- The Washington Times - Monday, September 25, 2000

Federal Realty Investment Trust has a steady growth history and stable financials. But its shares have suffered along with the industry and have seen very little movement over the past few years.

Like any real estate investment trust (REIT), Rockville-based Federal Realty buys, develops and sells real estate. But unlike most of its competitors, the company specializes in high-end development.

"They are a pretty steady company," said Sheldon Grodsky, an analyst with Grodsky Associates in South Orange, N.J. "They have a very good long-term record and are one of the leaders in the business."

In the mid-1990s, Federal Realty began moving away from shopping malls and aggressively buying street-front and neighborhood shopping center properties. It upgrades the buildings and leases them to movie theaters, retailers, grocery shops and coffee houses.

"Our fundamental property performance has been excellent," said Ron Kaplan, senior vice president and chief investment officer. "Our occupancy rates are also high, and out same-store net operating income has continued to grow more rapidly than our competitors'."

Although high retail sales have helped boost Federal Realty's business in recent years, analysts are now becoming concerned about the effect a slowdown in the economy will have on REITs.

In an industry report last week, Eric Hemel, an analyst with Merrill Lynch in New York, noted that retail sales are slowing, and some stores are closing. He also pointed to the overexpansion of movie theater chains and their resulting financial woes as a reason to worry.

Shares of Federal Realty have performed comparable to other REITs, said Mr. Grodsky, who rates the stock a buy because of its stable history. "There there hasn't been much excitement," he said.

The stock has hovered between a high of $22.31 and a low of $16.38 in the past year. It closed Friday at $20.19 on the New York Stock Exchange.

"The future for us is really executing on our main-street, mixed-use development strategy, and building out a number of projects that are under way," said Mr. Kaplan, who feels the stock's affordability makes it an attractive investment.

Mr. Hemel, who gives the stock a neutral rating, said he hasn't been recommending REIT stocks even though they are cheap. "We are reluctant to change our cautious stance in light of recent retail trends," he wrote.

But Federal Realty has not been affected by a slowdown yet, said Mr. Kaplan. "In fact out retail sales have been growing rapidly and as a result the rents at street retail properties have been experiencing quite good growth," he said.

Its occupancy rate grew 1 percent to 96 percent from June 1999 to June 2000. Federal Realty reported for its second quarter ended June 30 its revenues rose 7.7 percent to $64.3 million from $59.7 million last year. Its funds from operations, the main sign of a REIT's health, also jumped a huge 233 percent to $16.1 million from $4.8 million last year.

Just last week Federal Realty signed 16 tenants for its most recent local project, neighborhood street-front center Pentagon Row. The mixed-use development adjacent to Pentagon City Mall will include tenants like Ann Taylor Loft, Harris Teeter, Bed, Bath & Beyond and Bally Total Fitness.

The REIT owns about 20 local properties such as shopping centers along Rockville Pike, the Dulles Toll Road and Tysons Corner. One of its best national developments is Bethesda Row, which began as a three-block project in 1993 and is has grown to a seven-block stretch with major retailers.

"It has truly enhanced the community in a huge way," said Mr. Kaplan. "It has created a spot where people bump into their neighbors and say hello."

Although good economic times have given REITs the chance to grow and become more profitable, Wall Street has not paid much attention to those stocks.



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