Federal Realty (FRT)

by | Nov 22, 2020 | Companies, Episodes | 0 comments

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The Santana Row property in San Jose, CA.  Image Source: SanJose.org

The History of Federal Realty


  • Started by Samuel Gorlitz.  In the 1950s Gorlitz was an economist who studied at the University of Chicago and later worked for the State Department.  On the side he would invest in real estate projects and started up the Investor Service venture, which he used as the vehicle to help his interested colleagues invest with him.
  • Federal legislation changed in 1960 and allowed for REITs to be created.  Two years later, in 1962 Gorlitz created Federal Realty, making it one of the oldest REITs in the nation.
  • Over time Federal Realty grew, making acquisitions in dozens of markets across the United States.
  • By 1999 they had over 18.6 million square feet of property.  In 2020 that has now grown to 24 million.


Business Overview



  • Federal Realty focuses on being a landlord for shopping centers and mixed-use developments, which are primarily located in dense, affluent markets.
  • Though they primarily focus on shopping centers they do own residential real estate in their portfolio as well (a little less than 2,800 units).
  • Occupancy was at 92% at the end of 2019, which is pretty good.
  • In the past year they sold $300 MM worth of property and used that money to buy another $300 MM of other property.
  • All told, they own 104 properties.  As far as the most heavily concentrated states, 20 are in California, 17 are in Maryland, 17 are in Virginia.  55% over their leasable area is in those three states.




2012 2019 CAGR (%) / Comments
Sales 582 MM 932 MM 7%
Net Income 151 MM 345 MM 12.5% 
Earnings Per Share $2.35 $4.61 10%
Interest Expense 113 MM 109 MM Overall interest expense has actually held steady over the years.
FFO 277 MM 465 MM 7.6%
FFO Per Share $4.26 $6.17 5.4%
Cash 37 MM 127 MM
Long Term Debt 2.2 3.3
Operating Cash Flow 296 MM 465 MM
Investing Cash Flow (273 MM) (316 MM)
Financing Cash Flow (54 MM) (100 MM)
Dividends (180 MM) (313 MM) 8.2%
Dividends Per Share $2.80 $4.14 5.7%
Shares Outstanding 65 MM 75 MM 2%


Valuation and Closing Thoughts


  • Went from 19.5 MM sq. ft to 23.6 MM sq. ft of leasable area between 2012 and 2019.  About 2.7% annual growth in actual space over the years.
  • Overall diversification of tenants has more or less stayed the same
  • Throughout the 2007-2012 time period, key metrics for this business went up each year.  Real estate assets went up, rental income went up, and operating income went up.  And I want to stress that this is not a medium term trend, but that these numbers did in fact go up every year.
  • Share dilution has happened but it has been minimal.  Dividend per share increases have been in line with increases in FFO per share, so management doesn’t seem to be overreaching on the payouts.
  • The company’s management makes the case that yeah, Federal Realty is growing more slowly than it has in past years (lots of retail bankruptcies have contributed to this).  However, their properties are geographically located in the most affluent areas in America, with the best job and wage growth long term.  These are key factors for making sure that rental rates can continue to be raised over time.
  • Long term, I believe that people will need and demand less commercial real estate than in years past, but they are going to need it.  Businesses need a place to do business.  Even a software firm, with very few physical assets or capital expenditures, requires places to conduct meetings, meet with clients, and house workers who aren’t working remotely.
  • In late August 2020, this company is trading at around $80 per share, and yielding about a 5% dividend yield.  The dividend was raised in the midst of the COVID-19 crises for the 53rd year in a row.
  • The company is definitely going through a tough time (as are most businesses), but they remain 93% leased across the portfolio and their trends throughout the summer indicate they are able to collect a higher percentage of their rent from tenants.  I am optimistic about this company and this stock.
  • In normal times FFO of $6.17 can be achieved.  That would equate to a P/FFO of 13x, which is not bad.
  • On the value side of things this company is not trading as cheaply as something like a SPG or MAC, but in exchange you are getting more reliable cash flows, including a dividend that is consistently going UP. 


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