Shopping center REIT performance continued to erode during the third quarter. Nearly half the shopping center REITs missed analyst estimates and several lowered their guidance for the remainder of the year.
Retail real estate typically lags the broader economy. So the full brunt of the rising number of bankruptcies and store closings has yet to reverberate through the shopping center sector. As a result, with a harsh recession and continued store closures and bankruptcies on the horizon, shopping center REIT performance could continue to erode, analysts warn.
“Nobody is showing that much pain yet,” says Joel Bloomer, an analyst with Morningstar. “Our take is it’s going to deteriorate over the next several years as there will be more pressure on rents as supply continues to increase while demand decreases.”
Of the 14 shopping center REITs, six, Equity One, Developers Diversified Realty, Weingarten Realty Investors, Cedar Shopping Centers, Inland Real Estate and AmREIT, missed analysts’ consensus estimates for the quarter ended Sept. 30. Three firms—Kimco Realty, Ramco-Gershenson Properties Trust and Federal Realty Investment Trust—met expectations. And five companies, Regency Centers, Kite Realty Group, Urstadt Biddle Properties, Saul Centers and Acadia Realty Trust, beat estimates.
REITs lowering guidance for the balance of 2008 included Developers Diversified, Equity One, Weingarten Realty, Inland, Kimco, Kite and Regency.
During the third quarter a bright spot in the sector was Jacksonville, Fla.-based Regency Centers Corp. The REIT, with a 51.1-million-square-foot portfolio, beat consensus estimates by $0.08 per share. Its FFO grew 24.7 percent to $1.21 per share compared with the third quarter of 2007. Regency’s same-store NOI rose 2.3 percent during the third quarter. However, the company’s CEO Martin Stein Jr. cited his disappointment with Regency’s lowered guidance for 2008 during an earnings call yesterday. The company lowered its targets because of an expected decrease in profits. Regency amended its FFO guidance for the year to between $3.90 per share and $4.35 per share down from $4.54 per share to $4.66 per share.
Bethesda, Md.-based Saul Centers Inc. came in $0.02 per share ahead of estimates despite an FFO decline of 4.2 percent to $0.68 per share compared with the third quarter of 2007. The firm’s NOI increased 1.9 percent. Saul’s 6.2-million-square-foot portfolio’s occupancy declined 70 basis points year-over-year to 94.7 percent. However, management pointed out Saul has virtually no debt maturities coming up in the near term. Approximately 97 percent of the REIT’s debt consists of fixed-rate non-recourse loans which are not scheduled to mature until December 2011.
Acadia Realty Trust, Kite Realty Group and Urstadt Biddle Properties all beat consensus analyst estimates by $0.01 per share. Acadia Realty, a White Plains, N.Y.-based operator of an 8-million-square-foot portfolio, reported FFO per share of $0.28—down 28.2 percent compared with the third quarter of 2007. The firm’s same-store NOI increased 1.7 percent, but its occupancy declined 20 basis points, to 93.8 percent.
Indianapolis-based Kite Realty Group, with 5.6 million square feet in its portfolio, experienced flat FFO growth compared to the third quarter in 2007 coming in at $0.32 per share. Its same-store NOI reflected a 0.4 percent increase. Kite’s new FFO guidance for the year is between $1.18 per share and $1.22 per share.
Urstadt Biddle Properties reported FFO growth of $0.32 per class-A common share, a 6.7 percent increase over last year. The Greenwich, Conn.-based REIT’s same-store NOI rose 9.3 percent, though occupancy at its 3.7-million-square-foot portfolio dropped 220 basis points, to 92.6 percent.
AmREIT experienced a per share loss of $0.34 in its FFO, which was largely due to the firm’s exit from the general contracting and securities businesses, according to company management. The Houston-based REIT missed consensus analyst estimates by $0.44 per share. Its 3.4-million-square-foot portfolio posted a 50 basis point increase in occupancy, to 98.4 percent.
Equity One Inc., a Miami Beach, Fla.-based REIT, missed consensus estimates by $0.43 per share posting FFO of $0.13 per share. It was due to a non-cash impairment charge of $32.7 million. The REIT’s same-store NOI remained flat, while occupancy at its 17.1-million-square-foot portfolio declined 110 basis points to 92.3 percent, the lowest level in more than four years. Given the challenging environment, Equity One also lowered its FFO guidance for the year, to between $1.34 per share and $1.37 per share, from $1.36 per share to $1.40 per share. On the positive side, Equity One’s management has made efforts to strengthen its balance sheet, said Rich Moore, an analyst with RBC Capital Markets. More than 80 percent of its debt does not mature before 2011.
Developers Diversified Realty missed estimates by $0.11 per share. It reported FFO per share of $0.83, an increase of 3.8 percent over last year. The Beachwood, Ohio-based REIT, which operates a 163-million-square-foot portfolio, reported a same-store NOI increase of 1.8 percent, but its occupancy declined 130 basis points, to 94.5 percent. Developers Diversified reduced its guidance for 2008 to between $3.22 per share and $3.28 per share from $3.95 per share to $4.05 per share.
Houston-based Weingarten Realty missed consensus estimates by $0.02 per share. The firm’s FFO declined 6.3 percent in the third quarter from last year, down to $0.74 per share. Same-store NOI at its 42-million-square-foot portfolio dropped 0.6 percent. As a result, Weingarten lowered its 2008 guidance to between $3.00 per share and $3.10 per share. Previously it offered guidance of $3.21 per share to $3.27 per share.
Both Cedar Shopping Centers and Inland Real Estate Corp. missed consensus estimates by $0.01 per share. Port Washington, N.Y.-based Cedar reported flat FFO growth in the third quarter at $0.31 per share compared to last year and its same-store NOI decreased 1.4 percent during the quarter. Inland reported an FFO increase of 2.9 percent, to $0.36 per share. The Oakbrook, Ill.-based REIT’s same-store NOI was flat compared to the same period a year ago, but its 71-million-square-foot portfolio’s occupancy increased 100 basis points, to 94.1 percent. The company issued a lower FFO guidance for 2008, in the range of $1.43 and $1.45 per share.
Kimco Realty Corp., a New Hyde Park, N.Y.-based REIT with 120 million square feet, met third quarter expectations, with FFO of $0.68 per share, representing growth of 19.3 percent over last year. Kimco’s NOI rose 2.6 percent but its portfolio’s occupancy declined 90 basis points, to 95.2 percent. Due to the continuing problems in the credit markets, Kimco lowered its FFO guidance for 2008, to between $2.20 per share and $2.45 per share from $2.70 per share to $2.78 per share.
--Elaine Misonzhnik