Federal Realty Investment Trust FRT announced the sale of three retail properties for aggregate gross proceeds of $170 million. Moreover, addressing near-term debt maturities, the company repaid the debt with cash on hand.
Notably, the properties, which were not in line with the company’s growth plans, were sold prior to the end of 2020. In fact, it sold The Shops at Sunset Place located in South Miami, FL, given the lack of any viable redevelopment opportunities at the property. Federal Realty also repaid the $60.6-million non-recourse mortgage loan that encumbered the property.
Moreover, the company disposed of Eastgate Crossing, a 158,000-sq-ft shopping center located in Chapel Hill, NC. This marked its exodus from North Carolina. Markedly, anchor tenants at the retail center included Trader Joe's, Ulta and Petco.
Lastly, Federal Realty sold Sam's Park and Shop, a 51,000-sq-ft shopping center. The property was anchored by an urban Target positioned in the Cleveland Park neighborhood of Washington, DC. The sales are expected to have provided the company with additional liquidity.
Notably, the company has also repaid certain near-term outstanding debt with cash on hand in a bid to provide financial flexibility to its balance sheet. Specifically, 2.55% senior unsecured notes were repaid at par amounting to $250 million. The notes were due in 2021.
Further, Federal Realty redeemed its $250-million 3.00% senior unsecured notes due 2022 at an aggregate redemption price of $263.5 million. Accordingly, the company expects to record a loss on extinguishment of debt of $11.2 million for the December-end quarter of 2020.
Further, following the repayment and redemption, it has no public bonds maturing until June 2023. Further, it entered 2021 with around $800 million of cash on the balance sheet and a $1-billion credit facility with full availability.
Per management, "as the path to a post COVID retail real estate recovery gets a bit clearer, the flexibility afforded by a strong balance sheet has never been more important."
Admittedly, the pandemic-led store closures and a decline in customer footfall are taxing tenants’ liquidity, thereby, making it difficult to meet their rental obligations. As a result, liquidity strength and prudent balance sheet measures are being prioritized by retail REITs, which have been already battling store closures and bankruptcy issues for long.
Moreover, to counter the fast-changing retail environment, Federal Realty has been making efforts to expand, redevelop and re-merchandise its portfolio. This includes an upgrade of the tenant mix. While repositioning and redevelopment are strategic fits for long-term growth, such initiatives involve considerable upfront costs and tend to drag down near-term profitability.
Shares of this Zacks Rank #4 (Sell) company have declined 32.2% over the past year, wider than the industry's fall of 14.1%.
Stocks to Consider
CubeSmart’s CUBE Zacks Consensus Estimate for 2021 funds from operations (FFO) per share has moved up marginally to $1.78 in the past month. The company currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Extra Space Storage Inc.’s EXR FFO per share estimate for the current year has been revised marginally upward to $5.43 in the past month. The company carries a Zacks Rank of 2, currently.
City Office REIT, Inc.’s CIO Zacks Consensus Estimate for the ongoing-year FFO per share has been unchanged at $1.32 in a month’s time. The company has a Zacks Rank of 2 at present.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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