Company Reports

We believe that there are several attractive opportunities across the US REIT sector for investors to consider. Following the recovery of many REIT sector fundamentals from the pandemic by mid-2021, we viewed the REIT sector as fairly valued through early 2022. However, the past two years have seen the rapid rise in interest rates and a slowing economy, which has led to major valuation declines across the sector. Our analysis of the REIT sector over the past 25 years suggests that the relative stock performance of REITs is negatively correlated with interest rate movements. The second and third quarters of 2023 saw large interest rate increases with the 10-year Treasury approaching 5%, which led to the sector underperforming. This occurred even as many REITs reported same-store net operating income, or NOI, growth at historical highs in 2022 due to high inflation. Higher interest rates, lower liquidity, tighter capital market conditions, and decelerating same-store NOI growth all led to a significant correction in the stock price for many REITs.

Retail real estate investment trust Kimco Realty owns and operates a geographically diversified portfolio of quality shopping centers. Its retail portfolio includes grocery-anchored centers, superregional centers, power centers, and mixed-use urban centers. The company has transformed dramatically, having sold over 400 properties for more than $6 billion since 2010, which has significantly improved the portfolio's quality. Currently, Kimco derives more than 80% of its annual base rent from major metropolitan markets. Management continues to strategically sell lower-quality assets and reinvest the proceeds in high-yielding development and redevelopment projects.

Kimco Realty reported fourth-quarter results that were relatively in line with our estimates, giving us confidence in our $25.50 fair value estimate for the no-moat company. Same-store occupancy improved 70 basis points sequentially to 96.2%, slightly better than our 96.0% estimate. Re-leasing spreads remain strong at 11.3%, which was better than our estimate of new rent terms being 8.8% higher than expiring rent. As a result, average base rent per square foot increased 3.4% year over year and same-store revenue increased 2.1%. Operating expenses fell 0.6% in the fourth quarter, leading to same-store net operating income growth of 3.2% that beat our 2.0% growth estimate. The company reported funds from operations, or FFO, of $0.39 per share for the fourth quarter, which was a penny below our $0.40 estimate for the quarter.

Third-quarter results for no-moat Kimco Realty were in line with our estimates, leading us to reaffirm our $25.50 fair value estimate. Same-store occupancy sequentially fell 30 basis points to 95.5%, slightly worse than our estimate of flat growth for the third quarter, with Bed Bath & Beyond vacating the last 16 remaining anchor spaces having a 45-basis point impact on occupancy during the quarter. However, blended re-leasing spreads were very strong at 13.4% in the quarter, the highest single quarter in six years, with rent terms to new tenants up 34.9% over prior rent levels, while renewals were also strong at 8.8% higher rent terms. Same-store revenue grew 2.6% in the quarter, while same-store operating expenses grew 2.7%, leading to same-store net operating income growth of 2.6%, which was slightly better than our estimate of 1.4% growth. Kimco reported funds from operations of $0.40 per share in the third quarter, matching our estimate for the quarter.

Retail real estate investment trust Kimco Realty owns and operates a geographically diversified portfolio of quality shopping centers. Its retail portfolio includes grocery-anchored centers, superregional centers, power centers, and mixed-use urban centers. The company has transformed dramatically, having sold over 400 properties for more than $6 billion since 2010, which has significantly improved the portfolio's quality. Currently, Kimco derives more than 80% of its annual base rent from major metropolitan markets. Management continues to strategically sell lower-quality assets and reinvest the proceeds in high-yielding development and redevelopment projects.

The share prices of U.S. real estate investment trusts have fallen by approximately 30% from their 2021 highs because of higher interest rates and stress in some commercial real estate sectors. We think that the correction is overdone and the current valuations offer an attractive entry point for patient investors. Our core REIT coverage is trading at a discount of approximately 25% to our fair value estimate. We estimate that the average REIT within our U.S. coverage is currently trading at a dividend yield that is 126 basis points higher than the historical average. We see marked differences in valuation across different REIT sectors in the United States. For instance, the industrial sector is fairly valued, with stock valuations already accounting for future growth, but other sectors like offices, hotels, and malls are trading at attractive discounts.

Kimco Realty reported second-quarter results that were in line with our estimates, leading us to reaffirm our $26.50 fair value estimate for the no-moat company. Same-store occupancy sequentially remained flat at 95.8% in the second quarter and was up 60 basis points year over year. Blended re-leasing spreads were up 9.9% as spaces signed to new tenants saw a 25.3% increase in rent terms over the prior tenant’s lease. As a result, minimum rent for the same-store portfolio was up 2.9% year over year, though same-store revenue only increased 2.6% as the company recorded a $3.2 million credit loss. Same-store operating expenses increased 3.4% in the second quarter, leading to same-store net operating income growth of 2.3% that was slightly below our estimate of 2.6% growth. Kimco reported second-quarter funds from operation of $0.39 per share that matched our estimate for the quarter.

