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Here's How Federal Realty (FRT) is Placed Ahead of Q1 Earnings

Federal Realty Investment Trust FRT is set to report first-quarter 2021 results on May 5, after the bell. The company’s quarterly results might display year-over-year declines in revenues and funds from operations (FFO) per share.

In the last reported quarter, this retail real estate investment trust (REIT) reported a surprise of 6.54% in terms of FFO per share. Results reflected higher-than-anticipated revenues.

Over the last four quarters, it surpassed estimates on two occasions for as many misses, the average negative beat being 7.49%. The graph below depicts the surprise history of the company:

Let’s see how things have shaped up prior to this announcement.

Key Factors

The retail real estate market had already been battling dwindling traffic issues, store closures and retailer bankruptcies, and the pandemic has only further aggravated its woes. However, per a report from Cushman & Wakefield CWK, the retail market conditions seemed to have improved in first-quarter 2021 thanks to the distribution of government stimulus payments and vaccinations acceleration that led to shoppers becoming more active.

Particularly, net absorption registered at -740,000 square feet, representing the lowest negative absorption recorded by far since the onset of the pandemic, while leasing activity, though down somewhat at 25 million square feet (msf), was still above the second-quarter 2020 low level. Moreover, retail vacancy expanded 10 basis points (bps) from the prior quarter to 7.3%.

Federal Realty has also been affected by the choppy retail environment. The secular industry headwinds are expected to have hurt the company’s performance during the to-be-reported quarter as well. The situation has worsened further amid the second wave of government-mandated closings, social-distancing requirements and higher e-commerce adoption due to the pandemic, likely eroding its properties’ occupancy levels and rental rates. Also, the first quarter is seasonally generally the toughest for its business.

Specifically, with the tenant roster having exposure to lifestyle and entertainment-oriented properties, and retailers that are not essential for consumers during the pandemic, rent collection is still likely to have been affected.

Nevertheless, with more reopening of stores, tenants stand in a better position to generate revenues and make rent payments. Thus, pressure on retail landlords might have reduced to some extent and the rent-collection figures are likely to have improved.

The Zacks Consensus Estimate for quarterly revenues is pegged at $206.3 million, calling for a 10.9% decline from the year-ago period.

Moreover, Federal Realty’s activities during the quarter were inadequate to win analyst confidence. The consensus estimate for the first-quarter FFO per share has been revised 4 cents downward to $1.02 in a month’s time, suggesting a year-over-year plunge of 32%.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive 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 odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Federal Realty currently carries a Zacks Rank #4 (Sell) and has an Earnings ESP of 0.00%.

Stocks to Consider

Here are a few stocks in the broader real estate sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Healthcare Trust of America, Inc. HTA, slated to release first-quarter results on May 6, has an Earnings ESP of +0.33% and a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

National Storage Affiliates Trust NSA, scheduled to report quarterly numbers earnings figures on May 4, has an Earnings ESP of +1.84% and holds a Zacks Rank of 3, currently.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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Federal Realty Investment Trust (FRT): Free Stock Analysis Report
Healthcare Trust of America, Inc. (HTA): Free Stock Analysis Report
National Storage Affiliates Trust (NSA): Free Stock Analysis Report
Cushman & Wakefield PLC (CWK): Free Stock Analysis Report
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