Federal Realty Investment Trust FRT, a leading real estate investment trust (REIT) focused on retail properties, is set to report its fourth-quarter and full-year 2024 results on Feb. 13, 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 reported a negative surprise of 0.58% in terms of FFO per share. Results reflected healthy leasing activity and significant occupancy gains at its properties. However, higher interest expenses played spoilsport.

Over the last four quarters, Federal Realty surpassed estimates on one occasion, met on another and missed on the other two, the average miss being 0.15%. 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 2024 performance.

US Retail Real Estate Market in Q4

Per a report from CBRE Group CBRE, the U.S. overall retail availability rate remained at 4.7% in the fourth quarter, even though there were many store closures and a decline in net absorption. This stability in retail market fundamentals was supported by limited new development amid high construction costs. 

The quarter witnessed a decline in net absorption, which fell 14% quarter over quarter to 5.7 million square feet. This slowdown aligns with usual seasonal trends as retailers prioritized the holiday season and year-end activities. 

However, amid high construction costs, new retail development was at a low level. Completions declined 52% sequentially to just 4 million square feet in the fourth quarter, per the CBRE report. 

Amid strong competition for limited space and solid demand for top-tier locations, asking rent growth remained healthy in the fourth quarter, with average asking rent increasing 0.4% quarter over quarter and 2.5% year over year to $23.80 per square foot. The report highlighted a surge in demand across secondary markets, with 13 of them achieving more than 1 million square feet of positive absorption in the fourth quarter, including five located in the West.

Factors to Consider Ahead of FRT’s Q4 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 fourth-quarter cash flows. 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 96.1%, up 20 basis points sequentially, while the rent per square foot is projected to grow 2.8% year over year.

The Zacks Consensus Estimate for quarterly revenues is pegged at $311.85 million, which indicates a 6.9% increase from the year-ago period. The consensus mark for rental revenues is pegged at $311.38 million, which suggests a rise from the year-ago period’s $291.53 million. Rental income from minimum rents — commercial — is pegged at $201.99 million, up from $190.12 in the year-ago period. Rental income from cost reimbursements is projected at $60.27 million, up from $56.11 million in the prior-year period. 

However, our estimate suggests a year-over-year increase of 7% in the company's fourth-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 fourth-quarter FFO per share has been revised a cent downward to $1.73 over the past week. However, it suggests a 5.5% increase year over year.

For full-year 2024, Federal Realty guided for FFO per share in the range of $6.76-$6.86. For the full year, the Zacks Consensus Estimate for FFO per share has declined a cent to $6.77 in the past week. However, the figure indicates a 3.36% increase year over year on revenues of $1.20 billion.

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 -0.48% and currently carries a Zacks Rank of 4 (Sell). 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 — Host Hotels & Resorts HST and CubeSmart CUBE. Our model shows that these have the right combination of elements to report a surprise this quarter.

Host Hotels is slated to report quarterly numbers on Feb. 19. HST has an Earnings ESP of +1.53% and carries a Zacks Rank of 3 presently. You can see the complete list of today’s Zacks #1 Rank stocks here.

CubeSmart, scheduled to report quarterly numbers on Feb. 27, has an Earnings ESP of +1.11% and carries a Zacks Rank of 3.

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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Host Hotels & Resorts, Inc. (HST) : Free Stock Analysis Report

Federal Realty Investment Trust (FRT) : Free Stock Analysis Report

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CBRE Group, Inc. (CBRE) : Free Stock Analysis Report

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