Grocery-Anchored REITs: Resilience Amid Market Volatility

Current Performance of Grocery-Anchored REITs

Kimco Realty and Regency Centers have reported strong performance, with Kimco surpassing expectations and upsizing its term loan to $500 million, indicating financial strength. Regency Centers is enhancing its portfolio with upgraded stores and higher rents, while ROIC maintains a dominant position on the West Coast.

""Our first quarter results surpassed our initial expectations and showcase the robust demand that continues to permeate our open-air, grocery-anchored shopping center portfolio, supported by the exceptional performance of our dedicated team of associates," stated Conor Flynn, CEO of Kimco." --- (KIM, press release, 2024/05/02)

"We are re-merchandising with upgraded stores and at higher rents, improving and growing the long-term value of our centers, and we look forward to getting these new anchors open for business in the coming months." --- (REG, earning call, 2024/Q1)

"ROIC is the largest publicly traded, grocery-anchored shopping center REIT focused exclusively on the West Coast." --- (ROIC, press release, 2024/06/11)

"JERICHO, N.Y., July 17, 2024 (GLOBE NEWSWIRE) -- Kimco Realty® (NYSE:KIM), a real estate investment trust (REIT) and leading owner and operator of high-quality, open-air, grocery-anchored shopping centers and mixed-use properties in the United States, announced today that it has amended and upsized its unsecured term loan to $500 million from the prior amount of $200 million." --- (KIM, press release, 2024/07/17)

"unique and what we like to call unparalleled combination of strategic advantages that really differentiates us from our peers and they are a high quality portfolio of mostly grocery anchored, nearly 500 shopping centers, best in class retailers in the strongest trade areas in the U. S. Our experienced team in 23 offices across the country." --- (REG, conference, 2024/06/05)

Tenant Stability and Reliability

Tenants in grocery-anchored REITs demonstrate stability and reliability through their confidence in managing sales and profitability (FRT), high leasing rates due to property desirability (REG), and expectations of tenant failures within historical norms (FRT). However, economic challenges like inflation and supply chain disruptions pose potential risks (KIM).

"The notion of when a tenant is underwriting for themselves, their sales and their profitability, they've got to be confident that they can push those higher costs through to the customer base." --- (FRT, earning call, 2024/Q1)

"We know our properties and how well they are desired by the tenant community and we have a lot of conviction in continuing to lease at a high rate." --- (REG, earning call, 2024/Q1)

"The economy continues to face several issues including inflation risk, liquidity constraints, the lack of qualified employees, tenant bankruptcies and supply chain disruptions, which could impact the Company and its tenants." --- (KIM, sec filing, 2024/Q1)

"Or would you expect more stability going forward? Stuart Tanz: So, for the balance of 2024, there's two anchor leases remaining that will expire this year." --- (ROIC, earning call, 2024/Q1)

"And while we'll always have one-off tenant failures as just part of the business, portfolio-wide collectability issues haven't been and are expect -- are not expected to be outside our historical experience or specific 2024 guidance." --- (FRT, earning call, 2024/Q1)

Impact of Economic Conditions

Economic and market conditions significantly impact grocery-anchored REITs, affecting both the market price of securities and the financial health of tenants at retail properties. These factors necessitate careful management and revision of financial allowances to maintain stability.

"Risk Factors Related to the Market Price for Our SecuritiesChanges in economic and market conditions may adversely affect the market price of our securities." --- (REG, press release, 2024/05/02)

"Management’s estimates of the required allowance are subject to revision as these factors change and are sensitive to the effects of economic and market conditions on tenants, particularly those at retail properties." --- (ROIC, sec filing, 2024/Q1)

Competitive Advantages

Regency Centers Corporation (REG) leverages strategic competitive advantages and a robust development platform. Federal Realty Investment Trust (FRT) emphasizes operating strength, reputation, and balance sheet flexibility. Kimco Realty Corporation (KIM) capitalizes on market conditions with flexibility. These elements collectively underscore the competitive edge of grocery-anchored REITs.

"So what is Regency doing right here that others aren't the combination of unparalleled what we call our strategic competitive advantages and the development platform is one of them." --- (REG, conference, 2024/06/05)

"Obviously, it remains to be seen if and how much success we'll have in this buy versus build cycle, but using both our operating strength and reputation as well as our balance sheet strength and flexibility, is a specific focus of ours for the balance of this year and next." --- (FRT, earning call, 2024/Q1)

"a unique window of opportunity, where there's real needs for capital that we can provide accretively or when the transaction market is more in our favor and our cost of capital allows us to be more aggressive on the acquisition side, we can sort of be flexible with what the market gives us and then take advantage of it at that point in time." --- (KIM, conference, 2024/06/04)

"It’s all of the things, right? It’s our unequaled strategic advantages that I talked about in my prepared remarks, and with that, given 2024 is a temporary dip from those long-term expectations, we would expect 2025 would kind of make up for that and that with the growth of 2025, that we expect all else being equal with regards to the economy, we will still -- we will rise to the top of the sector." --- (REG, earning call, 2024/Q1)

"Floris van Dijkum: Yes. Good evening, guys. Don, I heard you talk so eloquently about some of the leasing dynamics and about your portfolio and how it's positioned in the market and why think you have a competitive advantage." --- (FRT, earning call, 2024/Q1)

Risk Factors and Challenges

Grocery-anchored REITs face significant risks that could materially impact their business, financial condition, and market price. Investors are advised to carefully review detailed risk factors in annual and quarterly reports to understand these challenges comprehensively.

"If any of the events described in the risk factors actually occur, our business, financial condition or operating results, as well as the market price of our securities, could be materially adversely affected." --- (REG, sec filing, 2024/Q1)

"You should carefully review the risks and the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2023 and under Part II, Item 1A in this Quarterly Report on Form 10-Q, before making any investments in us. Overview" --- (FRT, sec filing, 2024/Q1)

"Please also refer to the Risk Factors discussed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2023, and the Risk Factors described in Part II, Item 1A of this Form 10-Q. Executing on our Strategy" --- (REG, sec filing, 2024/Q1)

Future Outlook and Predictions

Grocery-anchored REITs are projecting robust growth, with FRT revising its comparable growth outlook upward to 2.25%-3.5%. REG's strong leasing performance and development momentum further bolster confidence, as they have met and exceeded objectives, indicating a positive future outlook for the sector.

"As a result, we are also revising our comparable growth outlook upward. Comparable growth is now forecast at 2.25% to 3.5%, up from 2% to 3.5%, and our comparable growth excluding prior period rents and term fees is now forecast at 2.75% to 4%, up from 2.5% to 4%." --- (FRT, earning call, 2024/Q1)

"So it’s just not translating to the full year expectations. What you’re sensing though, in our commentary is that, the incredible quarter we have from a leasing perspective and combined with the incredible momentum we continue to generate on the development side of the business is leading to this added conviction over our future growth." --- (REG, earning call, 2024/Q1)

"So we walked away meeting and exceeding really where our objectives were and feel great about the future." --- (REG, conference, 2024/06/05)