Analyst Note| Kevin Brown |
We are lowering our fair value estimates for no-moat Kimco Realty to $16.50 from $20 and for no-moat Regency Centers to $62 from $75 after updating our short-term views on shopping center fundamentals. We had thought that the grocery-anchored centers prominently featured in the portfolios of both companies would fare better than other retail amid the economic fallout of the coronavirus. Grocery stores have seen a significant boost in sales as restaurant closures force people to eat more meals at home. Nationally, grocery stores have seen at least 11% year-over-year growth each month since April compared with 3% annual growth over the prior decade. However, that has not translated to increased revenue for other tenants in a grocery-anchored center. Many nonessential tenants have been closed, either due to local ordinances or voluntarily to reduce operating expenses. While most tenants were open by July, business has not fully returned and thus rent collection remains an issue for the REITs. We believe that it will be a few more quarters before all tenants are fully able to pay rent, which has caused us to lower our outlook for the shopping center REITs.