When it comes to Wall Street, it's often the case that a company's size says a lot about its long-term success. However, that isn't always something you can count on. When you look at shopping center real estate investment trusts (REITs) Federal Realty Investment Trust (FRT 1.26%) and Regency Centers (REG 1.06%), for example, you have to dig a little deeper to pick which one is the better landlord. Here's a quick look at some key metrics.
1. Portfolio size
Regency Centers is one of the largest strip mall REITs, with a portfolio that contains more than 400 properties. Those assets are spread across more than 20 states. Within those states, there are further breakdowns by submarket. For example, California has three notable areas of focus for Regency: Los Angeles, San Francisco, and San Diego. There are a number of other large states, like Texas and Florida, where there are similar regional breakdowns.
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On the other side of the coin is Federal Realty. It owns just about 100 properties, making it roughly a quarter of the size of Regency Centers. Although it has operations in a number of states, its business is focused around just nine key metropolitan markets: Washington, Philadelphia, New York, Boston, Southern California, Silicon Valley, Chicago, Miami, and newly added Phoenix. From a portfolio and diversification standpoint, Regency Centers is the bigger entity.
Looking at this through a different lens, Regency Centers controls roughly 54 million square feet of space. Federal Realty roughly half that amount at 25 million square feet. Once again, Federal Realty ends up being a much smaller entity.
2. Market capitalization
It shouldn't be shocking to find out that Regency Centers' roughly $11 billion market cap is larger than Federal Realty's market cap. Yet Federal Realty's market cap of $8.5 billion is much larger than the portfolio difference between these two competitors might suggest it should be. This should be the first hint that there's something more going on here when it comes to differentiating between these two similarly focused REITs.
3. Dividend yield
Another interesting divergence shows up on the dividend front, with both REITs having dividend yields of roughly 3.9%. You might expect the larger, more diversified REIT to be afforded a premium price. But that's just not the case. At this point, investors should be ready to dig into the story a little more.
4. Good locations and better ones
Both companies work to ensure their properties are well positioned and up-to-date. Federal Realty and Regency Centers both have active redevelopment pipelines, helping support internal growth, but their locations are a little different. The average population around a Regency Centers' property is around 128,000 with an average income of $100,000. That's above the average for the shopping center peer group, but not above the figures for Federal Realty, which come in at 172,000 and $133,000, respectively. So all in, Federal Realty looks like it has a better portfolio of locations.
5. Different results
The difference between the two portfolios starts to become clearer when you look at the rent rolls of each of these REITs. In the first quarter, Regency Centers generated around $294 million in rent earned from a portfolio of 406 assets that were either fully or jointly owned. That comes out to about $725,000 per location.
Federal Realty generated roughly $257 million in rent, not that much less than Regency Centers given the drastic size difference of the portfolios. When you divide Federal Realty's rent roll by its 104 property portfolio you get $2.47 million per location. That's a huge difference.
Part of the difference between the two REITs' rent per property is because Federal Realty's assets tend to be larger and, as noted in point 4, better located. That said, Federal Realty also has a number of sizable mixed-use developments in its portfolio that incorporate office, retail, and residential components. Such assets provide diversification and, so far, have resulted in a material benefit to Federal Realty's rent roll that simply doesn't exist for Regency Centers. That means this isn't exactly a one-to-one comparison, which helps explain why Federal Realty is afforded a premium beyond what its portfolio size would suggest. In the end, what's not avoidable is the fact that the properties Federal Realty owns are much more productive than what's on offer from Regency Centers.
Either/or...or different?
It wouldn't be fair to suggest that Regency Centers is a bad shopping center REIT. In fact, it's very well run. But it isn't quite as well run as Federal Realty, when you consider the underlying businesses. That said, Federal Realty has a more focused approach which can increase vacancy risk. And those big mixed-use projects are definitely riskier to get off the ground than owning a local strip mall, which probably has a grocery store, a hair salon, and some local restaurants in it. However, if you want to own the best-performing shopping centers, Federal Realty looks like the name to pick.
