Investors' Soapbox PM | TUESDAY, OCTOBER 18, 2011
Which REITs Have the Right Stuff? Hilliard Lyons handicaps upcoming quarterly reports from a bevy of real estate investment trusts.
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Hilliard Lyons
We believe many investors view real estate investment trusts (REITs) as attractive investments, given their yields compared to U.S. treasuries and bonds. In 2010 the MSCI Global Equity Indices U.S. REIT Index was up 23.5% while the S&P 500 was up 12.8%.
Many of our covered companies have raised their dividends this year. At this point, based on valuation, we believe most REITs under our coverage are fairly valued.
We believe the environment is improving for our retail REITs. During our recent mall visits we have noticed a decent crowd during the week and a strong crowd on the weekends. We have not seen a lot of vacant stores during our visits. We believe consumers are still shopping, but may just be watching for sales more than they used to.
Several of our REITs have raised capital this year, either through the sale of bonds, common stock, preferred stock, or mortgage financings. Now that REITs have improved their balance sheets, we believe they will continue to focus on improving occupancy and rents. We believe many REITs are looking for additional attractive acquisition opportunities. A few of our covered names have bought all or part of their joint ventures partners' interest in properties.
Overall we believe we will walk away from this upcoming earnings season feeling a little more confident about the consumer and REITs' abilities to secure financing. We expect to see earnings results that are less messy than we have in the recent past, with hopefully fewer impairment and one-time charges. We do not expect to see a significant change in our or managements' outlook until the employment picture improves.
Companies:
Our third-quarter funds from operation (FFO) estimate for Simon Property Group (ticker: SPG) is $1.67 per share, a penny above the consensus. We believe Simon will report an increase in occupancy and an increase in rental rate in the quarter.
We expect Tanger Factory Outlet Centers (SKT) to report third-quarter FFO of 37 cents per share, in-line with the consensus. We expect to see Tanger gain occupancy in the quarter and continue to have positive leasing spreads. During the third quarter, Tanger made three acquisitions.
We expect DDR Corp. (DDR) to report third-quarter FFO per share of 25 cents, a penny above the consensus estimate. We expect to see continued progress on re-leasing vacant spaces during the quarter. DDR acquired three prime shopping centers and sold 10 assets and seven land parcels in the quarter.
We expect Gilmcher Realty Trust (GRT) to report third-quarter FFO per share of 15 cents, a penny below the consensus. We expect the company to see occupancy continue to improve.
Our third-quarter FFO estimate of 45 cents per share for Weingarten Realty Investors (WRI) is a penny below the consensus. We are eager to hear how the mom and pop retailers are doing in this environment.
We expect CBL & Associates Properties (CBL) to report third-quarter FFO per share of 47 cents, a penny above the consensus estimate. We look for another quarter of improving occupancy and rental rates for the company. During the quarter, CBL announced the acquisition of a mall in Chattanooga, Tennessee. Subsequent to the end of third quarter, CBL closed on its joint venture with TIAA-CREF.
For Kite Realty Group Trust (KRG) our third-quarter FFO per share estimate of 11 cents is equal to the consensus. We are interested to hear an update on Kite's development and redevelopment projects.
We look for American Campus communities (ACC) to report third-quarter funds from operations – modified (FFOM) of 33 cents per share, a penny above the consensus. As of September 14, the company's wholly owned portfolio was 98.4% leased, up from 98.1% last year. The projected rate increase was 3.0%.
We look for Education Realty Trust (EDR) to report third-quarter core FFO of two cents per share, a penny below the consensus. The company has reported buying one property in the third quarter. The company previously reported that opening occupancy at its same community owned portfolio was 94.9%, up 112 basis points from last year. The same community rental rate increased 4.6% from last year.
Our third-quarter core FFO per share estimate is 26 cents for First Potomac Realty Trust (FPO), a penny below the consensus estimate. We hope to see progress from the company on the lease up of its recently acquired space.
For Mid American Apartment Communities (MAA) we expect third-quarter FFO per share of $1.00, two cents below the consensus estimate. The company purchased two communities in the quarter. We expect continued strong occupancy and an increase in the rental rate during the quarter.
We expect Whitestone REIT (WSR) to report third-quarter core FFO of 22 cents per share. During the third quarter, Whitestone acquired two properties in Arizona and sold one property in Texas.
We expect MHI Hospitality Corp. (MDH) to report third-quarter FFO of 11 cents per share, excluding any gains or losses from hedging activity. (We are currently the only estimate on Baseline.) We expect to see an increase in occupancy and average daily rates in the quarter.
--Carol L. Kemple |
