Sandler O’Neill & Partners
Following investor meetings and property visits with management earlier this week, we believe the simplicity of Brixmore Property Group’s (BRX) story/strategy will continue to gain traction as the perceived Blackstone Group (BX) overhang diminishes and the company continues to deliver sector leading net operating income (NOI) growth.
Our time with management and field personnel emphasized that there is truly a special camaraderie that exists within BRX … It seems that BRX is taking over its own destiny as it steadily gains independence from BX under the leadership of CEO Mike Carroll (started in 1992 out of college). We maintain a Buy rating.
We made BRX our Top Idea for 2015 as management continues to roll out its portfolio upgrade program, which drives sector-leading NOI growth, while its discounted valuation and laggard performance in 2014 should attract attention following the strong performance of many REITs last year. The continued unwind of BX’s recap equity position acts as an additional catalyst and increases the independence of the company.
BX currently owns 50.4% (49.3% voting stake) vs. 78.8% at BRX’s IPO and… [a]ssuming additional offerings in 2015, we estimate BX will be below 30% ownership stake by yearend.
On the portfolio side, management has been increasingly vocal about its Raising the Bar initiative, whereby it is improving the curb appeal of its centers and simultaneously upgrading the tenancy while boosting occupancy (BRX Q3 leased rate was 92.7% vs. a peer average of 95.0%).
Thus, BRX gets a double benefit of higher rents and occupancy, which shows up in its strong NOI growth of 3.8% through Q3’14 vs. shopping center peer average of 3.6%.
Finally, the debut investment grade ratings, which management looks to improve, mean that BRX can now tap the unsecured debt markets … and lower its cost of capital.
Ross L. Smotrich
BRX reported in-line results and issued 2015 guidance whose midpoint is slightly below our estimate and consensus. Reported Q4’14 funds from operations (FFO) per share of $0.43 included a $0.01 charge associated with secondary offering expenses. Our $0.44 FFO/per share estimate did not include this estimate, nor do we believe the consensus estimate ($0.44) did, either.
BRX’s underlying fundamentals remained solid as seen in year-over-year small shop occupancy gains of 100-plus basis points…, 13.9% blended leasing spreads (in line with Q3’14), and same-store NOI growth of 3.9% (in line with Q3’14).
Our initial take is we view BRX’s overall results as consistent with previously stated objectives, including reducing the Blackstone overhang and repositioning anchors vis-à-vis its Raising the Bar initiative.
Year to date, BRX is up 5.9% [in occupancy gains], 80 basis points ahead of shopping centers (5.1%) … While the conservative guidance may be viewed negatively, we would recommend buying on any weakness.
Further, we also view BRX’s valuation as attractive. While it trades at a 7% discount on a forward price/cash available for distribution (or P/CAD) multiple, its five year growth rate of 13.1% well-exceeds its peers’ 7.5%.
Stifel, Nicolaus & Company
General Growth Properties’ (GGP) high- productivity portfolio is well positioned to generate strong growth in 2015 and beyond, as the REIT takes advantage of the favorable supply/demand environment to push rents and re-tenant underperforming retailers. Same-store sales growth of 4.8% (likely lower ex-Apple) in Q4 was a positive in an overall strong quarter, in our view, given the relatively weak sales growth over the last year.
GGP’s high quality, urban street retail portfolio is a differentiator among the mall REITs, in our view, and a positive for GGP as it is a natural extension of its mall portfolio, in our view. GGP increased its dividend 6.3% in Q4, reflecting the strong fundamental outlook for the portfolio. We are maintaining our Buy rating and increasing our target price to $33, a 10% premium to our $30 net asset value (NAV) at a 5% cap rate.
GGP reported Q4 adjusted FFO of $0.38, in line with our estimate and consensus. GGP issued 2015 FFO guidance of $1.40-$1.46 (4.5% same0store NOI growth) vs. consensus of $1.44.
Same-store sales increased 4.8% in 4Q and 1% for the trailing 12 months to $570 per square foot. Sales growth should improve in 2015, in our view, given the strengthening economy, lower gas prices, and weak comps. Total tenant sales, which could be a better indicator of portfolio health, increased 5.4% in 4Q and 2.8% for the trailing 12 months. Total sales include the larger format fast-fashion retailers that are taking market share from traditional retailers.
