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Here's Why You Should Retain Federal Realty (FRT) Stock Now

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Given the recovery in the retail real estate industry, Federal Realty’s (FRT - Free Report) portfolio of premium assets in the United States, focus on essential retail and mixed-use assets, strategic buyouts, and a solid balance sheet strength position it well for growth.

The 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’s well-diversified tenant base on the national and local front minimizes the risks related to any particular retail industry and assures a stable source of rental revenues.

Going forward, Federal Realty’s efforts to diversify its portfolio with residential and office properties are likely to pay off well. Exploring the mixed-use development option, which has gained immense popularity in recent years, will enable the company to tap growth opportunities in areas where people prefer to live, work and play.

In order to enhance its portfolio, Federal Realty has been focusing on expansion opportunities in premium markets, which generate income growth and create long-term value.

As part of the company’s efforts to tap the growing market in Northern Virginia, it acquired the fee interest in Kingstowne Towne Center — a 227,000-sq-ft shopping center located in Kingstowne, VA — for $100 million in April 2022.

In July, it acquired a 182,000-sq-ft shopping center adjacent to this above-mentioned purchase for an additional $100 million. Consequently, the Kingstowne Towne Center property currently encompasses around 410,000 square feet.

Federal Realty maintains a solid balance sheet position with ample liquidity. It exited second-quarter 2022 with cash and cash equivalents of $176.6 million. As of Jun 30, 2022, it had no outstanding balance on its $1-billion revolving credit facility.

FRT enjoys investment-grade credit ratings of BBB+ and Baa1 from Standard & Poor's, and Moody's, respectively, giving it favorable access to the debt market. With strong financial footing and enough financial flexibility, it is well-placed to capitalize on long-term growth opportunities.

Analysts seem bullish about the Zacks Rank #3 (Hold) stock. The Zacks Consensus Estimate for the company’s 2022 funds from operations (FFO) per share has moved 1.6% upward over the past month, indicating a favorable outlook for FRT.

Shares of Federal Realty have gained 8.6% quarter to date compared with the industry’s growth of 3.5%.

 

Zacks Investment Research
Image Source: Zacks Investment Research

 

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.

Higher interest rates might increase the company's borrowing costs, affecting its ability to purchase or develop real estate. More so, the dividend payout might become less attractive than the yields on fixed income and money market accounts.

Stocks to Consider

Some better-ranked stocks in the retail REIT sector are STORE Capital (STOR - Free Report) , Kite Realty Group Trust (KRG - Free Report) and Tanger Factory Outlet Centers (SKT - Free Report) , 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 STORE Capital’s 2022 FFO per share has moved nearly 1% upward in the past month to $2.27.

The Zacks Consensus Estimate for Kite Realty’s 2022 FFO per share has moved 1.1% upward in the past month to $1.84.

The Zacks Consensus Estimate for Tanger Factory Outlet Centers’ ongoing year’s FFO per share has been raised marginally upward over the past month to $1.76.

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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