REIT Earnings Report | Q1 2024
With another round of REIT earnings reports in the books, the theme of strong leasing demand continues to dominate headlines. Brixmor grew its anchor occupancy to a record 97.3% and its small-shop occupancy to a record 90.5%. Overall, its total leased occupancy sits at 95.1%. Brixmor also hit a high watermark in new small-shop rents, averaging over $30 per square foot. Strong performance and minimal tenant disruption allowed it to raise FFO guidance and the low end of its same-store NOI guidance by 100 basis points. Federal Realty reported the highest-ever first-quarter leasing volume of 104 leases for approximately 567,000 square feet of space. Even though it is expecting some interest expense headwinds, Federal Realty still managed to raise its earnings guidance and remained confident in its runway to lease more space. Kite Realty Group and Regency Centers also posted strong leasing numbers and raised earnings guidance. Regency mentioned that its leasing pipeline is larger than ever, and it will be more aggressive in recapturing space. Due to the strong demographics of its centers, Regency believes that its portfolio will be able to withstand any decreases in consumer spending in the future. Retail Opportunity Investment Corporation (ROIC) reported a portfolio leased rate of 96.4% for its 40th consecutive quarter above 96%.
Despite strong leasing demand, the transaction market is slower to catch up. However, many REITs expressed hope for the remainder of the year, citing more opportunities coming to market and a narrowing gap between buyers and sellers. Kimco led Q1 transaction activity with the sale of 10 former RPT properties it acquired from the merger. Totaling $248 million and sold at a blended cap rate of 8.5%, the 10 properties were mainly larger power centers with either low-growth and high-risk profiles or needing significant capital commitments. The properties were located in Carmel, IN; Lakeland, FL; Jensen Beach, FL; Detroit, MI; and the St. Louis and Milwaukee MSAs. Kimco reported that it hasn’t been able to find many accretive opportunities this year and, as a result, will likely push acquisition activity to late in the second half of the year. Site Centers was also active as it prepared to spin off its convenience assets into a first-of-its-kind convenience REIT called Curbline. It sold five centers for $169.6 million, primarily in the Sunbelt markets of Dallas, Orlando, Nashville, Atlanta, and Denver, and it acquired two properties for $19.1 million in Houston and Phoenix. Site Centers stated that it’s spending more time on dispositions as it currently has $1 billion of activity under contract, in negotiation, or executed nonbinding LOIs at an approximate blended cap rate of 7%. It mentioned that it still sees cap rates in the mid-to-low sixes for strong convenience assets, consistent with other retail formats such as grocery-anchored suburban centers. Brixmor sold three centers for $69 million and, following quarter-end, acquired a 43,000-square-foot grocery-anchored store in East Setauket, New York, for a low-seven cap. Phillips Edison acquired two shopping centers—one in Orlando and one in Houston—for $55.9 million at a weighted average cap rate of 6.8%. It received favorable pricing on these two assets and expects cap rates on acquisitions to be 6.3% to 6.7% going forward. Phillips Edison also commented that it has several acquisitions in its pipeline. Regency Centers sold two centers in Florida for a total of $54 million and, following quarter-end, acquired a CVS-anchored center in Westport, CT, across the street from another asset it owns. ROIC purchased a $70.1 million Trader Joe’s-anchored center in Carlsbad, CA, at a 6.75% cap rate. As a result of the purchase, it is in the process of selling two properties for $68 million at a blended exit cap in the low sixes. Kite Realty and Federal Realty did not report any transaction activity. Kite Realty mentioned that the open-air sector has become very popular and competitive, making it harder to find accretive deals. As a result, it remains focused on allocating capital to internal platforms like redevelopment and leasing. Although Federal Realty was muted in the first quarter, it mentioned it has between $300 million and $400 million of assets under consideration for sale and is expecting to offload them in a low-six cap range.
Even though cap rates for strong grocery-anchored centers are relatively compressed, they continue to expand for STNL assets. NETSTREIT acquired 42 properties in the first quarter for $129.2 million at a blended cap rate of 7.5%, up 30 basis points from the previous quarter, and sold 12 properties for $21.6 million at a blended cap rate of 6.8%. It expects cap rates in the second quarter to be relatively the same as the first quarter. Agree Realty acquired 31 properties for $123.5 million at a WALT of 8.2 years and a weighted average cap rate of 7.7%, 50 basis points higher than the previous quarter and 100 basis points higher than the same period for the year before. The first quarter was light in transactions for Agree Realty, although it has seen an accelerated start to the second quarter with similar yields. It sold six properties for $22.3 million at an average cap rate of 6.2%. Realty Income closed on its merger with Spirit Realty and had a relatively muted quarter, though it acquired five U.S. properties for $16 million at an average cap rate of 7.1%. It stated that it is seeking better risk-adjusted return opportunities in Europe after purchasing eight international properties for $302.6 million at an 8.2% cap rate. It expects a similar slant to U.S. versus European acquisitions for the second quarter.
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