We have increased our fair value estimate for Federal Realty (FRT) to $141 from $138 and we have increased our fair value estimate for Kimco Realty (KIM) to $17.70 from $15.80 after updating our modeling framework for the shopping center REITs and reconsidering both companies' redevelopment opportunities. Federal Realty has one of the best retail portfolios in the industry with high-quality assets in markets with high income, high population density, and significant demand drivers. Kimco is finishing up a strategic disposition program that has sold over 400 assets for $6 billion since 2010, dramatically improving the portfolio's overall quality so that it is better-positioned in a changing retail landscape. Both companies continue to see double-digit releasing spreads and solid net operating income growth.
While e-commerce continues to pressure brick-and-mortar retail, we believe that sales at high-quality properties will remain positive despite industry headwinds, which should help keep releasing spreads and NOI growth positive over the next decade for both companies. Both companies should be able to incrementally add value through key development and redevelopment opportunities, particularly in mixed-use developments that blend retail, office, multifamily, and hotel assets. While these assets do introduce additional operational risk from segments outside of the traditional retail focus, they provide captured demand for the retail segment in a symbiotic relationship. We think that both companies are well-positioned to drive value in the ever-changing retail landscape.
Kevin Brown does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.