First-quarter results for no-moat Kimco Realty were in line with our expectations, leading us to reaffirm our $26.50 fair value estimate. Same-store occupancy improved 10 basis points sequentially and 100 basis points year over year to 95.8% in the first quarter, significantly better than our estimate of a 100-basis-point sequential decline. Blended re-leasing spreads were up 10.2% in the quarter, ahead of our 5.7% estimate, as spaces leased to new tenants saw a rental rate increase of 44.0% over the prior rent terms. However, the company reported higher credit losses from tenants, leading to same-store revenue growth of only 2.4% in the quarter despite minimum rents growing 4.3%. Same-store expenses were up 4.9% in the quarter, leading to same-store net operating income growth of just 1.5% that came in below our estimate of 3.1% growth. Kimco reported funds from operations of $0.39 per share in the first quarter, which was in line with our estimate and matched the $0.39 figure reported in the first quarter of 2022.

Retail real estate investment trust Kimco Realty owns and operates a geographically diversified portfolio of quality shopping centers. Its retail portfolio includes grocery-anchored centers, superregional centers, power centers, and mixed-use urban centers. The company has transformed dramatically, having sold over 400 properties for more than $6 billion since 2010, which has significantly improved the portfolio's quality. Currently, Kimco derives more than 80% of its annual base rent from major metropolitan markets. Management continues to strategically sell lower-quality assets and reinvest the proceeds in high-yielding development and redevelopment projects.

Kimco Realty reported fourth-quarter results that were relatively in line with our expectations, leading us to reaffirm our $27 fair value estimate. Same-store occupancy improved 40 basis points sequentially and 120 basis points year over year to 95.7%, better than our estimate of 95.2%. Blended re-leasing spreads were also strong at 8.7% in the fourth quarter, slightly better than our estimate of new rent being 7.0% higher than prior terms. Same-store revenue increased 3.5% in the fourth quarter, though same-store operating expenses were up 7.5%. As a result, same-store net operating income, or NOI, grew 1.9%, which was in line with our estimate of 2.1% growth. However, higher interest expense caused funds from operations, or FFO, to fall 2.2% year over year to $0.38 per share in the fourth quarter, which was a penny below our $0.39 estimate.

Retail real estate investment trust Kimco Realty owns and operates a geographically diversified portfolio of quality shopping centers. Its retail portfolio includes grocery-anchored centers, superregional centers, power centers, and mixed-use urban centers. The company has transformed dramatically, having sold over 400 properties for more than $6 billion since 2010, which has significantly improved the portfolio's quality. Currently, Kimco derives more than 80% of its annual base rent from major metropolitan markets. Management continues to strategically sell lower-quality assets and reinvest the proceeds in high-yielding development and redevelopment projects.

Third-quarter results for no-moat Kimco Realty were slightly better than we anticipated, though we don’t see anything in the quarter that would materially change our $27 fair value estimate. Occupancy increased 20 basis points sequentially and 120 basis points year over year to 95.3% in the third quarter. Blended re-leasing spreads were 7.6%, in line with our estimate, as leases to existing tenants were up 6.2% while leases to new tenants were up 16.6% over the prior rent levels. As a result, minimum rent for the same-store portfolio was up 4.6% in the third quarter and same-store revenue was up 4.1%. However, operating and maintenance costs saw a 16.5% increase, leading to same-store expenses increasing 6.7% in the quarter. As a result, same-store net operating income grew just 3.1%, though that is still better than our 2.1% estimate for the third quarter. Kimco reported funds from operations of $0.41 per share in the quarter, which was a penny better than our estimate and also a penny better than the figure reported in the third quarter of 2021 after adjusting for nonrecurring merger costs.

With the United States experiencing historically high inflation growth, many investors are wondering if real estate provides a natural hedge against inflation and if the REIT sector should therefore outperform the broader equity market. Many REITs in our coverage have reported rent and revenue growth at or near historic peaks over the past several quarters, with inflation being one of the largest reasons for the high growth. Given this and some historical evidence that REITs outperformed in the 1970s and early 1980s when inflation was similarly high, some investors are questioning why REITs have not outperformed in 2022.

Retail real estate investment trust Kimco Realty owns and operates a geographically diversified portfolio of quality shopping centers. Its retail portfolio includes grocery-anchored centers, superregional centers, power centers, and mixed-use urban centers. The company has transformed dramatically, having sold over 400 properties for more than $6 billion since 2010, which has significantly improved the portfolio's quality. Currently, Kimco derives more than 80% of its annual base rent from major metropolitan markets. Management continues to strategically sell lower-quality assets and reinvest the proceeds in high-yielding development and redevelopment projects.

