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What's in Store for Federal Realty (FRT) This Earnings Season?
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Federal Realty Investment Trust (FRT - Free Report) , a leading real estate investment trust (REIT) focused on retail properties, is set to report its fourth-quarter and full-year 2023 results on Feb 12 after market close. In anticipation of the announcement, industry analysts and investors are eager to assess the company's performance and prospects in the current economic climate.
In the last reported quarter, this retail REIT reported a surprise of 1.85% in terms of FFO per share. Results reflected healthy leasing activity and occupancy levels at its properties.
Over the last four quarters, Federal Realty surpassed estimates on all occasions, the average beat being 1.71%. The graph below depicts the surprise history of the company:
Federal Realty Investment Trust Price and EPS Surprise
In this article, we will dive deep into the U.S. retail real estate market environment and the company's fundamentals and analyze the factors that may have contributed to its fourth-quarter 2023 performance.
US Retail Real Estate Market in Q4
Per a report from CBRE Group (CBRE - Free Report) , the U.S. overall retail availability rate hit a record-low 4.7% at year-end, down 10 basis points (bps) quarter over quarter and 31 bps year over year. Among the categories, the neighborhood, community & strip center segment tightened the most. This property type continues to experience positive net absorption, with the fourth quarter net absorption of 12.5 million square feet, bringing the 2023 annual total to 40 million square feet.
There is a dearth of supply, and elevated construction costs and interest rates are likely to continue to keep new supply in check. Fourth-quarter and full-year construction completions of 5.3 million and 27 million square feet, respectively, marked record lows. The average asking rent was up by 0.8% in the fourth quarter and 2.4% for the year to $23.76 per square foot, and both the growth rates were higher than their 10-year averages, per the CBRE report.
Projections
Federal Realty is expected to have gained from the recovery in the retail real estate sector. The company possesses a collection of high-quality retail properties, primarily positioned in major coastal markets spanning from Washington, D.C. to Boston, San Francisco and Los Angeles. FRT’s properties are strategically located in the first-ring suburbs of major metropolitan markets of the United States, aiding its fourth-quarter cash flows.
Due to strong demographics and the prime location of its properties, the company has consistently upheld a high occupancy rate over the years. FRT's diverse mix of retail tenants is anticipated to have contributed to stable rental income during the fourth quarter. Our estimation places FRT's leasing rate at 94.2%, while the rent per square foot is projected to grow 3% year over year. Furthermore, Federal Realty's strong financial position is likely to have facilitated its development endeavors in the fourth quarter.
FRT's strategic focus on mixed-use properties enables the company to benefit from multiple revenue streams. By combining residential, retail and office spaces, these properties attract a variety of tenants, creating a vibrant, bustling atmosphere that draws in consumers. This diversification is likely to have played a crucial role in FRT's fourth-quarter 2023 performance as it insulates the company from the fluctuations and uncertainties of a single sector.
The Zacks Consensus Estimate for quarterly revenues is pegged at $293.29 million, calling for a 4.73% increase from the year-ago period. The consensus mark for rental revenues is pegged at $292.85 million, suggesting a rise from the year-ago period’s $279.78 million.
Rental income from minimum rents — commercial — is presently pegged at $190.28 million, up from $180.75 in the year-ago period. Rental income from cost reimbursements is projected at $56.30 million, up from $53.40 million in the prior-year period.
However, a high interest rate environment is a concern for Federal Realty. Elevated rates imply high borrowing costs for the company, and our estimate suggests a year-over-year increase of 19.4% in the company's fourth-quarter 2023 interest expenses.
Federal Realty’s activities during the soon-to-be-reported quarter were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the fourth-quarter FFO per share has been unrevised at $1.64 over the past month. However, it suggests a 3.80% increase year over year.
For 2023, Federal Realty projects FFO per share in the range of $6.50-$6.58.
For the full year, the Zacks Consensus Estimate for FFO per share is pegged at $6.56. The figure indicates a 3.80% increase year over year on 5.54% year-over-year growth in revenues to $1.13 billion.
Here Is What Our Quantitative Model Predicts:
Our proven model predicts a surprise in terms of FFO per share for Federal Realty this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is the case here.
Federal Realty currently has a Zacks Rank of 2 and an Earnings ESP of +0.52%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Other Stocks That Warrant a Look
Here are two other stocks from the broader REIT sector — VICI Properties Inc. (VICI - Free Report) and American Homes 4 Rent (AMH - Free Report) — you may want to consider as our model shows that these also have the right combination of elements to report a surprise this quarter.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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What's in Store for Federal Realty (FRT) This Earnings Season?
