- The Washington Times - Monday, September 6, 2004

Federal Realty Investment Trust is outperforming its rivals even though its sluggish stock price isn’t, analysts say.

The Rockville company, which owns 16.9 million square feet of retail space in metropolitan markets, is credited with assembling a higher-quality portfolio of shopping centers than other retail real-estate-investment trusts, or REITs.

Federal Realty also has shifted its focus back to redeveloping existing properties. President and Chief Executive Donald Wood said it is far less risky for the company to improve existing properties in densely populated markets, where the return on investment is generally greater, than it is to build new shopping centers in outlying suburbs.

Federal Realty’s shares are trading marginally higher than they were six months ago. They closed Friday at $45.55, up $1.04, or 2 percent, from a week earlier, when they closed at $44.51 on the New York Stock Exchange. Shares traded from $43.05 to $46.20 in March.

Mr. Wood was scheduled to ring the closing bell today at the New York Stock Exchange. Markets were closed yesterday for the Labor Day holiday.

Analyst David Fick said REIT shares tend to move slowly because they are considered to be long-term investments.

REITs “have been outperforming all other sectors [in the stock market] for the past five years, but now they are at the point of being fully or properly valued,” said Mr. Fick of Legg Mason Wood Walker Inc., a subsidiary of Baltimore financial-services company Legg Mason Inc.

The Morgan Stanley REIT Index has climbed 5 percent in the past six months from 642.35 to 674.44.

Mr. Fick, who advises investors to buy Federal Realty, does not own any Federal Realty shares, but Legg Mason has business with the company.

Matthew Ostrower, an analyst with New York investment bank Morgan Stanley, said the stock was too expensive, rating the company as “underweight/cautious” for investors.

“I’m a huge fan of the company’s management and assets, but I do think its stock is a little too high,” Mr. Ostrower said.

Mr. Ostrower does not own any company shares, but Morgan Stanley has a banking relationship with Federal Realty.

Federal Realty’s funds from operations, or cash flow — considered a more accurate measure of REIT performance than net income alone — jumped 17 percent in the most recent quarter ended June 30 to $41.5 million (73 cents per diluted share) from $35.5 million (57 cents) a year earlier. Diluted earnings include the value of convertible warrants and stock options.

While Mr. Fick expects slower increases ahead for Federal Realty’s stock price and dividends, he said the company still has an edge in the retail real-estate market.

High demand for the company’s prime spots in the Boston, Philadelphia, New York, Washington and California gives the company more leverage when raising rents, Mr. Fick said.

“At the end of the day, this company is getting back to basics. There will be no more Santana Rows,” he said, referring to Federal Realty’s mixed-use property in San Jose, Calif. That development, the company’s largest, was partially destroyed by a fire in 2002.


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