Yahoo Finance Here's Why You Should Retain Federal Realty (FRT) Stock Now
Federal Realty FRT is poised to ride the growth curve on its properties’ upscale locations with well-off communities and favorable demographics. Efforts to diversify its portfolio and strengthen its mixed-use assets, backed by a solid balance sheet, seem encouraging for long-term growth. However, higher e-commerce adoption and high interest rates raise concerns.
What’s Aiding FRT?
Federal Realty owns properties in the first-ring suburbs of the nine major metropolitan markets of the United States, mainly in the key coastal markets from Washington D.C. to Boston, San Francisco and Los Angeles. Given the solid demographics and infill nature of its properties, the company experiences decent leasing activity, aiding occupancy growth.
The company enjoys a well-diversified tenant base of retailers, including industry bellwethers like TJX Companies, Ahold Delhaize and CVS Corporation. This limits the company’s risk to any particular retail industry and positions it well for experiencing a stable source of rental revenues. As of Mar 31, 2024, no single tenant accounted for more than 2.7% of the annualized base rent (ABR). We estimate year-over-year growth of 4.5%, 5% and 7.6% in the company’s rental income in 2024, 2025 and 2026, respectively.
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 into growth opportunities in areas where people prefer to live, work and play.
Federal Realty has expertise in raising its operating performance through the conversion, redevelopment and repurposing of assets. As of the end of the first quarter of 2024, throughout the portfolio, Federal Realty has redevelopment projects underway with a projected total cost of around $324 million that it expects to stabilize over the next several years. Also, this retail REIT has ongoing improvements at seven properties to better position the assets to capture a disproportionate amount of retail demand. Such efforts bode well for the company’s long-term growth.
Federal Realty focuses on maintaining a decent balance sheet position with ample liquidity. The company exited the first quarter of 2024 with $1.3 billion of total liquidity in cash and credit facility. The annualized net debt-to-EBITDA ratio came in at 6 as of Mar 31, 2024. It is targeting a ratio in the mid-5 over the next year. The company has no debt maturities remaining in 2024 and no material maturities until 2026.
Shares of this Zacks Rank #3 (Hold) company have risen 1.7% in the past six months against the industry's decline of 1.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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What’s Hurting FRT?
However, 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. Consequently, this is expected to adversely impact the market share for brick-and-mortar stores.
Further, macroeconomic uncertainty and a high interest rate environment could limit consumers’ willingness to spend to some extent in the coming quarters. Also, the likelihood of tenant bankruptcies in the near term could affect the company’s profitability and hurt occupancy.
Given the prevailing high interest rate environment, Federal Realty may find it difficult to purchase or develop real estate with borrowed funds as the costs are likely to be on the higher side. Our estimate suggests a year-over-year increase of 4.7% in the company's 2024 interest expenses.
Stocks to Consider
Some better-ranked stocks from the retail REIT sector are Kite Realty Group Trust KRG and Acadia Realty Trust AKR, each currently carrying a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for KRG’s 2024 funds from operations (FFO) per share has been revised a cent northward over the past month to $2.05.
The consensus estimate for AKR’s current-year FFO per share has been revised a cent upward over the past two months to $1.28.
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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Federal Realty Investment Trust (FRT) : Free Stock Analysis Report
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