Core portfolio fundamentals were strong, in our view. Same store occupancy increased 10 basis points year over year to 97.2%. Occupancy could dip in early 2015 due to increased store closure and re-tenant activity. However, retailer demand is robust for high quality mall space and we expect GGP to backfill any closures relatively quickly with better retailers at higher rents. We think GGP will increase occupancy in 2015 with the occupancy gains weighted toward 2H’15.
Cowen & Company
Kimco Realty Corporation (KIM) reported Q4’14 FFO/share of $0.35, in line with our and the consensus estimate. The strong operating results were driven by leasing spreads and occupancy gains. The company introduced its 2015 FFO guide of $1.40–$1.44, which assumes same store net operating income (SSNOI) grows 3.25%. The guidance, $0.04 below [our estimate], reflects a $0.02 foreign-exchange hit, slightly lower SSNOI growth and a less favorable mix of external activity.
Management introduced its 2015 FFO guidance range of $1.40-$1.44, which excludes $0.07 of transactional income and includes $0.02 of negative currency impact. The guide also assumes SSNOI grows in the range of 3.0-3.5% with U.S. occupancy gains of 25-50 basis points. We expect the impact of store closures to be relatively small. In Q4, SSNOI grew 3.1% (4.0% when excluding the impact of currency), and U.S. SSNOI grew 4.3%.
For the full-year 2014, SSNOI grew 3.3% (excluding currency). Leasing spreads were a healthy 9.4%, and same-center occupancy increased 80 basis points to 95.6%. Notably, small-shop occupancy increased 280 basis points to 88%.
Combined occupancy was 95.8%, representing the highest occupancy levels in Kimco’s portfolio since 2008. Besides the $0.02 forex impact, the 2015 guidance provides for slightly lower SSNOI growth and a less favorable external activity mix than our model.
In 4Q Kimco acquired an interest in nine shopping centers for $245 million … and sold $697 million … of assets. In January, Kimco announced that it acquired the remaining 66.67% interest in the 39-property Kimstone portfolio for $925 million, which includes the assumption of $426.7 million of debt.
In Q4, Kimco substantially completed its exit from Latin America by selling 25 properties for $205 million. The 2015 guidance assumes acquisitions in the range of $1.2 billion (vs. our $975 million) and dispositions of $650 million (vs. our $600 million).
As of the end of the quarter Kimco’s redevelopment pipeline included 64 projects for a total cost of $303.8 million. The yields on these projects are in the range of 8.5-16.5%. All of these projects are expected to be completed by the end of 2016.
Stifel, Nicolaus & Company
KIM’s portfolio is performing well and strong growth should continue. KIM is increasing occupancy and pushing rents in the favorable supply/demand environment.
KIM has significantly grown its redevelopment pipeline to take advantage of the strong retailer demand and the projects are beginning to contribute more to same store growth. KIM completed its exit of Latin America in 2014 and is having success sourcing acquisition opportunities from its joint ventures, executing on its goal to simplify its business model by reducing the number of joint ventures in its portfolio.
KIM reported normalized Q4 FFO of $0.35, in line with our estimate and consensus. KIM provided 2015 FFO guidance of $1.45-$1.53 and adjusted FFO guidance (excludes transactional income) of $1.40-$1.44, below consensus of $1.46.
Tenant moveouts have been at multi-year lows over the last few years. Even if moveouts tick up in 2015 (due to M&A or bankruptcies), with limited new retail development and healthy retailer demand, KIM should be able to re-tenant store closures (at higher rents) relatively quickly, in our view.
KIM is developing a Whole Foods-anchored, 45,000-square-foot development in Wynnewood, Pennsylvania. KIM acquired a former Sears distribution and surplus retail outlet in Christiana, Delaware, that the REIT plans to develop into a new 440,000-square-foot power center. KIM acquired 90 acres in Houston for future development of a 350,000-square-foot grocery-anchored power center.
We would rather KIM option land while working on pre-leasing, but it likely wasn’t possible in these cases. We expect KIM to proceed prudently on any large new developments.
LTC Properties’ (LTC) management fine-tuned its per share FFO guidance for 2014 at $2.56 a share plus or minus a penny, with the relative lack of recent investments as a driver there. We are lowering our estimate to $2.56 a share. Our 2015 estimate remains at $2.83 a share.