Federal Realty Investment: A Wonderful Business At A Fair Price

seekingalpha05-10

FRT stock is trading at a large valuation premium, either compared to the sector median or to risk-free rates.However, uncertain times like ours are not the time to chase yield or look for basement ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2434486867?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1676115230/image_1676115230.jpg","is_english":true,"pubTime":"2024-05-10 22:52","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2434486867","market":"sg","top_or_hot":-1,"title":"Federal Realty Investment: A Wonderful Business At A Fair Price","media":"seekingalpha","content":"<div>\n<p>FRT stock is trading at a large valuation premium, either compared to the sector median or to risk-free rates.However, uncertain times like ours are not the time to chase yield or look for basement ...</p>\n\n<a href=\"https://seekingalpha.com/article/4691846-federal-realty-investment-a-wonderful-business-at-a-fair-price\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Federal Realty Investment: A Wonderful Business At A Fair Price</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nFederal Realty Investment: A Wonderful Business At A Fair Price\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-10 22:52 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4691846-federal-realty-investment-a-wonderful-business-at-a-fair-price><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>FRT stock is trading at a large valuation premium, either compared to the sector median or to risk-free rates.However, uncertain times like ours are not the time to chase yield or look for basement ...</p>\n\n<a href=\"https://seekingalpha.com/article/4691846-federal-realty-investment-a-wonderful-business-at-a-fair-price\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"TTM","symbol_name":"塔塔汽车","start_time":0,"source_url":"https://seekingalpha.com/article/4691846-federal-realty-investment-a-wonderful-business-at-a-fair-price","article_id":"2434486867","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1676115230/image_1676115230.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2434486867","pubTimestamp":1715352773,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"FRT stock is trading at a large valuation premium, either compared to the sector median or to risk-free rates.However, uncertain times like ours are not the time to chase yield or look for basement ba","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"TTM":"塔塔汽车","BK4588":"碎股","BK4159":"经销商","BK4080":"零售业房地产投资信托","TTM.AU":"TITAN MINERALS LTD","BK4099":"汽车制造商","CAGR":"California Grapes International, Inc.","BK7104":"黄金","BK4231":"零售房地产信托","FRT":"FRT信托","BK4585":"ETF&股票定投概念","BK4523":"印度概念"},"translate_title":"联邦房地产投资：价格合理的好生意","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"TTM":1,"US7Y.BOND":1,"US6M.BOND":1,"US5Y.BOND":1,"US3Y.BOND":1,"US30Y.BOND":1,"US2Y.BOND":1,"US12M.BOND":1,"US10Y.BOND":1,"TTM.AU":1,"FRT":1,"CAGR":1,"US912797HH31.BOND":0.6,"US912797FS14.BOND":0.6,"US912797GB79.BOND":0.6,"US912797GK78.BOND":0.6,"US912797GL51.BOND":0.6,"US912797GW17.BOND":0.6,"US912797HE00.BOND":0.6,"US912797FH58.BOND":0.6},"content_text":"FRT stock is trading at a large valuation premium, either compared to the sector median or to risk-free rates.However, uncertain times like ours are not the time to chase yield or look for basement bargains.FRT's growth would shrink its valuation multiples steadily to very attractive levels in a few years.And as for FRT's P/FFO premium over the sector, it is well justified in my view given the quality of its properties compared to the sector average.   wichayada suwanachun/iStock via Getty Images FRT stock: buy wonderful businesses at fair valuations The current situation surrounding Federal Realty Investment Trust (NYSE:FRT) is a textbook reflection of the wisdom to buy/hold wonderful businesses at fair prices (rather than fair businesses at wonderful prices). The chart below summarizes FRT stock’s valuation grade in comparison to the sector median. As seen, FRT multiples are not cheap in any way or by any standard. Based on the data here, FRT's P/E and P/FFO ratios are currently higher than the sector median by a large margin. Its trailing-twelve-month (TTM) P/E ratio is about 38x, almost 24% higher than the sector median of 30x. In terms of P/FFO, FRT’s TTM P/FFO ratio is 15.6x, again more than 20% higher than the sector median of 13x.   Seeking Alpha As a dividend king in the REIT sectors (which pays a large portion of its economic earnings as dividends), FRT’s dividend yields probably provide the most reliable valuation metric in the long term. The next chart below summarizes FRT stock’s dividend yield grade. As seen, FRT's forward dividend yield is currently hovering around 4.23%. This is again significantly lower than both the sector median (around 4.7%). By vertical comparison, its current yield is also slightly below its own 5-year average of 4.27%. On the surface, this signals fair valuation by its historical standards. However, we have to bear in mind the fact that the current risk-free rates are a lot higher than the average in the past 5 years. As such, the risk premium implied in FRT’s current valuation relative to risk-free rates is a lot higher than the average in the past 5 years. Next, I will argue why FRT still presents a compelling HOLD thesis despite such a large valuation premium the quality of its business and its growth potential are factored in.   