Brixmor Property Group (BRX -0.09%) is offering investors a 5.2% dividend yield today. Peer Federal Realty (FRT -1.20%) has a yield of 4.7%. From a simple yield perspective, Brixmor has the upper hand, but don't dismiss Federal Realty. In important ways, it is a much better REIT and, particularly for conservative investors, the better investment choice. Here's why.
Everyday needs
Strip malls are not the most exciting thing a real estate investment trust (REIT) can own. However, they are reliable cash generators, because they generally house the types of businesses that consumers frequent on a regular basis, including grocery stores, restaurants, and service providers such as hair salons and dry cleaners. Moreover, they're usually local and easy for nearby residents to get to.
Image source: Getty Images.
To give you an idea of how consistent these types of properties are, Federal Realty has increased its dividend annually for 55 consecutive years. That makes it a highly elite Dividend King, and its streak is the longest in the REIT sector. You don't build a record like that with risky assets. But what's interesting about Federal Realty compared with its peers is that it owns only around 100 or so properties. Brixmor, by comparison, owns just over 370.
Brixmor is a much younger REIT, so there's no way it could have a 50-year streak of annual dividend increases. That said, the 2020 coronavirus pandemic resulted in a dividend cut. The dividend remains below pre-pandemic levels. This is one of the reasons conservative investors will probably prefer Federal Realty over Brixmor, despite Brixmor's slightly higher dividend yield.
The core
That said, there's a deeper story. These two REITs have vastly different approaches. Federal Realty is all about finding the best properties in the best locations -- it's basically a case of quality over quantity. Brixmor, well, it has taken a quantity-over-quality approach. This approach shows up in two very important ways when you look at the demographics of the regions these two REITs serve.
From a population perspective, there are nearly 180,000 households within three miles of Federal Realty's properties. Brixmor's number is closer to 85,000. There are simply more people around to shop at Federal Realty's strip malls. Brixmor rightly highlights that it has a lot of redevelopment potential at its properties, as does Federal Realty, but that can't make up for the population difference. Even the best-looking strip mall in a low-density region can only attract just so many customers.
But having a lot of people around a property isn't the only differentiator here. The average income around Federal Realty's properties is roughly $105,000. Brixmor comes in at a little under $80,000 on this metric. In other words, there are more people with more money around Federal Realty's portfolio. It doesn't take much to see that retailers will probably find Federal Realty's properties more attractive than those on offer from Brixmor. That's not to suggest that Brixmor won't attract tenants, but the pricing power it has will probably be lower than what Federal Realty can wield.
Big isn't always better
This isn't meant to disparage Brixmor. It's a reasonably well run strip-mall REIT. However, it simply doesn't stand up to Federal Realty when you consider dividend history, population density, and the wealth of the regions served. Despite the slightly lower yield, Federal Realty is a much better positioned REIT.
