Is it Wise to Retain Federal Realty Stock in Your Portfolio for Now?

Federal Realty’s FRT portfolio of premium retail assets in well-off communities with favorable demographics positions it aptly 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.However, higher e-commerce adoption and potential tenant bankruptcies remain concerns. The high debt burden adds to its woes.Last month, FRT announced the sale of Levare, a 108-unit residential building within Santana Row, San Jose, CA, for $74 million. Due to this sale, Federal Realty will be able to enhance its focus on key markets and boost its financial flexibility, allowing it to invest in high-performing assets that align more closely with its long-term growth objectives.What’s Hurting FRT Stock?Federal Realty’s portfolio of premium retail assets — mainly situated in the major coastal markets from Washington, D.C., 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 first-ring suburbs of nine major high-barrier markets, ensuring resilience and growth. Due to the strong demographics and infill nature of its properties, the company has maintained a healthy occupancy level over the years. As of March 31, 2025, the portfolio occupancy rate was 93.6%, an increase of 180 basis points (bps) year over year.FRT enjoys a well-diversified tenant base of retailers, including industry giants like TJX Companies TJX, Ahold Delhaize ADRNY and CVS Corporation CVS. This limits the company’s risk to any particular retail industry and positions it well for experiencing a stable source of rental revenues. 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.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 March 31, 2025, the company had $515 million of mixed-use expansion projects in process. As of the same date, 12% of ABR came from residential properties, while 10% came from mixed-use office assets.Federal Realty focuses on maintaining a decent balance sheet position with ample liquidity. The company exited the first quarter of 2025 with $109.2 million in cash and cash equivalents and $109 million drawn under its $1.25 billion total unsecured revolving credit facility. The annualized net debt-to-EBITDA ratio was 5.7 as of March 31, 2025.Solid dividend payouts are arguably the biggest enticement for REIT shareholders, and Federal Realty remains committed to that. The company has paid out uninterrupted dividends since its inception in 1962, and the latest hike in August marked the 57th consecutive year of common dividend increases by the company. Given FRT’s solid operating platform and balance sheet strength compared with industry counterparts, this dividend rate is expected to be sustainable in the upcoming period.What’s Aiding FRT Stock?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. Also, the likelihood of tenant bankruptcies could affect the company’s profitability and hurt occupancy.Despite the Federal Reserve announcing rate cuts in recent times, the interest rate is still high and is a concern for Federal Realty. The company has a substantial debt burden, and its total debt, net, as of March 31, 2025, was approximately $4.51 billion.Shares of this retail REIT, carrying a Zacks Rank #3 (Hold), have declined 5.7% over the past three months, underperforming the industry’s downside of 3.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Analysts seem bearish on the same, with the Zacks Consensus Estimate for its 2025 funds from operations (FFO) per share being lowered marginally to $7.15 over the past month.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.Image Source: Zacks Investment Research7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.5% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>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 The TJX Companies, Inc. (TJX): Free Stock Analysis Report CVS Health Corporation (CVS): Free Stock Analysis Report Federal Realty Investment Trust (FRT): Free Stock Analysis Report Ahold NV (ADRNY): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks