Conservative balance sheets provided a lift for high-flying shopping center REITs in 2007. Through Feb. 21, 10 of the 14 shopping center REITs had reported their fourth-quarter 2007 earnings, including most of the largest firms. The sector seems to have weathered the economic slowdown well. Of the companies reporting, more than half missed consensus estimates for the fourth quarter by less than $0.02 per share, and four firms reported positive FFO growth.

For 2007, Saul Centers, Acadia Realty Trust, Developers Diversified Realty and Equity One missed consensus estimates, while Urstadt Biddle Properties Inc., Inland Real Estate Corp. and Regency Centers Corp. exceeded expectations. Federal Realty Investment Trust, Kimco Realty Corp. and Kite Realty Group Trust came in on target.

“It looks like everyone was relatively in line with their projected estimates,” said Jason Lail, senior research analyst with Charlottesville, Va.-based research firm SNL Financial LLC.

As with regional mall REITs, shopping center REITs should focus on maintaining clean balance sheets and curbing debt in 2008, Lail notes. That shouldn't be too difficult. “Looking at total debt and total caps, the balance sheets of shopping center REITs look a little better than the REIT sector in general,” he says.

REITs that had not yet filed their fourth-quarter results at press time included Ramco-Gershenson Properties Trust, Cedar Shopping Centers, Weingarten Realty Investors and AmREIT Inc.

Federal Realty Investment Trust, which carries one of the most conservative balance sheets in the sector, was among the best performers. The Rockville, Md.-based REIT posted FFO growth of 19.48 percent for the fourth quarter 2007, to $0.92 per share, and an 11.35 percent increase in FFO for the year, to $3.63 per share. Federal also maintained healthy operating metrics, with same-store NOI growth of 4.2 percent for the quarter and 3.5 percent for the year and a 20-basis-point increase in portfolio occupancy, to 96.7 percent.

Federal's clean balance sheet will remain its biggest trump card, wrote RBC Capital Markets analyst Rich Moore in a note last month. The company's debt and preferred equity account for only 26 percent of its capital. With only $500 million in debt maturing over the next four years, the company faces fewer risks than its highly leveraged rivals. Federal expects FFO growth for 2008 to be in the $3.89 per share to $3.94 per share range.

Missing consensus estimates by $0.01 per share for the quarter was Kimco Realty Corp., which still posted better than expected overall performance for 2007. New Hyde Park, N.Y.-based Kimco reported an FFO decrease of 8.62 percent in the fourth quarter, to $0.53 per share, and an FFO increase of 17.19 percent for the year, to $2.59 per share. Kimco's same-store NOI rose 4.10 percent for the quarter. It reported NOI growth of 4.50 percent for the eight quarters since 2005. Occupancy in the firm's portfolio grew 60 basis points, to 96.3 percent. Kimco expects FFO growth of $2.70 to $2.78 per share in 2008.

SHOPPING CENTER REIT 2007 PERFORMANCE
Company Name 2007 Q4 FFO Growth (%) 2007 Y FFO Growth (%) 2007 Q4 FFO per share Beat/Miss ($) 2007 Y FFO per share Beat/Miss ($)
Acadia Realty Trust -6.45 9.24 -0.02 -0.01
Developers Diversified Realty Corporation 0.00 11.14 -0.01 -0.01
Federal Realty Investment Trust 19.48 11.35 0.00 0.00
Inland Real Estate Corporation 9.09 7.52 0.02 0.02
Kimco Realty Corporation -8.62 17.19 -0.01 0.00
Kite Realty Group Trust 6.25 8.62 0.00 0.00
Regency Centers Corporation 5.45 8.25 0.02 0.03
Urstadt Biddle Properties Inc. NA 27.83 NA 0.23
As of 2/19/2008
Source: SNL Financial