paid uninterrupted dividend since its inception.

Federal Realty currently retains a Zacks Rank #3 (Hold).

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.