Morningstar | Releasing Spreads Remain High Amid Record Volume, but Federal Realty's 4Q a Slight Disappointment
Results were a slight disappointment for Federal Realty in the fourth quarter, but we don't see anything coming out of the quarter that would make a material change to our $141 fair value estimate and no-moat rating. The leased percent of the portfolio dropped 10 basis points sequentially to 95.1%, but physical occupancy remained flat at 94.1%. Total releasing spreads rebounded this quarter to 15.0%, close to in line with our estimates. Given that the company leased more square footage this quarter than any other in its history, those spreads are impressive. However, same property rental revenue growth was only 1.2% even with the high releasing spreads, well below our 2.6% estimate. While property expense growth was lower than expected at 0.6% as declining real estate taxes helped same property net operating income growth reach 2.0% for the quarter, NOI growth still missed our 2.6% estimate. As a result, funds from operations for the fourth quarter came in at $1.57 and missed our estimate by 3 cents.Guidance for 2019 also came in below our estimates. After adjusting for a change to accounting standards, management's guidance of $6.30 to $6.46 FFO comes in 21 cents below our estimate for 2019. Rent relief provided to tenants at noncomparable properties undergoing redevelopment accounts for 6 cents of earnings drag while promotions and new additions to the management team create another 6 cents of G&A costs that wasn't in the company's run-rate figures. The remaining difference seems to come from management's outlook of same property NOI growing at 2% compared with our 2.4% assumption, with management's explanation that there are 50 to 60 basis points of drag created from some recent bankruptcies explaining the difference. However, management thinks that its core portfolio should see growth north of 3%, so the lowered outlook for 2019 doesn’t impact our long-term view of the company.
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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