Building Growth

Mitch Germain
JMP Securities
212-906-3546
[email protected]

Chambers Street Properties (CSG) reported an active Q3, which saw a spike in leasing volumes, measures to strengthen the balance sheet and an increased outlook for 2013…We suspect the guidance raise, which resulted in a two-cent increase on the midpoint, was attributed to accelerating leasing activity following a 50 basis point (bps) expansion to the portfolio leased percentage.

Improving economic and liquidity conditions in Europe should help eliminate concerns on exposures (10% of portfolio). We prefer management to take a more aggressive stance on growth, as the company’s peers have been able to source attractive investments without sacrificing yield (7%-plus).

Core funds from operations (FFO) per share were $0.17, in line with JMP/consensus, despite a net operating income (NOI) decline from some recent move-outs. CSG closed $60 million of deals in Q3, including a warehouse in Spartanburg, S.C., which complements CSG’s existing inventory in that region, and a Dallas office campus, fully leased to a subsidiary of Humana. Acquisitions year to date stand at $240 million…

The 131-property portfolio was 96% leased at quarter end, up from 95.5% last quarter, as consolidated operating portfolio posted 143,000 square feet of positive net absorption resulting in a 70 bps increase to the leased rate.

Todd M. Thomas, CFA
KeyBank Capital Markets Inc.
917-368-2286
[email protected]

[On Jan. 6] DDR Corp. (DDR) provided initial 2014 FFO guidance that was 1% below consensus at the midpoint. We view the seemingly lackluster forecast to be roughly in line with expectations. Importantly, and based on the company’s established track record over the last several years, we suspect that management’s initial 2014 guidance may prove to be a conservative, though realistic, starting point for the year.

The probability that the company’s actual results in 2014 will be at or above the high end of the forecasted ranges for FFO per share and same-store net operating income (SSNOI) growth outweighs the probability that results will fall at the midpoint or below, in our view. Importantly, steady execution throughout the year should lead to a narrowing of the stock’s valuation gap relative to its peers.

DDR trades at a 22% 2014 adjusted FFO multiple discount relative to the sector and shares trade at a 7.1% implied cap rate, which is 80 bps higher than the sector’s average implied cap rate and 90 bps higher than the REITs’ weighted average implied cap rate. We reiterate our Buy rating.

Management issued initial 2014 FFO guidance of $1.17-$1.21 per share. Key assumptions to management’s full-year forecast include: same-store NOI growth of 2.5%-3.5%; an increase in the year-end core portfolio leased rate by 75 bps, resulting in a leased rate of nearly 96%; acquisitions of prime shopping centers of $250 million; dispositions of $200 million of non-prime shopping centers and $30 million of non-income-producing assets; and general and administrative expense of approximately 5% of total revenues.

First, we suspect that the company will source in excess of $250 million of new investments in 2014. Based on current market conditions, acquisitions funded with debt and equity and current costs will likely be accretive on an earnings basis.

Second, leasing momentum is steady, and we would not be surprised to see DDR’s year-end core portfolio leased rate increase by more than 75 bps (though some of the increase may result from the sale of properties with below average occupancy). Meanwhile, reimbursement ratios may rise more than expected as economic occupancy rates rise, which could increase NOI margins more than expected.

Steady cash flow growth in 2013 leads to a 15% dividend bump to start the year. In conjunction with yesterday’s guidance release, DDR announced a 15% dividend increase that equates to an annualized distribution of $0.62/share. The new dividend rate equates to a 4% annualized yield, which compares to the REIT weighted average dividend yield of 3.8%. DDR’s 2014 adjusted FFO payout ratio remains below average at 59%, which compares to 69% for the REIT weighted average, implying that there remains additional dividend upside throughout 2014.

Nathan Isbee
Stifel, Nicolaus & Company
443-224-1346
[email protected]

General Growth Properties’ (GGP) high productivity mall portfolio is generating strong growth as permanent occupancy increases and the REIT drives rents. GGP should continue to generate above-average growth for the foreseeable future given healthy tenant demand and limited supply of high quality mall space.

While the retail world is evolving, and apparel e-commerce is growing, GGP’s malls will play an important part in most retailer’s omni-channel strategies, in our view. In addition, GGP is strengthening its portfolio through a $2.1 billion development/redevelopment pipeline and strategic acquisitions of high growth street retail assets. We maintain our Buy rating and $23 target price based on a slight discount to our $24 NAV estimate at a 5.5% cap rate.

Same-store NOI increased a strong 6.2% in Q4 and 6.0% in 2013, at the high-end of GGP’s 5%-6% full-year guidance. Same-store NOI benefited from occupancy increases and temp to perm conversions in 2013.

While same-store NOI growth will moderate in 2014, we project GGP will generate above average 4%-5% growth. Tenant sales increased 3.6% to $564 per square foot for the trailing 12-months. While sales growth decelerated from 3.8% growth in Q3, it appears that sales were relatively stable in Q4.

James Sullivan
Cowen and Company
646-562-1380
[email protected]

Kimco Realty (KIM) reported Q4’13 FFO per share of $0.33 which was in line with our and the Street’s estimate. Management maintained its 2014 FFO per share guide of $1.38. Operating trends were very favorable. We maintain our Outperform rating on Kimco.

Kimco maintained its 2014 FFO per share guidance range of $1.36-$1.40. The $1.38 midpoint is in line with our estimate and $0.01 below the Street’s $1.39. The guide assumes SSNOI growth in the range of 2.5%-3.5%, which compares with our 2014 assumption of 3.6%. The 4.1% SSNOI increase in Q4 provides very positive momentum going into 2014.

Moreover, occupancy increased consistently across the portfolio in the fourth quarter and the additional increase expected in 2014 implies an improving pricing environment. The guide does not provide for acquisitions and dispositions. For 2014, we assume Kimco will be a net acquirer and that acquisitions and dispositions will offset each other.

Kimco reported cash SSNOI growth of 4.1% in Q4. Operating results were strong with occupancy up 60 bps from Q4’12. Anchor occupancy was 97.9%, a 30 bps increase over the prior year and small shop occupancy increased 100 bps over the same period. Leasing spreads were a healthy 5.9% for Q4.

R.J. Milligan
Raymond James & Associates
800-248-8863

Kimco signed 618 leases totaling 2.3 million square feet during the quarter, which was 20% higher than Q4’12, highlighting continued demand from retailers for space, despite a disappointing holiday season. Same-store rent spreads on new leases and renewals were up 5.9% in the U.S., which was comprised of +8.2% on new leases and +5.2% on renewal leases.

We note tenant improvements (TI) were $23.23 per square foot, a reduction from Q3′s average of $26.95, though still elevated from the mid-to-high teens we saw in 2011 and early 2012 (86 non-comparable leases had average TIs of $35.47 per square foot).

During the fourth quarter, Kimco purchased 14 shopping centers in the U.S. for $247.5 million. For the year, Kimco acquired 24 properties (including six properties from existing joint ventures) for approximately $675 million.

On the dispositions side, during Q4, Kimco also sold ownership interests in 14 properties (eight wholly owned and six unconsolidated joint ventures) for $192 million with Kimco’s share of proceeds at $93.6 million. For the year, Kimco sold 35 properties (23 wholly owned and 12 unconsolidated) for about $350 million with Kimco’s share of proceeds at about $180 million.

We expect Kimco to continue to cherry-pick higher quality joint-venture assets at attractive pricing; to that end, the company purchased the remaining 89% interest in three joint venture properties subsequent to the quarter’s end.