Federal Realty Investment Trust: The Only REIT Dividend King

How does FRT continue to grow in just about any environment and how will it do so in the future? Part of the reason why FRT continues to grow is through its disciplined acquisition strategy. The company is highly discerning when it comes to selecting new properties to take on or develop – as mentioned earlier – and the strategy has certainly worked well.

It is even meticulous about its financing as equity raises are used as a last resort and low-cost debt is the preferred method. This helps improve margins and keeps shareholders from experiencing constant dilution; a key to strong returns over the long term.

The company’s stated growth strategy is to maximize income and increase property value by redevelopment and remerchandising. That can mean anything from a façade renovation to a more comprehensive reconfiguration but the end goal is the same; higher occupancy and rental rates.

In addition, FRT has significant expertise in the master planning, design, development and operations of mixed-use properties. In other words, FRT has meaningful and proven experience in a variety of property development methods and this is key to its continued growth and success going forward.

To this end, FRT always has a robust pipeline of new properties in flight and today is no different.

FRT Developments

Source: Investor roadshow presentation

This snapshot of FRT’s mixed-use development pipeline shows its 300+ acres of commercial, residential and hotel space that is currently in process. It all adds up to 4.5M square feet of commercial space, 2,300+ apartments and 552 hotel rooms. However, the potential for future growth is enormous at roughly 17M square feet. FRT is certainly opportunistic when it comes to acquiring properties but apart from that, its expertise in terms of developing beautiful, functional properties that lessees actually want to rent space in has been a key to FRT’s growth over the long term.

FRT stays in its lane, so to speak, in terms of growth as it has some key, core markets it wants to dominate and works everyday towards that end. FRT doesn’t want to be everywhere; it just wants to be really good in the places it thinks it can achieve outsized returns and the formula obviously works.

FRT’s relentless focus on quality in developing new properties has also led to class-leading rents and further, much higher new lease rents than the rest of the sector.

FRT Rents

Source: Investor roadshow presentation

FRT’s new leases far and away exceed its existing leases in terms of pricing, not only boosting revenue growth but margins as well. FRT has found the sweet spot for new properties via its targeted development strategy and the results are undeniably good. This strong growth in new lease rents will continue to move the needle over time as more and more of FRT’s portfolio sees higher rent levels. This is an important growth lever that is not to be missed by investors.

The proof is in the numbers as we can see here that by any growth measure one can throw at FRT, it has succeeded. The company’s real estate assets at cost have grown roughly 60% since the end of 2012, its rental income has expanded by 45% and its POI has moved 37% higher during this time frame.

While property management and development certainly has its ups and downs from an economic perspective – and FRT isn’t immune from those – the growth this company has seen over the long term is unequivocal and that looks set to continue moving forward. FRT has a variety of growth avenues – including lots of properties in development and a prudent acquisition strategy – and it has the expertise to take full advantage of them.

Competitive Advantages & Recession Performance

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