Federal Realty Investment Trust (NYSE:FRT) is an astutely managed real estate investment trust focusing on commercial properties, providing a constant flow of high-quality dividends to passive income investors from its underlying real estate portfolio.
The trust has delivered robust FFO performance, maintained a well-utilized property portfolio, and sustained a moderate pay-out ratio in the mid 60s, paving the way for substantial long-term dividend growth. Notably, Federal Realty Investment is an ideal choice for passive income investors seeking resilience during economic downturns, based on its historical performance during periods of economic stress.
Finally, Federal Realty Investment is poised to be a fundamental investment in a passive income portfolio, alongside other robust retail investments such as Realty Income Corp. (O).
A Rock-Solid Portfolio
Federal Realty Investment’s real estate portfolio comprises commercial and residential assets. As of the third quarter, the trust’s portfolio included 102 open-air properties, 26 million square feet, 3,300 commercial tenants, and 3,100 residential units. Notably, the trust’s commercial assets are predominantly located in major metropolitan markets known for their strong economics, including Boston, New York, Chicago, Miami, and Southern California.
Furthermore, Federal Realty Investment’s commercial portfolio boasts a stable lease rate of 94%, while the residential portfolio, consisting of 3,104 residential properties, enjoyed a robust lease rate of 97.8%. The commercial assets, which are mainly retail properties leased to tenants like TJX, CVS Pharmacy, and GAP, are the primary income generators for the trust.
Strong Financial Performance
Federal Realty Investment has demonstrated consistent and predictable FFO growth, a vital factor for passive income investors. In the third quarter of 2023, the trust’s portfolio produced $137.0 million in FFO, showcasing an impressive 5% year-over-year growth. Notably, the trust’s FFO per diluted share also rose by 4% year-over-year, resulting in an implied pay-out ratio of 66% during the same period.
Federal Realty Investment raised its guidance for 2023 FFO in the third quarter, expecting $6.50-6.58 per share in FFO, up from the previous guidance of $6.46-6.58 per share. The trust’s stock is presently selling at an attractive FFO multiple of 14.4x, making it an appealing investment opportunity for passive income investors.
Investment Risks and Conclusion
While Federal Realty Investment faces risks associated with pandemics, consumer spending downturns, and real estate recessions, it has shown resilience in overcoming these challenges. The trust’s well-covered dividend and focus on retail properties in strong metropolitan areas position it as a compelling asset for passive income investors. Based on its strong performance and financial stability, Federal Realty Investment is a prominent choice for passive income portfolios seeking enduring dividend growth even during economic downturns.