- The Washington Times - Tuesday, October 15, 2002

Shares of Federal Realty Investment Trust reached a 52-week low yesterday, as many REITs across the country took major hits in the stock market.
The Rockville-based firm saw its price drop 32 cents to close at $25.30 yesterday $2.40, or 8 percent, off its 52-week high set on June 28. Shares fell 63 cents, or 2.4 percent, last week, a relatively strong performance given the average 2.8 percent drop of real estate companies nationwide.
Federal Realty owns, manages and develops mixed-use complexes, with an emphasis on shopping centers and street retail.
The big question around Federal Realty in recent weeks has been the financial effects of a major fire at its Santana Row complex in San Jose, Calif. About 250 apartments were destroyed in August, and investors were waiting to determine how much the company would receive in an insurance settlement.
Federal Realty said it would receive between $70 million and $90 million to cover rebuilding costs, lost income and other expenses, including additional marketing. The complex will reopen Nov. 7, about two months later than originally scheduled.
The company had been placed on, then removed from, ratings watches by Standard and Poor's and Moody's. Analysts said the stock dip last week was the result of a general market downturn, not the Santana Row fire.
"The bottom line is that most of the negative news regarding [Federal Realty] and Santana Row are factored into the company's stock price," Merrill Lynch analyst Steve Sakwa said in a research note. Mr. Sakwa reiterated his "buy" rating on the company, and placed a 12-month price estimate of $28.50.
He said the downturn in real estate markets could cause him to change the estimate down the road.
"The biggest risk in achieving our price objective remains the overall sluggish environment for retail sales and further deterioration at Santana Row," Mr. Sakwa wrote.
General weaknesses in the REIT sector could play a role as well, analysts said. Apartment and office vacancy rates have remained high, and a recovery is not expected until at least the middle of 2003. Meanwhile, real estate companies involved in the hotel industry have had to deal with a major drop-off in travel.
Overall share growth in the REIT sector for the third quarter of 2002 is expected to fall 1 percent, after growing 0.7 percent in the second quarter and 4.8 percent in the first.
"While the relative performance of REITs has remained strong since the beginning of the year, the sector's absolute performance has suffered since July 1 as weakening fundamentals continue to negatively impact earnings," Mr. Sakwa wrote.


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