Morningstar | Despite Closures Creating Some Noise, an in Line Quarter for Federal Realty
Federal Realty reported an in line first quarter, and we don't see anything that will cause a material change to our $144 fair value estimate for the no-moat company. Comparable occupancy fell 50 basis points to 94.6%, below our estimate of flat at 95.1%, due to a few major anchor closures. Total releasing spreads were solid at 9.8% for the quarter but still below our estimate of 12.7%. While same property revenue growth was only 1.5% and missed our estimate, same property expense growth fell 2.9% in the quarter. As a result, same property net operating income was up 3.5% and beat our estimate of 2.7% growth in the first quarter. Despite the slight NOI growth beat, funds from operations was in line with our estimate at $1.56 for the first quarter.While the 3.5% comparable property NOI growth result was a positive surprise, digging in to the number shows that the run-rate figure is lower. Lowe's closed a location in 2018 and as a result paid a $3.8 million termination fee that was included in the first quarter NOI figures. Other closures paid an additional $1.6 million in termination fees in the first quarter. The $5.4 million in total termination fees was significantly above the $1.9 million paid in the first quarter of 2018, leading to approximately 200 basis points of NOI growth that is non-recurring. Removing these fees gets the portfolio growth closer to the 2019 full-year estimate of 2% NOI growth. However, the first quarter also suffered a drag of approximately 100 basis points due to property renovations. Netting out these two effects puts the NOI growth for the same-store portfolio close to our estimate for the quarter. While we might make some adjustments to our model for 2019 as we take both factors into account, we think the impact on valuation will be minimal.
Federal Realty Investment Trust is an equity real estate investment trust that focuses on the ownership, management, and redevelopment of retail and mixed-use properties located primarily in communities in selected metropolitan markets in the Northeast and Mid-Atlantic regions of the United States, as well as in California and South Florida. The company owns or has a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as predominantly retail real estate projects.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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