Federal Realty Trust FRT reported an increase in third-quarter rental receipts as compared with second-quarter collections.
As of Oct 7, 2020, the company collected 83% of third-quarter billed recurring rents, higher than second-quarter receipts of 68% as of July end.
However, deferral agreements were entered for $30 million of billed recurring rents for the second and third quarters of the ongoing year, and have a weighted average repayment period of 10 months.The company recognizes revenues from around 60% of tenants, with deferral agreements on an accrual basis. Moreover, nearly $5 million of the total deferred amount is related to third-quarter rents.
As of Jul 31, the company executed deferral agreements for $21 million, or 10%, of billed recurring rents for April through June 2020 and had a weighted average repayment period of 9 months.
Markedly, the success of physical stores widely depends on customer traffic but consumers are by and large avoiding crowded public spaces due to the pandemic, and increasingly opting for online purchases. This, in turn, is affecting tenants’ financial condition, thereby, making it difficult to meet their rental obligations. As a result, retail REITs, which have already been battling against store closures and bankruptcy issues, are being affected. In fact, apart from Federal Realty, these are hurting other retail REITs, including Macerich MAC, Simon Property SPG and Kimco KIM.
In addition, while all 104 of Federal Realty’s shopping centers have remained open and operating throughout the pandemic, the escalating number of coronavirus cases forced several retailers to close stores or reduce store hours. In fact, 94% of the company’s retail tenants are currently open and operating on at least a modified basis.
Also, with the tenant roster having exposure to lifestyle and entertainment-oriented properties, and retailers that are not essential for consumers during the pandemic, rent collection remains a pressing concern.
Shares of this Zacks Rank #5 (Strong Sell) company have lost 42.4% over the past year compared with its industry’s decline of 22%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Despite these challenges, Federal Realty’s strong balance sheet and liquidity position is encouraging. With $2 billion in liquidity, consisting of $980 million of available cash and an undrawn $1-billion credit facility, the company’s near-term debt maturities appear manageable. Moreover, credit ratings of A-, A3 ratings from Standard & Poor's, and Moody's, respectively, enable it to procure debt financing at an attractive cost. Hence, the company seems well-poised to navigate through current challenging times.
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