Yahoo Finance What's in Store for Federal Realty (FRT) This Earnings Season?
Federal Realty Investment Trust FRT, a leading real estate investment trust (REIT) focused on retail properties, is set to report its first-quarter 2024 results on May 2 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 came up with an FFO per share of $1.64, which was in line with the Zacks Consensus Estimate. Results reflected healthy leasing activity, though higher interest expenses acted as a dampener.
Over the last four quarters, Federal Realty surpassed estimates on three occasions and met on the other, the average beat being 1.55%. 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 first-quarter 2024 performance.
US Retail Real Estate Market in Q1
Per a report from CBRE Group CBRE, the U.S. overall retail availability rate remained at 4.7%, even though supply additions surpassed net absorption in the first quarter. The quarter witnessed a significant decline in net absorption, which fell to 3.7 million square feet in the first quarter from 12.5 million square feet in the prior quarter and was also less than half of the 10-year quarterly average. Store closures mainly led to this substantial decline.
Amid high construction costs, new retail development was at a low level. Completions aggregated 5.8 million square feet, down 32% from the prior quarter. Across all retail formats, deliveries of new centers remained low in the first quarter, per the CBRE report.
Asking rent growth remained strong in the first quarter, with the average asking rent increasing 0.9% quarter over quarter and 2.7% year over year to $24.07 per square foot. The report noted that high-growth secondary and tertiary markets carried on performing well.
Projections
Federal Realty is expected to have benefited from its portfolio 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, with solid average household income and spending power, ensuring resilience and growth and aiding its first-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 first quarter. Furthermore, Federal Realty is expected to have enjoyed a solid financial position in the 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 first-quarter 2024 performance as it insulates the company from the fluctuations and uncertainties of a single sector.
However, during 2023, Federal Realty has seen an uptick in tenants filing for bankruptcy compared to the previous two years. Around 290,000 square feet of anchor space became vacant during the second half of 2023. Of this, around 38,000 is leased to a replacement tenant. This is expected to affect the company’s occupancy.
Our estimation places FRT's leasing rate at 94.1%, down 10 basis points sequentially, while the rent per square foot is projected to grow 3.4% year over year.
The Zacks Consensus Estimate for quarterly revenues is pegged at $288.43 million, which calls for a 5.63% increase from the year-ago period. The consensus mark for rental revenues is pegged at $286.66 million, which suggests a rise from the year-ago period’s $272.80 million.
Rental income from minimum rents — commercial — is presently pegged at $188.03 million, up from $181.34 in the year-ago period. Rental income from cost reimbursements is projected at $53.48 million, up from $50.72 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 9% in the company's first-quarter 2024 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 first-quarter FFO per share has been revised a cent downward to $1.65 over the past week. However, it suggests a 3.77% increase year over year.
Here Is What Our Quantitative Model Predicts:
Our proven model does not conclusively predict 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 not the case here.
Federal Realty currently carries a Zacks Rank of 3 and has an Earnings ESP of -0.54%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Stocks That Warrant a Look
Here are two stocks from the broader REIT sector — Omega Healthcare Investors, Inc. OHI and Medical Properties Trust MPW — you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.
Omega Healthcare Investors, scheduled to report quarterly numbers on May 2, has an Earnings ESP of +1.85 % and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Medical Properties, slated to release quarterly numbers on May 9, has an Earnings ESP of +3.22% 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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Federal Realty Investment Trust (FRT) : Free Stock Analysis Report
Omega Healthcare Investors, Inc. (OHI) : Free Stock Analysis Report
Medical Properties Trust, Inc. (MPW) : Free Stock Analysis Report
CBRE Group, Inc. (CBRE) : Free Stock Analysis Report
