UBS’ Top Quant Stocks In AI, IT, Healthcare & Other Sectors: Top 33 Stocks In All Sectors

29. Federal Realty Investment Trust (NYSE:FRT)

Number of Hedge Fund Investors In Q2 2024: 24

Sector: Real Estate

Federal Realty Investment Trust (NYSE:FRT) is a Maryland-based real estate investment trust that invests in retail properties such as shopping centers. This means that the firm is heavily exposed to consumer spending trends, inflation, and economic health when compared to other REITs such as those that invest in residential real estate. Consequently, Federal Realty Investment Trust (NYSE:FRT)’s shares are up by a modest 5.70% year to date, and were it not for a 6% share price gain in July, the shares would be down 3.7% year to date. This indicates the extent to which the Federal Realty Investment Trust (NYSE:FRT)’s hypothesis depends on the consumer spending environment. Additionally, the firm also does well when inflation is low as the costs of maintaining its portfolio drop. Lower costs are another driver of Federal Realty Investment Trust (NYSE:FRT)’s hypothesis due to its sizable portfolio made of $10.2 billion of operating real estate at costs. Higher costs reduce the firm’s ability to pay dividends, which are a key primary attractive point of real estate stocks.

Here’s what Federal Realty Investment Trust (NYSE:FRT)’s management believes is in store for it for 2025:

“First, prior period rents from COVID-era deferral agreements will wind down to essentially zero in 2025 from $3 million in 2024. Second, as tenants are reluctant to give back space in the current environment, term fees should be light for a second consecutive year, essentially flat to 2024. Capitalized interest will fall to the mid-teens as we place more of our significant $850 million development pipeline into service over the year. And we expect our credit reserve to be more normalized for 2025, given the expectation of a moderating economy. Use our historical average of roughly 100 basis points as a placeholder for now. Although currently, we do not see any significant near-term risks in the watch list as of today. On the positive side of the ledger, as outlined previously in our remarks, occupancy growth should continue upwards, likely towards 95% over the course of the year.

Additionally, rent growth from sector-leading contractual bumps and strength in rollover should continue, as well as upside from recent acquisitions and contributions from the delivery of space in the redevelopment pipeline. All of these will more than offset any headwinds and fuel continued momentum in our bottom line FFO per share growth into 2025.”