5 Reasons to Add Federal Realty (FRT) Stock to Your Portfolio
Adding Federal Realty FRT to your portfolio seems a wise idea, given the strength of its fundamentals and solid prospects.
The increase in consumers’ preference for in-person shopping experiences, following the pandemic downtime, has been driving the recovery in the retail real estate industry. Given this backdrop, this retail real estate investment trust (“REIT”) is well-poised to benefit from its portfolio of premium assets in the United States.
Last month, Federal Realty reported fourth-quarter 2022 funds from operations (FFO) per share of $1.58, surpassing the Zacks Consensus Estimate of $1.57. This also compared favorably with the year-ago quarter’s $1.47.
Results reflected healthy leasing activity and better-than-anticipated revenues. Quarterly revenues of $280.1 million topped the consensus mark of $276.3 million and improved 10.2% from the year-ago quarter. For the fourth quarter, FRT generated comparable property operating income growth of 5.4%. This retail REIT provided an upbeat outlook for 2023.
For 2023, FRT estimates FFO per share of $6.38-$6.58.
While shares of FRT have declined 5.8% so far in the quarter compared with the industry's dip of 1.5%, the recent estimate revision trend indicates that analysts are bullish on this stock. Over the past month, the Zacks Consensus Estimate for 2023 FFO per share has moved 1.1% upward to $ 6.45.
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The current price indicates a good entry point and FRT currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Factors That Federal Realty a Solid Pick
Superior Property Location and Diversified Tenant Base: Federal Realty’s portfolio of premium retail assets — mainly situated in the major coastal markets from Washington, DC, to Boston, San Francisco and Los Angeles — along with a diverse tenant base, both national and local, positions it well for decent growth.
The company has strategically selected the first ring suburbs of nine major metropolitan markets. Due to the strong demographics and infill nature of its properties, the company has been able to maintain a high occupancy level over the years. A well-diversified tenant base of retailers minimizes the risks related to any particular retail industry and assures a stable source of rental revenues.
Expansion, Development and Redevelopment Efforts: Federal Realty has been capitalizing on expansion opportunities in premium markets, which leads to income growth and creates long-term value. In 2022, it acquired properties worth $443.1 million. Moreover, as of the fourth-quarter end, throughout the portfolio, Federal Realty has redevelopment projects underway, with a projected total cost of $228 million, which it expects to stabilize over the next several years. Also, this retail REIT has ongoing improvements at 25 properties to better position the assets to capture a disproportionate amount of retail demand post-pandemic. Such efforts bode well for the company’s long-term growth.
Mixed-Use Focus: Federal Realty is exploring the mixed-use development option, which has gained immense popularity in recent years as it helps catch the attention of people who prefer to live, work and play in the same area. Per its latest Investor Presentation, the company had $500 million of mixed-use expansion projects underway located in the first ring suburbs of major metropolitan markets with significant growth drivers. This augurs well for long-term growth.
Balance Sheet & Cash Flow Strength: Federal Realty focuses on maintaining a decent balance-sheet position with ample liquidity. The company exited 2022 with $1.3 million of total liquidity comprising cash and full capacity on its $1.25 billion credit facility.
FRT’s current cash flow growth is projected at 27.04% compared with 14.01% growth projected for the industry. Moreover, this REIT’s trailing 12-month return on equity (“ROE”) highlights its growth potential. The company’s ROE of 14.06% compares favorably with the industry’s 6.01%, reflecting that FRT is more efficient in using shareholders’ funds than its peers. Given its balance sheet strength and prudent financial management, the company is well-poised to capitalize on growth opportunities.
Dividend: Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and Federal Realty remains committed to that. Concurrent with the second-quarter 2022 earnings release, Federal Realty announced a hike in its regular quarterly cash dividend to $1.08 and has maintained its payment thereafter. The new dividend indicated an annual rate of $4.32 per share.
The company has paid out uninterrupted dividends since its inception in 1962, and the latest hike marked the 55th consecutive year of common dividend increases by the company. Also, it has increased its dividend five times in the last five years, which is encouraging. Given the company’s solid operating platform, opportunities for growth and decent financial position compared with the industry, this dividend rate is expected to be sustainable.
Other Stocks to Consider
Some other top-ranked stocks from the retail REIT sector are Essential Properties Realty Trust EPRT and Urstadt Biddle Properties Inc. UBA, each carrying a Zacks Rank #2 at present.
The Zacks Consensus Estimate for Essential Properties Realty’s 2023 FFO per share has been revised a cent upward over the past month to $1.64.
The Zacks Consensus Estimate for Urstadt Biddle Properties’ ongoing year’s FFO per share has been revised 2.6% upward over the past week to $1.60.
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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Federal Realty Investment Trust (FRT) : Free Stock Analysis Report
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