Kimco Realty reported second-quarter results that were relatively in line with our expectations, leading us to reaffirm our $26.50 fair value estimate for the no-moat company. Occupancy continued to improve, sequentially up another 40 basis points to 95.1%, which is slightly better than our estimate of a 20-basis-point sequential improvement. Kimco reported blended re-leasing spreads of 7.6% in the second quarter, in line with our estimate. Same-store revenue only improved 2.2% year over year, though revenue in the second quarter of 2021 benefited from tenants repaying previously owed rent. Minimum rent in the same-store pool was up a healthy 4.7% over the second quarter of 2021, which we view as the most important indicator of the company’s long-term trajectory. Same-store expenses fell 0.6% in the second quarter, leading to same-store net operating income growth of 3.4%. Kimco reported funds from operations of $0.40 per share in the quarter, which was a penny better than our estimate and 6 cents higher than the $0.34 figure the company reported in the second quarter of 2021.

First-quarter results for Kimco Realty were in line with our expectations, giving us confidence in our $26.50 fair value estimate for the no-moat company. Portfolio occupancy sequentially improved another 30 basis points to 94.6% and is now 120 basis points higher than it was a year ago. The occupancy increase is particularly strong given that occupancy typically falls in the first quarter and this quarter’s increase is the largest sequential increase seen in a first quarter in over 10 years. Re-leasing spreads in the first quarter came in at 7.1%, in line with our estimate of 6.7% and in line with the company’s trailing four-quarter figure of 6.9%. Same-store revenue was up 5.9% in the first quarter driven by 3.6% minimum rent growth but further helped by significantly reduced rent abatements needed for tenants. Same-store expenses fell 1.4%, leading to same-store net operating income growth of 8.9% that was in line with our estimate of 8.2% growth. The strong portfolio growth drove Kimco Realty’s funds from operations, which was up 16.6% year over year to $0.39 per share and beat our estimate by a penny.

Retail real estate investment trust Kimco Realty owns and operates a geographically diversified portfolio of quality shopping centers. Its retail portfolio includes grocery-anchored centers, superregional centers, power centers, and mixed-use urban centers. The company has transformed dramatically, having sold over 400 properties for more than $6 billion since 2010, including $426 million in 2019, and significantly improving the portfolio's quality. Currently, Kimco derives more than 80% of its annual base rent from major metropolitan markets. Management continues to strategically sell lower-quality assets and reinvest the proceeds in high-yielding development and redevelopment projects.

Kimco Realty reported fourth-quarter results that were above our expectations, though we didn’t see anything in the quarter that would materially change our $26.50 fair value estimate for the no-moat company. Same-store occupancy improved 30 basis points sequentially to 94.4%, slightly better than our 94.2% estimate. Re-leasing spreads were strong at 9.2% in the fourth quarter, better than our 6.3% estimate and better than the 4.9% figure the company reported in the third quarter, which helped drive same-store revenue growth of 8.3%. Same-store expenses fell 1.7% in the fourth quarter as operating expenses only rose 1.5% and real estate taxes were down 5.2%. As a result, same-store net operating income growth was 12.9% in the fourth quarter, well ahead of our estimate of 5.6% growth. The strong operations in the quarter led to Kimco reporting funds from operations of $0.39 per share, which was 4 cents better than our $0.35 estimate and 8 cents better than the $0.31 reported in the fourth quarter of 2020.

We are increasing our fair value estimates for no-moat Federal Realty to $136 from $122, for no-moat Kimco Realty to $26.50 from $21, and for no-moat Regency Centers to $75 from $66. While the pandemic posed a significant threat to brick-and-mortar retail, retailers are seeing very strong sales growth in 2021. Many sales shifted online early in the pandemic as people stayed at home and avoided public spaces, leading to significant e-commerce sales growth at the expense of brick-and-mortar sales. However, the negative impact of the pandemic on brick-and-mortar retail disappeared in the second half of 2020. While foot traffic was down in 2020, consumers were spending more per ticket due to extra income from the government stimulus checks and due to less competition for disposable income from travel and experiences. In 2021, foot traffic returned to prepandemic levels while spending levels remained high, leading to double-digit growth in brick-and-mortar sales in each of the first three quarters of 2021.

Retail real estate investment trust Kimco Realty owns and operates a geographically diversified portfolio of quality shopping centers. Its retail portfolio includes grocery-anchored centers, superregional centers, power centers, and mixed-use urban centers. The company has transformed dramatically, having sold over 400 properties for more than $6 billion since 2010, including $426 million in 2019, and significantly improving the portfolio's quality. Currently, Kimco derives more than 80% of its annual base rent from major metropolitan markets. Management continues to strategically sell lower-quality assets and reinvest the proceeds in high-yielding development and redevelopment projects.