Federal Realty’s FRT portfolio of premium retail assets in well-off communities with favorable demographics positions it aptly for growth. A focus on essential retail and efforts to develop mixed-use assets aimed at diversification are likely to benefit the retail REIT over the long term. A strong balance sheet provides it with ample liquidity. A healthy dividend distribution policy aids shareholder wealth. However, higher e-commerce adoption and elevated interest expenses are its concerns.
What’s Aiding FRT Stock?
Federal Realty’s portfolio of premium retail assets — mainly situated in the major coastal markets from Washington, D.C. 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 high-barrier markets. The sites enjoy 173,000 of the average population, with a $161,000 average household income and $10-plus billion of average spending power (calculated on a weighted-average basis in a three-mile radius), ensuring resilience and growth.
FRT enjoys a well-diversified tenant base of retailers, including industry giants like TJX Companies TJX, Ahold Delhaize ADRNY and CVS Corporation CVS. This limits the company’s risk to any particular retail industry and positions it well for experiencing a stable source of rental revenues. With a well-located portfolio and 80% of its centers having a grocery component offering essential goods and services, FRT is poised to experience an improving leasing environment.
Federal Realty’s efforts to diversify its portfolio with residential and office properties are likely to pay off. Exploring the mixed-use development option, which has gained immense popularity in recent years, will enable the company to tap into growth opportunities in areas where people prefer to live, work and play. As of Sept. 30, 2024, the company had $850 million of mixed-use expansion projects in process. As of the same date, 12% of ABR came from residential properties, while 11% came from mixed-use office assets.
Federal Realty focuses on maintaining a decent balance sheet position with ample liquidity. The company exited the third quarter of 2024 with $1.35 billion of total liquidity in cash and credit facility. The annualized net debt-to-EBITDA ratio was 5.5 as of Sept. 30. The company has no debt maturities remaining in 2024 and no material maturities until 2026.
Solid dividend payouts are arguably the biggest enticement for REIT shareholders and Federal Realty remains committed to that. The company has paid out uninterrupted dividends since its inception in 1962, and the latest hike in August marked the 57th consecutive year of common dividend increases by the company. 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 in the upcoming period.
What’s Hurting FRT Stock?
The market is witnessing a shift in retail shopping from brick-and-mortar stores to Internet sales. Moreover, given the convenience of online shopping, it is likely to remain a popular choice among customers. This is expected to adversely impact the market share for brick-and-mortar stores.
Despite the Federal Reserve announcing rate cuts in recent times, the interest rate is still high and is a concern for Federal Realty. The company has a substantial debt burden, and its total debt as of Sept. 30, 2024, was approximately $4.47 billion. Our estimate indicates a year-over-year increase of 6.2% in the company's 2024 interest expenses.
Shares of this retail REIT carrying Zacks Rank #3 (Hold) have risen 12.9% over the past six months, underperforming the industry’s upside of 14%. Analysts seem bearish on the same, with the Zacks Consensus Estimate for its 2024 funds from operations (FFO) per share being lowered marginally to $6.79 over the past two months.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the retail REIT sector are Regency Centers REG and Brixmor Property Group BRX, each currently carrying a Zacks Rank #2 (Buy). 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 has been revised marginally upward over the past month to $4.27.
The Zacks Consensus Estimate for Brixmor’s 2024 FFO per share has been revised marginally northward over the past two months to $2.14.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.
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Free: See Our Top Stock And 4 Runners UpThe TJX Companies, Inc. (TJX) : Free Stock Analysis Report
CVS Health Corporation (CVS) : Free Stock Analysis Report
Federal Realty Investment Trust (FRT) : Free Stock Analysis Report
Regency Centers Corporation (REG) : Free Stock Analysis Report
Brixmor Property Group Inc. (BRX) : Free Stock Analysis Report
Ahold NV (ADRNY) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
