Federal Realty’s FRT portfolio of premium retail assets in well-off communities with favorable demographics positions it well for growth. A focus on essential retail and efforts to develop mixed-use assets aimed at diversification are likely to benefit the retail REIT over the long term. A strong balance sheet provides it with ample liquidity.

Last month, FRT reported third-quarter 2024 funds from operations (FFO) per share of $1.71, which narrowly missed the Zacks Consensus Estimate of $1.72. However, this marked a rise of 3.6% from the year-ago quarter’s $1.65. Results reflected healthy leasing activity and significant occupancy gains at its properties.

What’s Aiding FRT?

Federal Realty’s portfolio consists of premium retail assets, mainly situated in the major coastal markets from Washington, D.C. to Boston, San Francisco and Los Angeles. Due to the strong demographics and infill nature of its properties, the company has maintained a healthy occupancy level over the years. As of Sept. 30, 2024, the portfolio occupancy rate was 94%, up 170 basis points (bps) year over year. We estimate the leased occupancy rate for 2024 to be around 96.1%.

FRT enjoys a well-diversified tenant base of retailers, including industry giants 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 Sept. 30, 2024, no single tenant accounted for more than 2.7% of the annualized base rent (ABR). We estimate year-over-year growth of 5.9%, 4.7% and 3.9% in the company’s rental income in 2024, 2025 and 2026, respectively.

With a well-located portfolio and 80% of its centers having a grocery component offering essential goods and services, FRT is poised to experience an improving leasing environment. During the last 12 months, as of Sept. 30, 2024, the company witnessed strong demand for commercial space, with 95.9% of its comparable retail space leased spanning around 2.1 million square feet.

Federal Realty’s efforts to diversify its portfolio with residential and office properties are likely to pay off. 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. As of Sept. 30, 2024, the company had $850 million of mixed-use expansion projects in process. As of the same date, 12% of ABR came from residential properties, while 11% came from mixed-use office assets.

Federal Realty focuses on maintaining a decent balance sheet position with ample liquidity. The company exited the third quarter of 2024 with $1.35 billion of total liquidity in cash and credit facility. The annualized net debt-to-EBITDA ratio was 5.5 as of Sept. 30. The company has no debt maturities remaining in 2024 and no material maturities until 2026.

What’s Hurting FRT?

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.

Shares of this Zacks Rank #3 (Hold) company have risen 17.3% in the past six months, underperforming the industry's 21.3% growth.

Analysts seem bearish on this stock, with the Zacks Consensus Estimate for its 2024 FFO per share being lowered marginally over the past week to $6.78.

Image Source: Zacks Investment Research

Stocks to Consider

Some better-ranked stocks from the retail REIT sector are Regency Centers REG and Brixmor Property Group BRX, 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 Regency Centers’ current-year FFO per share has been revised marginally upward over the past month to $4.26.

The Zacks Consensus Estimate for Brixmor’s 2024 FFO per share has been revised marginally northward over the past month to $2.14.

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.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Federal Realty Investment Trust (FRT) : Free Stock Analysis Report

Regency Centers Corporation (REG) : Free Stock Analysis Report

Brixmor Property Group Inc. (BRX) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research