Add to federal property FRT into your portfolio seems like a smart idea given the strong fundamentals and solid outlook.
Increasing consumer preference for personal shopping experiences following pandemic downtime has fueled the recovery in the retail real estate industry. With this in mind, this retail real estate investment trust (“REIT”) is well positioned to benefit from its portfolio of prime assets in the United States.
Last month, Federal Realty reported fourth-quarter 2022 funds from operations (FFO) per share of $1.58, beating Zacks’ consensus estimate of $1.57. This also compared favorably to the $1.47 in the same quarter last year.
The results reflect healthy leasing activity and better than expected revenues. Quarterly revenue of $280.1 million beat consensus of $276.3 million and improved 10.2% over the year-ago quarter. For the fourth quarter, FRT delivered comparable real estate operating income growth of 5.4%. This retail REIT offered a bullish outlook for 2023.
For 2023, FRT estimates FFO per share at $6.38 to $6.58.
While shares of FRT are down 5.8% in the quarter to date, compared to the industry’s 1.5% decline, the estimate’s latest revision trend suggests analysts are bullish on the stock. Over the past month, the Zacks Consensus estimate for 2023 FFO per share is up 1.1% to $6.45.
Image source: Zacks Investment Research
The current price indicates a good entry point and FRT currently carries a Zacks Rank #2 (Buy). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks can be found here.
Factors that make Federal Realty a solid choice
Excellent location of the property and diversified tenant base: Federal Realty’s portfolio of prime retail properties – located primarily in the major coastal markets from Washington, DC 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 suburbs of the first ring of nine major metropolitan areas. The company has maintained high occupancy levels over the years due to strong demographics and the fill characteristics of its properties. A well-diversified retail tenant base minimizes the risks associated with a particular retail industry and ensures a stable source of rental income.
Expansion, development and redevelopment efforts: Federal Realty has capitalized on expansion opportunities in premium markets, which is driving income growth and creating long-term value. In 2022, it acquired real estate valued at $443.1 million. Additionally, as of the end of the fourth quarter, Federal Realty has portfolio-wide redevelopment projects underway with a total projected cost of $228 million, which is expected to stabilize over the next several years. Also, this retail REIT has ongoing improvements to 25 properties to better position assets to capture a disproportionate amount of post-pandemic retail demand. Such efforts bode well for the company’s long-term growth.
Mixed-use focus: Federal Realty is investigating the mixed-use development option, which has grown tremendously in popularity in recent years as it helps attract the attention of people who prefer to live, work and play in the same area. According to its recent investor presentation, the company had $500 million in mixed-use expansion projects underway located in the first ring suburbs of major metropolitan areas with significant growth drivers. This bodes well for long-term growth.
Balance Sheet & Cash Flow Strength: Federal Realty is focused on maintaining a decent balance sheet position with ample liquidity. The company ended 2022 with total liquidity of $1.3 million, which includes cash on hand and the full capacity of its $1.25 billion credit facility.
FRT current cash flow growth is forecast at 27.04% compared to 14.01% growth forecast for the industry. Additionally, this REIT’s trailing 12-month return on equity (“ROE”) underscores its growth potential. The company’s ROE of 14.06% compares well to the industry’s 6.01%, reflecting that FRT is more efficient at using shareholder money than its peers. Given its balance sheet strength and prudent financial management, the company is well positioned to take advantage of growth opportunities.
Dividend: Solid dividend payouts are arguably the biggest incentive for REIT shareholders, and Federal Realty remains committed to it. Concurrent with the release of its second quarter 2022 results, Federal Realty announced an increase in its regular quarterly cash dividend to $1.08 and has maintained its payment thereafter. The new dividend indicated an annual rate of $4.32 per share.
The company has paid uninterrupted dividends since its inception in 1962, and the most recent increase marked the company’s 55th consecutive year of joint dividend increases. It’s also increased its dividend five times in the last five years, which is encouraging. Given the company’s solid operating platform, growth opportunities, and decent financial position for the industry, this dividend rate is expected to be sustainable.
Other stocks to consider
Some other high-ranking stocks from the retail REIT sector are Essential Properties Realty Trust EPRT and Urstadt Biddle Properties Inc. UBA, each currently holding a Zacks Rank #2.
The Zacks Consensus estimate for Essential Properties Realty’s 2023 FFO per share was revised up a cent last month to $1.64.
The Zacks Consensus estimate for Urstadt Biddle Properties’ FFO per share for the year to date was revised up 2.6% last week to $1.60.
Note: Everything related to the earnings presented in this summary represents funds from operations (FFO) — a widely used metric to measure REITs’ performance.
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Federal Realty Investment Trust (FRT): Free Stock Research Report
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Essential Properties Realty Trust, Inc. (EPRT): Free Stock Research 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.
