Federal Realty Expands in Bay Area - Analyst Blog

Federal Realty Investment Trust (FRT), a real estate investment trust (REIT), recently acquired a property – East Bay Bridge Shopping Center – located on the Emeryville and Oakland border for $53.7 million. This strategic acquisition is in line with the company’s aim of enhancing its retail dominance in the Bay area.

Federal Realty, which bought the shopping center from TPG Capital, also took on an existing mortgage loan worth $62.9 million secured by the property. Texas-based TPG Capital, one of the largest private equity investment firms globally, has acquired the shopping center in 2010 for $505 million as part of a four-property deal.

The acquired property complements Federal Realty’s 1.8 million square feet of properties owned in the Bay Area. This includes 150 Post St. in San Francisco, Crow Canyon Commons in San Ramon as well as Santana Row and Westgate Center in San Jose.

East Bay Bridge Shopping – spanning 438,000 square feet – is located in a very supply constrained trade area in the densely populated East Bay market. The center is positioned at the intersection of several major highways and experiences significant traffic counts of 216,000 cars per day to the south on I-580 and 288,000 cars per day to the west along I-580/I-880. The traffic count is expected to increase with the completion of the expansion of the Caldecott Tunnel this year.

Constructed in 1994, East Bay Bridge boasts a class of industry-leading tenants such as Safeway Inc. (SWY), Target Corp. (TGT) and The Home Depot, Inc. (HD). The other noteworthy retailers at the center include OfficeMax Incorporated (OMX), Pacific Sales Kitchen and Bath, Sports Authority and Michael's. In our view, the strategic acquisition will boost the company’s rental revenue going forward, considering the upscale premium location of the property and strong tenant base.

Federal Realty incurred around $1 million of closing costs related to the acquisition, due to late closing of the transaction. However, management expects the acquisition to be accretive to the company’s earnings in early 2013 and provide long-term value creation.

Federal Realty specializes in owning, managing, developing and redeveloping retail, mixed-use and street-retail properties, primarily in densely populated locations. Its community and neighborhood shopping centers are anchored by supermarkets, drug stores or high-volume, value-oriented retailers, which provide consumer necessities.

As of September 30, 2012, the company's portfolio comprised approximately 19.1 million square feet located primarily in the Northeast and Mid-Atlantic regions of the United States, and California.

Federal Realty is expected to release its fourth-quarter 2012 results on February 12, 2013. The Zacks Consensus Estimate for the fourth quarter FFO (funds from operations) is currently pegged at $1.11 per share.

Federal Realty currently has a Zacks #2 Rank (implying a short-term Buy rating). However, we maintain our long-term Neutral recommendation on the stock.

Note: FFO, a widely accepted and reported measure of the performance of REITs is derived by adding depreciation, amortization and other non-cash expenses to net income.

FED RLTY INV (FRT): Free Stock Analysis Report

HOME DEPOT (HD): Free Stock Analysis Report

OFFICEMAX INC (OMX): Free Stock Analysis Report

SAFEWAY INC (SWY): Free Stock Analysis Report

TARGET CORP (TGT): Free Stock Analysis Report

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