REIT Earnings Report Q3 2023

The open-air shopping center REITs recently wrapped up their earnings calls for Q3 2023. Despite potential economic headwinds and a potential consumer spending slowdown, leasing activity remains robust as tenants look past any short-term uncertainty and continue executing their multiyear growth goals by leasing up vacant space. Due to the strong leasing demand, many of the REITs reported same-property year-over-year NOI growth of anywhere from 3%-5%. Many of the companies also raised their guidance heading into year-end. A few of the overall occupancy numbers took a slight dip compared to the previous quarter, but this was simply due to the fact they reabsorbed their spaces from the bankrupt Bed Bath & Beyond (BB&B). However, the REITs were quick to point out that these vacant spaces are in high demand, and the companies already have numerous backfill options to fill the spaces. Regency Centers commented that for their vacant BB&B spaces, they’ve had one of the fastest absorption rates in recent memory as it relates to an anchor liquidation, and their rent spreads for new leases on the spaces will exceed 30% on average. RPT stated they already plan to backfill 6 of their 8 BB&B vacancies. Anchor space isn’t the only thing in hot demand, as small shop space continues to be a hot commodity. Brixmor increased their small shop occupancy to 89.8%, a record high. Kimco also reported that their small shop occupancy for the quarter reached an all-time high.

Despite the strong operations and leasing environment, the REITs continue to be cautious on the transactions front. Site Centers led the way with transactions as they sold 11 shopping centers in the 3rd and 4th quarters for a total price of $645.6M. The MSA’s of the dispositions included Atlanta, San Antonio, Hartford, Philadelphia, Cincinnati, Boston, Charlotte, & Tampa. They acquired five convenience centers for a price of $54.1M. They also announced that they plan to spin off their convenience portfolio into the first-ever publicly traded REIT that will be solely focused on convenience assets. The REIT will be called Curbline and will consist of 61 properties, of which 75% of the tenant roster will be national tenants. Kimco took home the trophy for largest purchase as it closed on a trophy asset in a Washington, DC, MSA. They purchased Stonebridge at Potomac Town Center for $172.5M. The 504K square foot Wegmans anchored center was purchased north of a 7% cap rate, and their ability to close all cash helped them get awarded the deal. On the disposition side, they sold The Shoppes at Wilderness in San Antonio for $7.85M, Camden Square in Dover, DE, for $3.6M, and a 15% share in Melrose Village Plaza in Vista, CA, for $4.3M. Kite Realty also made a large purchase during the quarter, acquiring Prestonwood Place in a Dallas, TX MSA for $81M. They commented that they made the purchase at a cap rate in the high-6’s but think they can generate 8.5%-9% unlevered IRRs by upgrading the merchandising mix and driving operational efficiencies. On the disposition side, they sold Reisterstown Road Plaza in Baltimore, MD, for $48.3M, and subsequent to quarter-end, sold Eastside in Dallas for $14.4M. The sale of Reisterstown was due to the fact that the downside risk eclipsed the ability to drive above-average returns.

In addition to completing its acquisition of Urstadt Biddle, Regency Centers has acquired a 20% interest in Old Towne Square in a Chicago suburb. Also, after quarter-end, they acquired Nohl Plaza, a Vons-anchored shopping center in Orange County, CA, for $25.3M. The cap rate on Nohl Plaza was lower than a standard acquisition, but they believe they can achieve 10% unlevered IRRs through development opportunities. Phillips Edison acquired a 40K square foot Tom Thumb anchored center in Dallas, TX for $12.9M, and subsequent to quarter-end acquired the Kroger anchored Mansell Village in an Atlanta suburb for $19.4M, which calculated to a 6.2% cap rate. Acadia Realty completed its purchase of Cypress Creek in Tampa for $49.4M. Brixmor was quiet on the acquisition side but sold Tuckernuck Square in Richmond, VA, for $14.5M and a Park Hills Plaza outlet for $2.5M. ROIC and RPT did not have any transaction activity for the quarter.

The STNL REITs were active on the transaction front as Realty Income acquired 104 properties for a total of $1.7B and an average cap rate of 6.9%. They also entered into a definitive merger agreement to acquire Spirit Realty Capital in an all-stock transaction that is expected to close in the first quarter of 2024. Realty Income mentioned that going forward, they will remain highly selective in pursuing new investment opportunities and will only enter new assets if there’s an ample spread to their cost of capital. Agree Realty purchased 74 properties for $398M at an average cap rate of 6.9%. This was 10pbs higher than their previous quarter. They believe rates will continue to creep up in the 4th quarter and anticipate their Q4 cap rates on acquisitions to be north of 7%. NETSTREIT acquired 29 properties for $117M at an average cap rate of 7%. They also anticipate cap rates to creep higher and mentioned that they are not looking to buy anything in the 6-cap range. Alpine Income Property Trust was a net seller as they sold 8 properties and acquired 3 properties. Their acquisitions totaled $19M at a going-in cap rate of 9%.