Here's Why it Is Wise to Retain Federal Realty Stock in Your Portfolio

Federal Realty FRT is well-poised to gain from the upscale geographic locations of its properties and a diversified tenant base. Efforts to diversify its portfolio and develop mixed-use assets are likely to benefit the company over the long term.

Its strategic portfolio rebalancing in the premium market bodes well for future growth. A healthy balance sheet is expected to aid its growth endeavors.

However, higher e-commerce adoption and potential tenant bankruptcies are likely to weigh on Federal Realty. Macroeconomic uncertainty and a high debt burden add to its concerns.

What’s Aiding FRT Stock?

Federal Realty’s portfolio of premium retail assets — mainly situated in the major coastal markets from Washington, D.C., to Boston, San Francisco and Los Angeles positions it well for decent growth. The company has strategically selected the first-ring suburbs of nine major high-barrier markets, ensuring resilience and growth. Due to the strong demographics and infill nature of its properties, FRT has maintained a healthy occupancy level over the years. As of June 30, 2025, the portfolio occupancy rate was 93.5%, which is an increase of 70 basis points (bps) year over year.

FRT enjoys a well-diversified tenant base of retailers, including industry giants like TJX Companies TJX, Ahold Delhaize ADRNY and CVS Corporation. This limits the company’s risk to any particular retail industry and positions it well for experiencing a stable source of rental revenues.

Federal Realty is focusing on diversifying its portfolio with residential and office properties. The company is exploring the mixed-use development option, which has gained immense popularity in recent years as it helps catch the attention of people who prefer to live, work and play in the same area. As of June 30, 2025, the company had $659 million of mixed-use expansion projects in process. As of the same date, 11% of ABR came from residential properties, while 10% came from mixed-use office assets.

Federal Realty has been capitalizing on expansion opportunities in premium markets, which leads to income growth and creates long-term value, by disposing of non-core assets and reinvesting the proceeds in such investments. In June 2025, the company completed the sale of the Hollywood Boulevard retail property, spanning 108,000 square feet in Los Angeles, CA, for $69 million. On the other hand, in July 2025, Federal Realty acquired Town Center Plaza and Town Center Crossing in Leawood, KS, spanning 550,000 square feet in total, for $289 million. Such expansion efforts augur well for long-term growth.

Federal Realty focuses on maintaining a decent balance sheet position with ample liquidity. The company exited the second quarter of 2025 with $177 million in cash and cash equivalents and $17.6 million drawn under its $1.25 billion total unsecured revolving credit facility. The annualized net debt-to-EBITDA ratio was 5.4 as of June 30, 2025. FRT has no material debt maturities until 2026. Federal Realty’s credit ratings of BBB+ (Stable) and Baa1 (Stable) from Standard & Poor's and Moody's, respectively, enable it to procure debt financing at a favorable cost.

What’s Hurting FRT Stock?

The market is witnessing a shift in retail shopping from brick-and-mortar stores to Internet sales. This is expected to adversely impact the market share for brick-and-mortar stores like FRT. Further, macroeconomic uncertainty could limit consumers’ willingness to spend to some extent in the coming quarters. Also, the likelihood of tenant bankruptcies could affect the company’s profitability and hurt occupancy.

A high debt burden adds to its woes. The company has a substantial debt burden, and its total debt, net, as of June 30, 2025, was approximately $4.31 billion.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research