Rockville, Maryland-based Federal Realty Investment Trust (FRT) is an equity based real estate investment trust that owns and operates retail properties. Its community and neighborhood shopping centers are often anchored by supermarkets, drug stores and high-volume retailers which sell consumer necessities. Federal concentrates on densely populated, affluent communities, which minimizes competition from outlet stores and big box retailers such as Wal-Mart Stores (WMT). This focus on high-density areas has two other advantages – occupancy rates in FRT’s properties are high, at about 97% in 2007, and there are barriers to entry in these locations in the form of high real estate costs that minimize competition.
Federal's industry peers consist of other retail REITs such as Regency Centers (REG), Kimco Realty (KIM),Developers Diversified Realty (DDR), and Weingarten Realty Investors (WRI). Federal operates fewer properties than its competitors, and operates in a more concentrated geographic area. It is in the middle of the pack in terms of its 2007 revenues and current market capitalization, however, suggesting its average retail center is larger and more profitable than those of its peers.
Rental income accounts for the vast majority of FRT’s operating revenue (96.4% of total property revenue in 2007.) Rental income includes a base rental fee, percentage of tenant's sales and cost recoveries from tenants. Increases in rental income come from three main sources: purchasing new properties ($32 million increase 2006-2007), increasing income from existing properties ($11.6M increase 2006-2007) and redeveloping properties ($8.9M increase 2006-2007).
By purchasing new properties, FRT increases its gross leasable area and is able to generate more rental revenues. Increases in rental income from existing properties happen when FRT gains additional tenants, increases its rental rates, or both. FRT is able to increase rental rates by releasing space at higher rates as current tenant's leases expire or from fixed increases in rental rates stipulated in rental agreements. By redeveloping properties, FRT is able to increase rental rates and increase occupancy as the quality of its facilities improves, also leading to higher rental income.
In the charts below, FRT's properties are broken down by state, and their revenues and operating income are compared for the last five years. These charts suggest FRT maintains a significant geographic focus, with over half its GLA in just three states. FRT has also seen steady increases in both revenue and operating income, with operating income remaining at an approximate constant of 40% of revenues for the period. This suggests FRT is expanding but realizing little in the way of economies of scale from that expansion.
FRT competes with numerous other firms to both acquire properties and lease tenants. The table below lists other national retail real estate investment trusts that directly compete FRT. FRT has much more of a geographic focus than any of its competitors, all its properties span just 13 states, and 94% of its total GLA is located in just 8 states. FRT also operates significantly fewer properties than its competitors. FRT is much more comparable to its competitors in terms of 2007 revenues and market cap, suggesting its properties are larger and more profitable than those of its competitors.
The table below provides competitive data comparing FRT with some of its close competitors.
|Company||Revenues (12/31/2007, Millions)||Market Cap(Billions, 04/05/08)||Operating Properties||Number of States With Operating Properties|
|Federal Realty Investment Trust (FRT)||485.89 ||4.80 ||82 ||13 |
|Kimco Realty (KIM)||681.55 ||10.33 ||946 ||45 |
|Developers Diversified Realty (DDR)||944.85 ||5.31B ||740 ||45 |
|Weingarten Realty Investors (WRI)||599.05 ||3.12 ||383 ||22 |
|Regency Centers (REG)||451.51 ||5.00 ||232 ||23 |
In 2007 FRT's market share among global Retail REITs was just 2%. Market share is listed by Funds From Operations (FFO), a metric that takes into account earnings from existing properties but not cash from acquisitions or sales of assets. Globally there are 38 REITs focusing on retail properties producing an aggregate $10.0B in FFO.] Most of those were small companies, only 9 Retail REITs are listed in the Russell 1000.