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, Federal Realty FRT is well-poised to benefit from its portfolio of premium assets in the United States.
This retail real estate investment trust’s (REIT) properties are located in the first ring suburbs of the nine major metropolitan markets of the United States, mainly in the key coastal markets from Washington DC to Boston, San Francisco and Los Angeles. The strong demographics and infill nature of its properties allow Federal Realty to enjoy high occupancy.
The company has a well-diversified tenant base of retailers, including TJX Companies, Kroger and CVS Corporation. This minimizes the risks related to any particular retail industry and assures a stable source of rental revenues.
Federal Realty’s efforts to explore the mixed-use development option, which has gained immense popularity in recent years, will enable it to tap the growth opportunities in areas where people prefer to live, work and play.
Moreover, Federal Realty’s expansion efforts into the premium markets and initiatives to redevelop and reposition its assets seem encouraging.
On the balance-sheet front, Federal Realty exited third-quarter 2022 with cash and cash equivalents of $ $146.2 million. In October 2022, it increased the borrowing capacity of its revolving credit facility from $1.0 billion to $1.25 billion, giving it enough financial flexibility.
Further, its investment-grade credit ratings render it favorable access to the debt market. With strong balance-sheet strength, FRT is well-positioned to capitalize on long-term growth opportunities.
Analysts seem bullish about the Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for the company’s 2022 funds from operations (FFO) per share has moved marginally upward over the past week, indicating a favorable outlook for FRT.
Shares of Federal Realty have gained 19.8% in the quarter-to-date period compared with its industry’s growth of 17.4%.
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However, given the conveniences of online shopping, rising e-commerce adoption is concerning for Federal Realty. Online retailing will likely remain a popular choice among customers, adversely impacting the market share for brick-and-mortar stores.
A slowdown in the economy and the depletion of savings amid an inflationary environment and interest rate hikes could limit consumers’ willingness to spend to some extent in the coming quarters.
Also, rising interest rates might increase the company's borrowing costs, affecting its ability to purchase or develop real estate.
Stocks to Consider
Some better-ranked stocks from the retail REIT sector are Regency Centers REG, Tanger Factory Outlet Centers SKT and American Assets Trust AAT, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Regency Centers’ current-year FFO per share is currently pegged at $3.97.
The Zacks Consensus Estimate for Tanger Factory Outlet Centers’ ongoing year’s FFO per share has presently stands at $1.80.
The Zacks Consensus Estimate for American Assets Trust’s 2022 FFO per share is pegged at $2.26, presently.
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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