REIT Earnings Recap & Forward Momentum: Q2 2024
Quarterly Insights from Open-Air Shopping Center REITs
Record Occupancy and Leasing Activity
The open-air shopping center REITs recently wrapped up their earnings calls for the 2nd quarter of 2024 and gave their insights on what they expect for the back half of the year. Many of the REITs raised their guidance outlook for the year as occupancy remains at record highs, and leasing demand has yet to show any signs of slowing down. Brixmor reported record anchor occupancy of 95.4% and grew their small shop occupancy for the 14th straight quarter to a record of 90.8%. Federal Realty signed 122 leases for 594k square feet, which was a record level of comparable square footage signed in any second quarter, and the second highest of any quarter on record. Their strong leasing volume allowed them to report a record FFO (Funds From Operation) of $1.69/share. Kimco reported an all-time record of small shop occupancy at 91.7%, and also raised their earnings guidance for the remainder of the year. Despite economic data supporting a slowdown in consumer spending, many of the REITs stated that they have not seen a drop in traffic at their centers, and any decrease in consumer spending has not trickled down into a slowdown in leasing. Regarding the transactions market, there’s optimism in the air as the consensus was that there are a lot more opportunities coming to market at more realistic pricing expectations. Regency Centers raised their acquisition guidance from $46M to $81M. Many of the REITs believe that due to the amount of capital that’s on the sideline, and borrowing costs decreasing, the cap rate expansion that has been seen over the last few years is most likely over, and cap rates could even start to come back down.
Market Trends and Economic Outlook
Site Centers was the leader in transaction activity as they sold 15 shopping centers in the 2nd and 3rd quarter to date for $800.7M. The centers were located coast-to-coast ranging from Portland, Naples, Atlanta, San Francisco, and may other MSAs. They acquired 6 convenience centers for a total of $56M primarily in the Sunbelt states, with the only exception being one in Chicago. The convenience assets that they’re acquiring for the Curbline portfolio have mainly been fully stabilized properties acquired for around a 6.5% cap rate. The company is set to have a busy second half of the year as they have over $1B of additional real estate either under contract, in negotiation, or at LOI.
Transaction Activity Highlights
These acquisitions are expected to close at a blended cap rate in the mid-7’s. Phillips Edison had an active quarter as they bought 2 centers and 1 land parcel for $59.5M. These properties were located in Atlanta, Austin, and Chapel Hill. Subsequent to quarter-end they purchased two additional centers, one in Colorado Springs and the other in St. Louis. Their current acquisitions for the year are a blended cap rate of 6.7%. Brixmor acquired two properties: one in Long Island, New York, and the other in Hilton Head. Year-to-date their acquisitions have been bought in the high-6 cap range. They mentioned their current acquisition pipeline consists of assets that are larger than what they’ve purchased in the first half. Federal Realty took home the trophy for largest asset purchase of the quarter as they bought Virginia Gateway, 664k sf super-regional community center comprised of five adjacent open-air retail properties in Gainesville, VA for $215M. Kite Realty sold a Chicago, IL center for $30.6M and are currently under contract to buy a grocery anchored center in the southeast. Regency Centers closed on their Westport, CT center for $46M and are currently under contract to buy an additional asset in the northeast. They sold two properties this quarter, one in Tamarac, FL and the other in Boston. Retail Opportunity Investment Corp. (ROIC) acquired Bressi Ranch Village Center in Carlsbad, CA for $70.1M, and have another property currently under contract. However, after their recent activity, they do not expect to have any acquisitions the second half of the year.
Activity in STNL REITs
The STNL REITs also were active this quarter as Agree Realty acquired 47 properties for approximately $185.8M. The average cap rate on their acquisitions were 7.7% and had a WALT of 9.3 years. The cap rates on their acquisitions were 90bps higher than the same quarter for the prior year. They are anticipating similar cap rates in Q3. Realty Income had a relatively quiet quarter, acquiring 15 properties in the USA for $131M at an average cap rate of 7.8%. These cap rates were 70bps higher than the previous quarter. They acquired 6 properties in Europe at an average cap rate of 8.1%. They believe they will have more transactions in the back half of the year. NETSREIT acquired 28 properties at $155.7M at an average cap rate of 7.5%, and they are expecting a similar pace of acquisitions for the next quarter.