Seeking Alpha FRT stock’s growth potential The market expects healthy and steady growth for FRT in the years ahead. More specifically, the chart below describes consensus FFO estimates for FRT stock together with the implied P/FFO ratios in the next 5 years. Based on their estimates, analysts expect FRT's FFO to grow steadily over the next five years. The consensus FFO estimate for fiscal year 2024 is $6.79, translating into an annual growth rate of 3.7% YOY. The growth rate is then forecasted to accelerate a bit afterward to 5.26% in FY 2025 and 4.85% in FY 2026. All told, analysts project continued growth through FY 2028, with an FFO of $8.59, representing a compound annual growth rate (CAGR) of 4.8% over the five-year period – quite satisfactory for a mature business in my view. Also note that with this projected growth curve, the forward P/FFO would shrink steadily in tandem. The FY1 P/FFO ratio is 15x, not cheap as aforementioned. This is expected to decline gradually to 11.89x in the next five years.   Seeking Alpha I share a very similar outlook for FRT growth. FRT is well positioned to achieve the above-projected earnings growth in the years ahead thanks to a few key differentiators in this business model in my view. First, FRT focuses on acquiring and developing high-quality properties in densely populated, affluent locations. This strategy fosters strong tenant demand and higher rents compared to the broader retail market. Second, FRT cultivates long-term relationships with its tenants, boasting an average tenant tenure of over 20 years. This stability allows them to negotiate favorable lease agreements, minimize the risk of vacancies, and maximize the recurrence of rent income. Finally, FRT goes beyond simply leasing space. They actively partner with tenants to curate a desirable customer experience. This could involve co-hosting events or developing mixed-use properties that integrate retail, dining, and residential spaces. These factors combine to create a strong foundation for sustained rental income growth. I see a few current initiatives that can help to illustrate the above differentiation factors. For example, the recent acquisitions in areas like Seattle and Los Angeles serve as a good demonstration of FRT’s strategy to focus on properties in high-growth markets. A second example involves FRT’s ongoing investments in mixed-use developments. These ongoing projects aim to create vibrant destinations for both residents and shoppers. Example projects include the Pike & Rose in Bethesda Maryland, Santana Row in San Jose California, and Assembly Row in Somerville Massachusetts. Downside risks and final thoughts The leading downside risk is FRT’s sensitivity to borrowing rates and its continued need for capital to fund its capital projects. Its long-term debt has been rising quite rapidly in recent years, as seen in the top panel from the chart below. It was around $3.4B in 2020 and now sits at around $4.6B. In the recent 1 year or so alone, FRT has raised quite a bit of additional capital to fund growth via various avenues. For example, in late December of last year, it secured a $200M two-year mortgage against its Bethesda Row property at a rate effectively fixed at 5.03% through its initial maturity date. Then early this year (in January 2024), it issued $485 million in 3.25% exchangeable senior notes due in 2029. However, thanks to its robust cash generation and profit growth, the leverage ratios have stayed relatively stable over the years. As seen in the mid panel of the chart below, its current debt/EBITDA ratio hovers around 6.2x, only slightly above its 5-year average of 5.94x. In terms of debt/equity ratio, as shown in the bottom panel of the chart, the current level of 0.515x is also on par with its 5-year average of 0.512x. To conclude, during times full of uncertainties (like our current time), I strongly encourage investors to hold wonderful businesses even at fair prices. I do not think these are times to either chase yield or look for basement bargains. When the overall market is so expensively valued as it is now, cheap valuation multiples (which are the root cause for high yields and basement bargains) should be an alarming sign of quality issues rather than a draw. As such, my verdict is that FRT presents a compelling hold thesis. Admittedly, there is no obvious discount in its valuation compared to its historical track record, and there is even a sizable premium compared to the sector median. But I think the consistent growth would shrink its valuation multiples steadily to very attractive levels in a few years. And as for the premium over the sector medium, my view is that this is well-justified given its differentiation factors and the quality of its properties compared to the sector average.    Seeking Alpha","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.5","shortVersion":"4.22.5","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2434486867"}