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 this retail REIT’s fundamentals and solid prospects.
The increase in consumers’ preference for in-person shopping experiences, following the pandemic downtime, has been driving the recovery of the retail real estate industry. Also, the impending holiday season is of great importance to retailers, making up a significant portion of their annual revenues. Further, the less availability of retail spaces is an upside. Given this backdrop, Federal Realty is well-poised to benefit from its portfolio of premium assets in the United States.
While shares of FRT have declined 10.5% in the past three months compared with the industry's drop of 9.7%, the recent estimate revision trend indicates that analysts are bullish on this stock. Over the past two months, the Zacks Consensus Estimate for 2023 FFO per share has moved marginally upward to $6.53.
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.
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Factors That Make Federal Realty a Solid Pick
Superior Property Location & 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: FRT has been capitalizing on expansion opportunities in premium markets, which leads to income growth and creates long-term value. In January 2023, the company acquired the remaining portions of Huntington Square in East Northport, NY, for $35.5 million, giving it full control of the 243,000 square feet property in the heart of Suffolk County's retail corridor.
Moreover, in 2022, it acquired properties worth $443.1 million. As of the end of the second quarter of 2023, throughout the portfolio, Federal Realty has redevelopment projects underway, with a projected total cost of approximately $228 million, which it expects to stabilize over the next several years.
Also, this retail REIT has ongoing improvements at 15 properties to better position the assets to capture a disproportionate amount of retail demand. 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. As of the end of the second quarter of 2023, the company had active mixed-use redevelopment/expansion projects in San Jose, CA, North Bethesda, MD, and Darien, CT, with a projected cost of $610-$650 million. It has incurred $448 million of the cost as of Jun 30, 2023. 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 second-quarter 2023 with $1.3 billion of total liquidity.
FRT’s current cash flow growth is projected at 27.04% compared with the 14.92% 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 13.65% compares favorably with the industry’s 4.21%, 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. In August 2023, concurrent with the second-quarter 2023 earnings release, the company announced a hike in its regular quarterly cash dividend to $1.09 per share from $1.08 paid out earlier. The new dividend indicates an annual rate of $4.36 per share.
FRT has paid out uninterrupted dividends since its inception in 1962, and the latest hike marked the 56th consecutive year of common dividend increases by the company. Moreover, backed by healthy operating fundamentals, we expect FFO to increase 5.4% in 2023. Given the company’s solid operating platform, our FFO growth projections and balance sheet strength compared with industry counterparts, this dividend rate is expected to be sustainable.
Other Stocks to Consider
Some other top-ranked stocks from the retail REIT sector are Phillips Edison & Company PECO and Tanger Factory Outlet Centers SKT, each carrying a Zacks Rank #2 at present.
The Zacks Consensus Estimate for Phillips Edison’s current-year FFO per share has moved marginally northward over the past month to $2.33.
The Zacks Consensus Estimate for Tanger Factory’s ongoing year’s FFO per share has been raised marginally over the past month to $1.89.
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
Tanger Factory Outlet Centers, Inc. (SKT) : Free Stock Analysis Report
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