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Here's Why You Should Retain Federal Realty Stock for Now
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Federal Realty (FRT - Free Report) 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 the choppiness in the job market raise concerns.
What’s Aiding Federal Realty?
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.
FRT 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 June 30, 2024, no single tenant accounted for more than 2.7% of the annualized base rent (ABR). We estimate year-over-year growth of 5.4%, 4.8% and 4.5% 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 second quarter of 2024, throughout the portfolio, FRT has redevelopment projects underway with a projected total cost of around $207 million that it expects to stabilize over the next few years. Also, this retail REIT has ongoing improvements at nine 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 second 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 5.8 as of June 30, 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 13.1% in the past six months, outperforming the industry's growth of 11.1%. Also, analysts seem bullish on this stock, with the Zacks Consensus Estimate for both 2024 and 2025 funds from operations (FFO) per share being revised upward over the past two months.
Image Source: Zacks Investment Research
What’s Hurting Federal Realty?
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.
Macroeconomic uncertainty and choppiness in the job market 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.
The Zacks Consensus Estimate for Brixmor’s 2024 FFO per share has been revised two cents northward over the past two months to $2.13.
The consensus estimate for Tanger’s current-year FFO per share has been revised three cents upward over the past two months to $2.09.
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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Here's Why You Should Retain Federal Realty Stock for Now
Federal Realty (FRT - Free Report) 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 the choppiness in the job market raise concerns.
What’s Aiding Federal Realty?
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.
FRT 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 June 30, 2024, no single tenant accounted for more than 2.7% of the annualized base rent (ABR). We estimate year-over-year growth of 5.4%, 4.8% and 4.5% 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 second quarter of 2024, throughout the portfolio, FRT has redevelopment projects underway with a projected total cost of around $207 million that it expects to stabilize over the next few years. Also, this retail REIT has ongoing improvements at nine 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 second 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 5.8 as of June 30, 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 13.1% in the past six months, outperforming the industry's growth of 11.1%. Also, analysts seem bullish on this stock, with the Zacks Consensus Estimate for both 2024 and 2025 funds from operations (FFO) per share being revised upward over the past two months.
Image Source: Zacks Investment Research
What’s Hurting Federal Realty?
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.
Macroeconomic uncertainty and choppiness in the job market 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.
Stocks to Consider
Some better-ranked stocks from the retail REIT sector are Brixmor Property Group (BRX - Free Report) and Tanger, Inc. (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 Brixmor’s 2024 FFO per share has been revised two cents northward over the past two months to $2.13.
The consensus estimate for Tanger’s current-year FFO per share has been revised three cents upward over the past two months to $2.09.
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.