Federal Realty Going for Long-Term Value with Mixed-Use Projects

Donald Wood, president and CEO of Federal Realty Investment Trust (NYSE: FRT), joined REIT.com for a CEO Spotlight video interview during NAREIT’s 2014 Washington Leadership Forum.

Wood was asked about the pros and cons of larger-scale projects, such as Federal Realty’s Pike & Rose project in Rockville, Md. The new development combines residential, retail, office and recreational facilities, and it is situated in close proximity to a rail line within the Washington, D.C. public transportation system.

“These things are hard, and they’re time-consuming,” Wood explained. However, “they create long-term value and a growing cash flow stream more consistently, more sustainably over the long term and are, therefore, worth more over the long term than other types of properties," he added.

Wood also emphasized the importance of the project’s street-level amenities to the residential units above.

“If you do the street right in these mixed-use projects, the residential up top is worth more,” he said.

Wood noted that the residential leases run for 12 months, which provides the opportunity for sustainable rent increases over time.

Turning to the outlook for acquisitions, Wood noted that with capitalization rates contracted at this time, “it’s very hard to find anything in any segment that makes a lot of sense these days.”

He stressed that the company is interested in retail-centric properties located in its key coastal markets, which are showing growing, sustainable trends in cash flows. Wood said Federal Realty would consider any type of retail-centric property, other than malls. He highlighted two recent projects in central New Jersey – The Grove, and Brook 35 & West – as examples of what Federal Realty would like to find. Both locations offer high-quality, sustainable properties with some redevelopment prospects and mostly under-market rents, he said.

Meanwhile, Wood offered a positive growth outlook for Federal Realty and the retail sector in general.

“I am very bullish from a company perspective, and even from a broader perspective, in terms of the next five years,” he said.