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Why Federal Realty Stock Lost a Third of Its Value in the First Half of 2020

By Reuben Gregg Brewer – Jul 7, 2020 at 11:49AM

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This iconic REIT has been hit hard by investors worried about COVID-19, which makes complete sense. But is that an opportunity?

What happened

Shares of retail-focused real estate investment trust (REIT) Federal Realty (FRT) fell 33% through the first six months of 2020, according to data from S&P Global Market Intelligence. At the lowest point of that span, the shares were down around 50%. For comparison, the broader REIT sector, as measured by Vanguard Real Estate ETF, was down about 30% at the worst of the span and off by just 15% over the full six-month period. Clearly Federal Realty is an industry laggard today. 

So what

Federal Realty's relatively poor showing actually makes sense, given its focus on the retail sector. While it tends to own highly desirable properties in wealthy regions, that doesn't change the fact that COVID-19 has upended the retail industry. With nonessential businesses shut down and consumers being asked to stay home in an effort to slow the spread of the coronavirus, even the best-positioned retail REITs have experienced material stress. To put a number on that, the company had collected only around 53% of its April rent by May 1. That's a terrible number.  

Cash registers at a clothing store with no employees or customers in the picture

Image source: Getty Images.

With an incredible 52-year streak of annual dividend increases behind it, Federal Realty has clearly managed through tough times before. However, the current hit from COVID-19 is likely far from over. Highlighting that fact is the rise in cases in states that were early to start the reopening process. The impact of the coronavirus could easily get worse before it gets better, since there's no clear end in sight. Federal Realty and its shareholders continue to face notable risks.  

What now

Federal Realty has proven over time that it is a well-run REIT. The current storm it is facing, however, is still crashing down. Long-term dividend investors should probably consider putting the stock on their wish lists. But unless you have a pretty strong stomach, it might be best to wait for more material improvement on the COVID-19 front before stepping in here.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Vanguard REIT ETF. The Motley Fool has a disclosure policy.

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