Federal Realty Investment Trust "Santana Woah" (Neutral) Goldsmith

Research evidence excerpt

Federal Realty Investment Trust "Santana Woah" (Neutral) Goldsmith

Further, FRT seeks deals that are of a certain size when entering a new market after

due diligence via groundwork, retailer discussions, and broker conversations to

verify it adds value to the portfolio. It is an added bonus if the center requires

additional operational work, which leaves some pricing on the table and allows

FRT to apply its expertise. In the $1.4 bn active pipeline, off market deals are 30%,

and new markets make up 54%. We agree with FRT's approach in building the

pipeline given more competition has entered the market from institutional capital.

Thus, the need to build private channels and seek operationally intensive deals

could yield stronger results.

Development opportunities provide further value. FRT utilizes the existing

land bank to suppress costs and enhance returns. When adding residential or

office projects to dominant mixed-used assets, such as the Rows, the performance

of the centers has led to rent premiums of ~10% or greater for residential and

20% or greater for office. The current development pipeline is currently $500 mm,

providing a yield of 6%-7% to further grow earnings, or opportunities to sell and

generate similar or enhanced cap rates. What we appreciate in FRT's development

approach is the ongoing pipeline while maintaining a manageable size, such as the

current size only achieving ~3% the total market cap of ~$15b.

Other interesting tidbits.

What's the mood from ICSC? Retailers were generally positive and engaging as

demand continues to outpace supply. FRT indicated that a flight to quality is taking

place, leading to a balancing act for both retailers and landlords remaining patient

to find the right match. Fitness is among the tenant buckets gaining steam,