EUR 850.00 For Business Accounts Only

Morningstar | A high-quality portfolio should help Federal Realty weather retail headwinds.

Federal Realty is a retail-based real estate investment trust that focuses on owning and operating high-quality shopping centers and mixed-use assets in eight of the largest metropolitan areas. It has strategically acquired and developed assets in submarkets with strong demand drivers, creating a portfolio with average location population density and median household income higher than any other retail REIT. As a result, Federal Realty has been able to drive strong comparable net operating income growth and average double-digit re-leasing spreads over the past two decades. Its portfolio should continue to attract shoppers and tenants and produce solid internal growth even in a challenging retail environment.E-commerce continues to pressure brick-and-mortar retail as consumers increasingly move their shopping habits online. While many of Federal's tenants must directly compete with the growth of e-commerce, much of the portfolio is insulated from online competition. Segments like grocery stores, restaurants, fitness centers, and other service-based businesses still drive traffic to physical retail centers. Regardless of the competition from e-commerce, location is still paramount for retailers. Retailers are becoming more selective with their physical locations, opting to locate storefronts in the highest-quality assets while closing stores in low-productivity sites. Thus, we expect Federal's portfolio to remain in demand despite the changing retail environment.Federal Realty has launched several large mixed-use developments. These new retail-centric projects incorporate meaningful office, residential, and/or hotel components in an attempt to attract tenants seeking cohesive live-work-play environments. This symbiotic relationship should drive additional demand to the company's portfolio, but venturing into real estate businesses outside management's historical core competency creates additional execution risk. We view these projects positively as there is growing demand for mixed-use neighborhoods, but we will watch to see if Federal has to treat any segment as a loss leader to attract people to spend on the other segments.