Federal Realty Investment Trust FRT, a leading real estate investment trust (REIT) focused on retail properties, is set to report its third-quarter 2024 results on Oct. 30, 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.

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In the last reported quarter, this retail REIT delivered a surprise of 0.60% in terms of FFO per share. Results reflected healthy leasing activity and better-than-expected growth in revenues.

Over the last four quarters, Federal Realty surpassed estimates on two occasions, met on another and missed on the other, the average beat being 0.46%. 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 third-quarter 2024 performance.

US Retail Real Estate Market in Q3

Per a Cushman & Wakefield CWK report, there has been a pullback in net absorption for U.S. shopping centers, resulting in a slight negative shift in the third quarter. With absorption falling down, rent growth continued to moderate in the quarter. However, with new constructions remaining subdued, the national vacancy rate remained near a historic low of 5.4%.

The third quarter witnessed a negative net absorption in U.S. shopping centers, totaling 0.26 million square feet (msf). The decrease was due to a negative net absorption of 1.8 msf observed in the country’s southern region. The asking rents for U.S. shopping centers increased 3.4% year over year to $24.54 per square foot in the third quarter.

New construction activity remains subdued, and 2024 is expected to be the weakest year for new construction on record. As of the third quarter of 2024, there are 11.1 msf under construction within a market with an inventory of 4.31 billion square feet, resulting in virtually no supply risk.

Factors to Consider Ahead of FRT’s Q3 Results

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 third-quarter cash flows.

Due to these favorable demographics and prime locations, FRT has consistently achieved high occupancy rates, while a diverse tenant base contributes to stable rental income. FRT’s strategic focus on mixed-use properties further strengthens its performance, as combining residential, retail, and office spaces creates dynamic environments that attract varied tenants and consumers. This diversified approach is likely to have supported FRT’s results in the third quarter of 2024, mitigating risk from single-sector exposure.

Nonetheless, the high interest rate environment poses a challenge, as elevated rates increase borrowing costs for the company.

Projections for FRT

Our estimate places FRT's leasing rate at 95.4%, up 10 basis points sequentially, while the rent per square foot is projected to grow 3.6% year over year.

The Zacks Consensus Estimate for quarterly revenues is pegged at $301.24 million, which indicates a 5.11% increase from the year-ago period. The consensus mark for rental revenues is pegged at $299.92 million, which suggests a rise from the year-ago period’s $286.32 million.

Rental income from minimum rents — commercial — is pegged at $196.03 million, up from $187.30 in the year-ago period. Rental income from cost reimbursements is projected at $57.51 million, up from $53.64 million in the prior-year period. 

Also, our estimate suggests a year-over-year increase of 3.5% in the company's third-quarter 2024 interest expenses.

Federal Realty’s activities during the soon-to-be-reported quarter were inadequate to gain analysts’ confidence. The Zacks Consensus Estimate for the third-quarter FFO per share has been unrevised at $1.72 over the past month. However, it suggests a 4.24% increase year over year.

What Our Quantitative Model Predicts for FRT

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 has an Earnings ESP of 0.00% and currently carries a Zacks Rank of 3. 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 — VICI Properties Inc. VICI and Ventas, Inc. VTR — you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.

VICI Properties, scheduled to report quarterly numbers on Oct. 31, has an Earnings ESP of +1.24% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ventas, slated to release quarterly numbers on Oct. 30, has an Earnings ESP of +0.97% and carries a Zacks Rank of 2 at present. 

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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Ventas, Inc. (VTR) : Free Stock Analysis Report

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