Federal Realty Reports Large FFO Beat for Q2 and Raises 2022 Guidance

Second-quarter results for no-moat Federal Realty Investment Trust were mixed compared with our expectations, though we don’t see anything in the quarter that would materially change our $138 fair value estimate. Same-store occupancy improved 40 basis points sequentially to 94.0%, in line with our estimate. Total re-leasing spreads were below our expectations at just 4.6%; while lease renewals were up 3.7%, higher than Federal’s recent average, the company saw rents on leases to new tenants go up just 5.6% in the quarter, below the company’s historical average. Still, same-store revenue was up 6.8% in the second quarter. Combined with same-store operating expense growth of just 3.7%, same-store net operating income grew 8.2%, though that is slightly below our estimate of 10.9% growth. Despite lower same-store NOI growth than we anticipated, funds from operations came in ahead of our expectations at $1.65 per share, better than our $1.56 estimate.