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Federal Realty: A REIT for the Next Decade
10/13/2020 5:00 am EST
FRT's business model is very simple — they buy real estate and lease it out. They focus on high-quality real estate assets near big, readily recognizable cities in the US. The REIT does not focus on downtown locations. Instead, they prefer to own properties in first-ring suburbs of these cities.
Many have talked about the flight from urban areas, that isn't entirely new as for decades those who can afford to move to the suburbs frequently do. FRT has benefited from this trend as these areas have become more dense over the decades, driving property values up.
In addition, FRT has been one of the pioneers of the increasingly popular "mixed-use" property which incorporates retail, office space and residential uses all within convenient walking distance with shared open space.
To top off FRT's strengths of premium locations and excellent diversity, FRT has a very disciplined balance sheet. One of only a handful of REITs the have earned an "A" credit rating, they are rated "A3" by Moody's and "A-" by S&P.
Even with the impact of COVID-19 on Q2, FRT has very strong statistics. With nearly a billion in cash on hand FRT is well positioned to be an acquirer if any of their peers start selling properties at low prices to improve their cash position.
Investors today can be very confident that FRT will recover from COVID-19, just like they recovered from the various other bear markets they went through in their history. These price drops are the ideal time to buy FRT and hold for the next decade.
FRT has proven to be best in class, not just for a decade, but for many decades. This kind of endurance makes FRT a great choice as a conservative, long-term buy and hold. If you buy today, you will get a growing dividend that currently yields 5.3%.
Also there's substantial capital upside as FRT has historically traded with a dividend yield within 1% of US Treasury yields, sometimes even lower than the 10-year Treasury rate.
COVID-19 has pushed FRT to its highest spread ever! If FRT was to get back to just a 1.5% spread over the 10-year Treasury rate, that implies upside to $150. Historically, it has actually done much better, after spiking up it has returned to a zero spread.
In other words, FRT is a Dividend Aristocrat with a 5.3% yield, a dividend growing at 2-5% per year, and capital gains potential to double — all from a REIT with an "A" rated balance sheet and a proven history of over 50 years.
These are the kinds of opportunities that do not come around very often. We are definitely taking advantage of this one, and you should too. FRT is set to be one of your biggest winners in your high yield portfolio!
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