Is Now A Good Time To Buy Federal Realty Investment Trust?

When investors consider the acquisition of a stock, there are numerous variables to assess as part of an informed decision. Investors should look into the fundamentals of a stock as well as its historical performance, dividend growth and recent events.

Investors also should consider whether now is an opportune moment to acquire a particular stock. How do analysts perceive the company’s prospects? Does it have a niche that makes it superior? Are there technical indicators that indicate better performance in the future?

Take a look at one diversified, triple-net lease real estate investment trust (REIT) that is carving out a geographic niche for itself that should bode well for its future earnings, even if 2024 brings about a recession.

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Federal Realty Investment Trust FRT is a Maryland-based diversified, triple-net lease REIT that owns 102 shopping malls and mixed-use offices as well as 3,100 residential units in wealthier metro markets on the East and West coasts of the U.S. It has 3,300 tenants and focuses on more affluent and growing areas.

A member of the S&P 500, Federal Realty Investment Trust has been in business since 1962 and is one of the oldest REITs on Wall Street. Federal Realty Investment Trust is a Dividend King and holds the ongoing record for annual dividend increases with 56 consecutive years. 

The diversification of its tenant base is a real strength. Grocery stores and pharmacies make up the largest industry concentration at 10%. No single tenant contributes more than 2.7% of annual base rent (ABR) and only eight tenants have more than a 1% exposure. Anchor properties comprise 35% of its portfolio. 

Recent acquisitions, like Huntington Square in East Northport, New York, for $35.5 million have been aimed at growing its premium markets. 

Federal Realty's top 10 tenants include T.J. Maxx, CVS, Gap, Kroger, Ross Stores Inc. and The Home Depot. These are all recession-resistant retailers that are not likely to miss rent payments.

Federal Realty's office portfolio comprises about 9.5% of its total ABR. Many of its office leases are also recession-proof entities such as government, healthcare, biosciences and medical technology industries. 

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Federal Realty Investment Trust has a market cap of $7.678 billion. Its 52-week range is $85.27- $115.08, and its most recent closing price was $93.45

On Nov. 2, Federal Realty Investment Trust announced its third-quarter operating results. Funds from operations (FFO) of $1.65 beat the consensus estimates of $1.62 and was above FFO of $1.59 in the third quarter of 2022. Revenue of $286.32 million beat the estimate of $283.79 million and was also 4.71% better than revenue of $273.45 million in the third quarter of 2022.

Federal Realty said one reason for the FFO improvement is that its portfolio occupancy was up 20 basis points from the third quarter of 2022 to 92.3% in the quarter ending Sept. 30.

In addition, Federal Realty raised the lower end of its FFO 2023 guidance from $6.46-$6.58 to $6.50-$6.58, and declared a quarterly dividend of $1.09 per share, in line with its previous dividend, payable Jan. 16 to shareholders as of Jan. 2. The ex-dividend date will be Dec. 29.

The annual $4.36 dividend yields 4.66%, and the payout ratio is a moderate 66%.  Over the past five years, the quarterly dividend has grown from $1.02 to $1.09. The most recent dividend increase was in September when it was raised from $1.08 to $1.09.

For several months, analysts at firms such as Mizuho and Raymond James have been downgrading Federal Realty Trust. However, analysts are beginning to regard it more positively. On Nov. 3, ISS-EVA upgraded Federal Realty from Underweight to Overweight, and research firm CFRA Research reiterated a Buy on it, saying, "We think FRT's premium mixed-use portfolio concentrated within affluent markets can better weather potentially volatile market conditions."

Going back to the beginning of 2022, Federal Realty traded at a high of $130 and sits about 28% below that mark. It has recently come up from a bottom near $85 and easily exceeded the 50-day moving average, but just overhead at $95.68 is the more difficult 200-day moving average. If it can overcome resistance there, the next major resistance would be around $103.

Federal Realty's third-quarter earnings were good, its occupancy levels are improving, analysts are coming around, and most of its tenants are in recession-resistant industries. This could be an opportune time to pick up some shares, particularly on any retracement from its recent runup from $85 to $93.

Weekly REIT Report: REITs are one of the most misunderstood investment options, making it difficult for investors to spot incredible opportunities until it's too late. Benzinga's in-house real estate research team has been working hard to identify the greatest opportunities in today's market, which you can gain access to for free by signing up for the Weekly REIT Report.

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