Discipline, Balance and an Increasing Dividend: Keys to a Retail REIT’s Success

Still, looking ahead, Blocher is hopeful. He expects stable increases in rent in 2012 and high single-digit to low double-digit growth in lease rollover. He’s also hoping for approximately 50 bps of occupancy improvement over the course of the year. “We feel we’re very well set up for the future and not just taking advantage of poor operating performance in an area where there’s not a lot of retail development being done,” he says. “We’ve been able to advance plans and move forward such that we can put shovels in the ground for a couple of pretty significant properties. We’re getting ahead of the game that way.”

Blocher suggests that investors looking at the retail sector should look at it from a landlord’s perspective. “Are retailers being disciplined? Are they opening in the right location? At the end of the day, our business in a lot of ways is very supple. Our goal as the landlord is to create environments where the retailers can maximize their sales. To the extent that they’re maximizing their sales and have the ability to pay rent, we can charge increased rent. Investors should look for those retailers who have a good solid approach to picking not just any location, but improving their location or picking the right location and having a product that’s in demand.”

Ultimately, it all comes down to the dividend in REIT investing, Blocher says, and it’s one of the forces behind REITs relative success lately. “The equity REIT market as a whole as of the end of January was paying a dividend yield of about 3.4% which equates to about a 2.2% relative to the S&P,” he says. “If you’re getting that stream of current income, it helps to protect your cash flow. You’re getting some of it along the way; you make the decision as to whether or not you want to reinvest it, whether or not you want to hold it as cash. That is a stabilizing force, with respect to REIT performance.”

For retirees, that stabilizing force is important. “One of the greatest things from a retiree’s perspective is that income that we just talked about,” Blocher says. One of Federal Realty’s greatest attributes, he says, is its reputation for paying increasing dividends every year. “We have the distinction of having increased our dividends every year for 44 years, every year since 1967.” He acknowledges that past performance is no guarantee, but adds that having your money invested in a company that continually pays and increases its dividends, even during the downturn, is a “very strong attribute.”

What’s more, “People come to expect the increase in dividend,” Blocher continues. “There are still original shareholders who participated in the IPO way back in 1962, who will come to the annual meeting and they’ll tout the dividend, they’ll tout the quality of what is that we own. It’s a stock that’s been able to demonstrate its performance through thick and thin.”

And, after 44 consecutive years of annual dividend increases, Federal Realty is in “elite company of all publicly traded companies in the United States,” Blocher adds. “I want to say last time I looked we were 24th in all publicly traded companies, behind companies like Proctor & Gamble, Coca Cola, Tootsie Roll Industries. We’ve been through all of it: very high inflation, very low inflation, high oil prices, low oil prices, any type of economic crisis and the performance of the company [has allowed] us to increase that dividend every year. In the 50-year history of the company, we’ve only had three CEOs. The words disciplined and balance are key words. It’s a company that always trying to do the right thing and takes its fiduciary obligation to its shareholders very, very seriously.”