Federal Realty Investment Trust Stock Can Still Grow By 40%

We believe that Federal Realty Investment Trust stock (NYSE: FRT) has an upside potential of 40% in 1-1.5 years, once the consumer demand improves and the retail sales recovers to the pre-Covid level. FRT trades at $90 currently and it has lost 30% in value year-to-date. It traded at a pre-Covid high of $126 in February and is 28% below that level now. Also, FRT stock has gained 35% from the lows of $67 seen in March 2020, after the multi-billion dollar stimulus package announced by the U.S. government which has helped the stock market recover to a large extent. The stock is lagging the broader markets (S&P 500 is up about 65% since the March bottom), as investors are concerned about a drop in the rent collections rate of Federal Realty Investment Trust.

The company owns a portfolio of commercial properties near densely populated areas with affluent communities – where retail demand exceeds supply. Due to the Covid-19 pandemic and lockdown restrictions, retail businesses have suffered significant losses, leading to a drop in FRT’s rent collection rate. The same was evident from FRT’s cumulative revenues for the first three quarters – down 12% y-o-y. That said, its carefully selected properties at highly desirable locations are likely to ensure higher demand for its retail assets. Further, most of them are open-air facilities, which are considered comparatively safer than malls. Despite some growth in FRT stock since late March, we believe that the stock has room for growth in the near future provided there is no sudden uptick in the Covid-19 cases leading to further lockdown restrictions. Our conclusion is based on our detailed analysis of Federal Realty Investment Trust’s stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.

2020 Coronavirus Crisis

  • 12/12/2019: Coronavirus cases first reported in China
  • 1/31/2020: WHO declares a global health emergency.
  • 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
  • 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
  • From 3/24/2020: S&P 500 recovers 64% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.

In contrast, here’s how FRT and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis


  • 10/1/2007: Approximate pre-crisis peak in the S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of the S&P 500 index
  • 1/1/2010: Initial recovery to levels before the accelerated decline (around 9/1/2008)

Federal Realty Investment Trust vs S&P 500 Performance Over 2007-08 Financial Crisis

FRT stock declined from levels of around $91 in October 2007 (the pre-crisis peak) to roughly $41 in March 2009 (as the markets bottomed out), implying that the stock lost as much as 55% of its value from its approximate pre-crisis peak. This marked a slightly sharper drop than the broader S&P, which fell by about 51%.

However, FRT recovered strongly post the 2008 crisis to about $68 in early 2010 – rising by 65% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

Federal Realty Investment Trust’s Fundamentals in Recent Years Looked Strong

Federal Realty Investment Trust revenues grew 26% from $744 million in 2015 to $935.8 million in 2019. Similarly, the company’s adjusted net income increased from $209.7 million to $345.8 million over the same period. The company’s Q3 2020 revenues were 11% below the year-ago period due to lower rental income. On the same note, its EPS figure decreased from $0.84 to -$0.41 mainly driven by an impairment charge of $57 million.

Does Federal Realty Investment Trust Have A Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?

Federal Realty Investment Trust’s total debt increased from $2.7 billion in 2016 to $4.5 billion at the end of Q3 2020, while its total cash increased from $23.4 million to around $863.3 million over the same period. The company generated around $268.4 million in cash from its operations in the first nine months of 2020, and if its cash situation further worsens, it might be difficult for the company to weather the crisis.


Phases of Covid-19 crisis:

  • Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
  • Late-March 2020 onward: Social distancing measures + lockdowns
  • April 2020: Fed stimulus suppresses near-term survival anxiety
  • May-June 2020: Recovery of demand, with the gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
  • July-October 2020: Weak Q2 and Q3 results, but continued improvement in demand and progress with vaccine development buoy market sentiment.

Keeping in mind the trajectory over 2009-10, this suggests a potential recovery to around $126 (40% upside) once economic conditions begin to show signs of improving, provided its debt condition doesn’t deteriorate any further. This marks a full recovery to the $126 level Federal Realty Investment Trust’s stock was at before the coronavirus outbreak gained global momentum.

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