2 Undervalued REITs
We expect low but steady and positive sales growth for shopping centers like Federal Realty and Kimco Realty.
Kevin Brown: We have increased our fair value estimate for Federal Realty to $141 from $138, and we have increased our fair value estimate for Kimco Realty to $17.70 from $15.80. As a result, both companies currently trade at discounts to our fair value estimates. Additionally, we point out that Kimco currently provides a 6.7% dividend yield, one of the highest yields among U.S. REITs for income-oriented investors.
When analyzing the shopping center REITs, it is important to distinguish the rent that will and won't be impacted by e-commerce. Tenants that compete with online options, which includes segments like apparel, home decor and electronics, make up 35% of Federal's base rent and 44% of Kimco's base rent. While e-commerce will continue to grow, which will pressure sales growth at brick-and-mortar locations and force store closures, the negative impact will be greatly weighted toward the lower-end of the retail quality spectrum. Federal's portfolio has the highest average income and population density of all retail REITs, and Kimco has actively improved these metrics over the past decade. Retailers, even struggling ones, are looking to keep their profitable stores in Class A shopping centers that have the dynamics to produce high sales per square foot.
Kevin Brown does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.