A "Dividend King" is an S&P 500 company that has increased its dividend for 50+ consecutive years; within the real estate investment trust sector, there is just one “king” and it's Federal Realty Investment Trust (FRT), explains Brad Thomas, a leading REIT expert and editor of Forbes Real Estate Investor.
To achieve that success, Federal Realty has built a highly diversified portfolio: no one tenant represents more than 2.7% of ABR (average base rent), the company has 2,933 tenants, and the top 25 tenants only account for 27% of ABR.
Federal Realty has a fortress of a balance sheet (rated A by S&P and Fitch), and the company continues to improve and is very well positioned from a capital perspective (net debt to EBITDA ratio moving lower to 5.4x, down from 5.9x at the start of 2018; the fixed charge coverage ratio is higher: 4.3x versus 3.9x at the start of the year).
Much of the success of Federal Realty has been the company’s focus on development and redevelopment (yields are between 6-12% vs. 4-6% stabilized cap rates, driving value creation).
Federal Realty is the only publicly traded shopping center REIT to grow NAREIT FFO per share every year since 2010. Federal Realty and Simon Property Group (SPG) are the only 2 out of 24 publicly traded retail REITs to grow NAREIT FFO per share every year since 2010.
Essentially this simply means that Federal Realty is “cycle tested,” as the stalwart REIT has maintained a best-in-class track record of delivering consistent earnings growth. As you can see, the company generated impressive returns since January 1, 2010: Total Annualized ROR of 10.1%.
Federal Realty has returned 12.2% YTD (through 2019) and we are maintaining a Strong Buy; that means we expect shares to generate 25%+ returns over the next 12-18 months.
Although we expect more retail bankruptcies in 2019, Federal Realty is well-positioned to take advantage of the opportunities, and we’re glad to see demonstrated experience at integrating uses such as retail, residential, office, and hotels (the company has developed approximately 4.6+ million SF and some 2,000 residential units of entitled mixed-use development opportunities within the portfolio).