Federal Realty Investment Trust (FRT - Free Report) , a leading real estate investment trust (REIT) focused on retail properties, is set to report its fourth-quarter and full-year 2023 results on Feb 12 after market close. In anticipation of the announcement, industry analysts and investors are eager to assess the company's performance and prospects in the current economic climate.
In the last reported quarter, this retail REIT reported a surprise of 1.85% in terms of FFO per share. Results reflected healthy leasing activity and occupancy levels at its properties.
Over the last four quarters, Federal Realty surpassed estimates on all occasions, the average beat being 1.71%. The graph below depicts the surprise history of the company:
Federal Realty Investment Trust Price and EPS Surprise
Federal Realty Investment Trust price-eps-surprise | Federal Realty Investment Trust Quote
In this article, we will dive deep into the U.S. retail real estate market environment and the company's fundamentals and analyze the factors that may have contributed to its fourth-quarter 2023 performance.
US Retail Real Estate Market in Q4
Per a report from CBRE Group (CBRE - Free Report) , the U.S. overall retail availability rate hit a record-low 4.7% at year-end, down 10 basis points (bps) quarter over quarter and 31 bps year over year. Among the categories, the neighborhood, community & strip center segment tightened the most. This property type continues to experience positive net absorption, with the fourth quarter net absorption of 12.5 million square feet, bringing the 2023 annual total to 40 million square feet.
There is a dearth of supply, and elevated construction costs and interest rates are likely to continue to keep new supply in check. Fourth-quarter and full-year construction completions of 5.3 million and 27 million square feet, respectively, marked record lows. The average asking rent was up by 0.8% in the fourth quarter and 2.4% for the year to $23.76 per square foot, and both the growth rates were higher than their 10-year averages, per the CBRE report.
Projections
Federal Realty is expected to have gained from the recovery in the retail real estate sector. The company possesses a collection of high-quality retail properties, primarily positioned in major coastal markets spanning from Washington, D.C. to Boston, San Francisco and Los Angeles. FRT’s properties are strategically located in the first-ring suburbs of major metropolitan markets of the United States, aiding its fourth-quarter cash flows.
Due to strong demographics and the prime location of its properties, the company has consistently upheld a high occupancy rate over the years. FRT's diverse mix of retail tenants is anticipated to have contributed to stable rental income during the fourth quarter. Our estimation places FRT's leasing rate at 94.2%, while the rent per square foot is projected to grow 3% year over year. Furthermore, Federal Realty's strong financial position is likely to have facilitated its development endeavors in the fourth quarter.
FRT's strategic focus on mixed-use properties enables the company to benefit from multiple revenue streams. By combining residential, retail and office spaces, these properties attract a variety of tenants, creating a vibrant, bustling atmosphere that draws in consumers. This diversification is likely to have played a crucial role in FRT's fourth-quarter 2023 performance as it insulates the company from the fluctuations and uncertainties of a single sector.
The Zacks Consensus Estimate for quarterly revenues is pegged at $293.29 million, calling for a 4.73% increase from the year-ago period. The consensus mark for rental revenues is pegged at $292.85 million, suggesting a rise from the year-ago period’s $279.78 million.
Rental income from minimum rents — commercial — is presently pegged at $190.28 million, up from $180.75 in the year-ago period. Rental income from cost reimbursements is projected at $56.30 million, up from $53.40 million in the prior-year period.
However, a high interest rate environment is a concern for Federal Realty. Elevated rates imply high borrowing costs for the company, and our estimate suggests a year-over-year increase of 19.4% in the company's fourth-quarter 2023 interest expenses.
Federal Realty’s activities during the soon-to-be-reported quarter were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the fourth-quarter FFO per share has been unrevised at $1.64 over the past month. However, it suggests a 3.80% increase year over year.
For 2023, Federal Realty projects FFO per share in the range of $6.50-$6.58.
For the full year, the Zacks Consensus Estimate for FFO per share is pegged at $6.56. The figure indicates a 3.80% increase year over year on 5.54% year-over-year growth in revenues to $1.13 billion.
Here Is What Our Quantitative Model Predicts:
Our proven model predicts a surprise in terms of FFO per share for Federal Realty this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is the case here.
Federal Realty currently has a Zacks Rank of 2 and an Earnings ESP of +0.52%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Other Stocks That Warrant a Look
Here are two other stocks from the broader REIT sector — VICI Properties Inc. (VICI - Free Report) and American Homes 4 Rent (AMH - Free Report) — you may want to consider as our model shows that these also have the right combination of elements to report a surprise this quarter.
VICI Properties, scheduled to report quarterly numbers on Feb 22, has an Earnings ESP of +2.16% and carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
American Homes 4 Rent, slated to release quarterly numbers on Feb 22, has an Earnings ESP of +0.80% and carries a Zacks Rank of 3 at present.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.