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5 Reasons to Add Federal Realty (FRT) Stock to Your Portfolio

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Shares of Federal Realty Investment Trust (FRT - Free Report) have been displaying a solid run on the bourse in the past year. The stock has appreciated 17% compared with its industry’s growth of 3.6%.

Zacks Investment Research
Image Source: Zacks Investment Research

A positive estimate revision trend reflects optimism for Federal Realty’s growth prospects. Over the past week, the Zacks Consensus Estimate for FRT’s 2022 funds from operations (FFO) per share has moved marginally north to $5.93.

Fundamentals appear solid for this Zacks Rank #2 (Buy) stock. Also, there is enough scope for the stock’s price appreciation in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Let’s Explore What Makes FRT Stock a Solid Choice

Premium Asset Base: Federal Realty’s portfolio of premium retail assets — mainly in the major coastal markets from Washington D.C. to Boston, San Francisco and Los Angeles — and a diverse tenant base, both national and local, position 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.

Moreover, its focus on an open-air format and the “The Pick-Up” concept has poised it well to lure tenants even amid the current health crisis. Furthermore, with the resumption of the economy, widespread vaccination and solid consumer spending, this retail REIT is poised to benefit from its superior assets in premium locations and experience an improving leasing environment.

Expansion Opportunities: Federal Realty has been capitalizing on the expansion opportunities in premium markets. This generates income growth and creates long-term value. FRT has expertise in raising its operating performance through the conversion, redevelopment and repurposing of assets. Throughout the portfolio, Federal Realty has redevelopment projects underway, with a projected total cost of approximately $313 million, which it expects to stabilize over the next several years. Also, this retail REIT has ongoing improvements at 21 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.

Essential Retail Focus: Amid the challenges in the retail real estate market, the company started diversifying its portfolio with residential and office properties. As of Dec 31, 2021, 22% of the annualized base rent (ABR) came from office & residential tenants and 24% of ABR came from essential retail. Also, more than 75% of its centers have a grocery component. Federal Realty also collected about 97% of the total fourth-quarter 2021 billed recurring rents as of Jan 31, 2022.

Strong Balance Sheet & Superior Return on Equity: Federal Realty focuses on maintaining a decent balance sheet position with ample liquidity. The company exited 2021 with cash and cash equivalents of $162.1 million and an undrawn $1 billion credit facility. Further, this retail REIT has no debt maturing until June 2023. Moreover, Federal Realty’s credit ratings of A- and Baa1 ratings from Standard & Poor's and Moody's, respectively, enable it to procure debt financing at an attractive cost.

FRT’s Return on Equity is 10.73% compared with the industry average of 4.93%. This highlights that the company reinvests more efficiently compared with the industry.

Dividend Payment: Solid dividend payouts are arguably the biggest enticements for REIT shareholders and Federal Realty remains committed to that. Concurrent with the second-quarter 2021 earnings release, Federal Realty announced a hike in its regular quarterly cash dividend to $1.07 per share from $1.06 paid earlier. The new dividend indicated an annual rate of $4.28 per share.

The company has paid out uninterrupted dividends since its inception in 1962 and the latest hike marked the 54th consecutive year of common dividend increases by the company. Thereafter, Federal Realty has maintained this payment. Given the company’s balance sheet and liquidity position compared with industry counterparts, this dividend rate is expected to be sustainable.

Other Key Picks

Realty Income (O - Free Report) holds a Zacks Rank of 2 at present. Realty Income has a long-term growth rate of 4.8%.

The Zacks Consensus Estimate for O’s 2022 FFO per share has been revised marginally upward in a month to $3.95.

The Zacks Consensus Estimate for Acadia Realty Trust’s (AKR - Free Report) FFO per share for the current year has moved up marginally to $1.23 in the past month.

Acadia Realty Trust carries a Zacks Rank of 2. AKR has a long-term growth rate of 7.8%.

The Zacks Consensus Estimate for Tanger Factory Outlet Centers, Inc.’s (SKT - Free Report) ongoing-year FFO per share has moved marginally up to $1.73 over the past month.

Currently, Tanger Factory Outlet Centers carries a Zacks Rank of 2. SKT has a long-term growth rate of 8.40%.

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.