Federal Realty (FRT) Boosts Portfolio With Buyouts, Stock Up

Shares of Federal Realty (NYSE:FRT) Investment Trust FRT rallied 2.29% in the past two days after the retail REIT announced acquisition of four properties. The acquisitions are a strategic fit for the company, given the scope for value creation through redevelopment, merchandising and capital investment.

Particularly, Federal Realty has acquired Grossmont Shopping Center in greater San Diego, CA and Chesterbrook Shopping Center in McLean, VA. Further, in the Phoenix Metro area, AZ, the company has entered into a binding contract to buy Camelback Colonnade and Hilton Village. Notably, the assets under binding contract are expected to close by June end. Federal Realty will own an average 80% stake in the four assets, which totals 1.75 million square feet on 125 acres of land, at a gross value of $407 million.

According to Donald C. Wood, chief executive officer of Federal Realty, "From a grocery-anchored neighborhood center, to a specialty lifestyle center, to a dominant community center, to a large redevelopment opportunity focused on the highest and best use, these acquisitions showcase Federal's diverse portfolio and broad operating and redevelopment capabilities.”

Markedly, the Grossmont Shopping Center, a 925,000-square-foot super regional community shopping center in La Mesa, CA, enjoys a superior location which is likely to drive footfall. This property, comprising 64 acres of land, is situated at the interchange of two highly traveled freeways – Interstate 8 and CA 125 – with average daily traffic volume of 228,000 cars. It is just 10 miles northeast of downtown San Diego and less than five miles east of San Diego State University, both of which are connected with the San Diego Trolley which is in close proximity to the shopping center.

This superior location is likely to have made the property a sought-after one, leading to an occupancy of 99% and anchored by Target Corporation (NYSE:TGT) TGT, Walmart (NYSE:WMT) Inc. WMT and CVS Health (NYSE:CVS) Corporation CVS, among others. Federal Realty acquired 60% controlling interest in the property based on a gross value of $175 million. The company can control all the space in 2025, and this offers the retail REIT an opportunity for redevelopment, thereby increase the value of Grossmont over time.

The other acquisition – Chesterbrook Shopping Center – is a 90,000-square-foot grocery-anchored neighborhood shopping center on nine acres in McLean, VA. It is two miles southeast of downtown McLean and four miles east of Tysons Corner, situated on Old Dominion Dr (VA-309), a main thoroughfare between McLean and the greater Arlington, VA area. Federal Realty acquired 80% stake in the property based on a gross value of $32.1 million.

This property enjoys solid trade area demographics with 111,009 people and average household incomes of $245,709 within a three-mile radius, making it a solid buy for Federal Realty. Moreover, with remerchandising and incremental capital investment, there are scopes to increase value over time.

The retail REIT is also under binding contract to acquire the fee interest in Camelback Colonnade, a 642,000-square-foot super regional community shopping center in Phoenix, AZ, as well as a leasehold interest in Hilton Village, a 93,000-square-foot specialty retail center on 11 acres in Scottsdale, AZ. Federal Realty expects to add value to these properties through remerchandising and capital investments.

Notably, Camelback Colonnade is situated in a heavy-traffic, densely populated, infill trade area in Phoenix, leading to its retail space being 99% occupied. Federal Realty will acquire 98% interest in said property, based on a gross value of $162.5 million. Moreover, Hilton Village enjoys a great exposure to Scottsdale Road and proximity to affluent communities in the greater Phoenix market, in the midst of Scottsdale's resort corridor, leading to its 96% occupancy. Federal Realty will acquire 98% interest in Hilton Village based on a gross value of $37.5 million.

Markedly, Federal Realty has expertise in raising its operating performance through conversion, redevelopment and repurposing of assets. Moreover, reopening of the economy is raising hopes, and the strategic acquisitions poise the retail REIT to leverage on the rebound. In fact, the upscale geographic location of its properties, a diversified tenant base, focus on essential retail and mixed-use assets, and balance-sheet-strengthening moves will help it ride high though store closures, tenant bankruptcy and higher e-commerce adoption remain lingering concerns.

Shares of this Zacks Rank #3 (Hold) company have gained 35.9% in the past six months, outperforming the industry's 31% rally. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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