Equity One: Building a Strategically Populated REIT Model

| About: Equity One (EQY)

Last week I published an article on what I consider to be one of the safest and most reliable REITs in the United States. As explained in the article, Realty Income (NYSE:O) has an exceptional business model as the single tenant REIT provides a stable, diversified, and well capitalized portfolio. Many of the other publicly traded single tenant REITs are paying similar dividends:

Single Tenant REITs

National Retail



Realty Income



Lexington Property



Agree Realty



Average (of 4 above)


Also, I read another Seeking Alpha article by Zvi Bar. In this article, the author identified six Mall REITs with the following dividend yields:

Mall REITs

CBL Property






Macerich Co.



Pennsylvania REIT



Simon Property Group



Taubman Centers Inc.



Average (of 6 above) 3.78%


Clearly, and as noted above, the single tenant REITs provide one of the safest and most reliable dividends. Conversely, the Mall REITs have not been as aggressive with dividend yields and many of the Mall based tenants are still struggling with high rents and flat retail sales.

Equity One – Building Value with Quality Assets

Unlike the higher yields of the single tenant REITs and the lower yields of the Mall REITs, many of the Shopping Center REITs provide a hybrid strategy whereby the underlying assets provide a secure “value driven” revenue stream balanced with growth in leasing and development. Most Shopping Center oriented REITs provide a stable grocery anchored credit and shops and outpads that generate higher risk adjusted returns.

Equity One Inc. (NYSE:EQY) is a leader in the ownership, operation, development, and management of neighborhood and community shopping centers. Last week, I listened to the First Quarter 2011 Conference Call for EQY and, as noted on the earnings call, Equity One reported continued growth and diversification in its high quality shopping center portfolio. Included as tenants in the portfolio of 201 properties are names like Publix (OTC:PUSH), Whole Foods (WFMI), Kroger (NYSE:KR), Lowe’s (NYSE:LOW), Home Depot (NYSE:HD), Albertson’s, Target (NYSE:TGT), Kohl’s (NYSE:KSS), TJ Maxx, Walgreen’s (WAG), Office Depot (NYSE:ODP), and Lifestyle Fitness. Equity One reported net income above Wall Street’s expectations for the first quarter as revenue rose to $58.5 million vs. $5.4 million in the same quarter a year earlier.

During the last 18 months, Equity One has begun a substantial transformation in its core acquisition model. With a current market capitalization of around $3.7 billion, Equity One has closed on almost $1 billion of new projects (over 18 months) and many of the new projects are being upgraded to include names such as Vons, Ralph’s, Marshall’s and Ross. As noted on the earnings call, Equity One has commenced a “recycling” initiative to replace some “lower” credit tenants with tenants more representative of the “new” Equity One.

Equity One – Building Value on Selectivity

As a function to increase new tenants, Equity One is also being transformed into a major urban market player. The Florida, based REIT is targeting high barrier to entry markets such as San Francisco, Long Beach, New York, and Miami. The retail based portfolio is becoming increasingly upgraded and diversified with around 2/3’s of its portfolio value (82 shopping centers) located in very densely populated and supply constrained markets. According to the earnings call, Equity One’s weighted “urban market” portfolio has an average of 147,000 people living within 3 miles – demographics higher than all of the peer REITs. Because of the higher barriers to entry, Equity One enjoys minimum competition due to scarcity of land and strict zoning restrictions.

As reported in the Q1-2011 results, Equity One recently closed on the acquisition of two Long Beach, CA., properties known as Circle Centers. The combined centers of 273,000 square feet were 97% occupied (at closing) with an average 3-mile population of 259,624 people with an average household income of $70,401. This $57 million acquisition, anchored by Vons, Ross, Ralph’s and Marshall’s, provide the REIT with quality tenants (with strong sales) in a most supply constrained trade area.

Also, reported recently, Equity One closed on the strategic acquisition of the Capital and Counties USA, Inc. portfolio (C&C). This JV structure added an additional 13 properties with over 2.4 million square feet. With over $600 million of new product (“C&C” portfolio), Equity One is clearly focused on upgrading its core holdings with quality tenants and sites.

Equity One – Building Value with Yield

In addition to its strategic acquisition model, Equity One has also launched an aggressive development and redevelopment program. Currently the REIT has approximately $150.6 million of active development projects and $33 million of redevelopment projects under way. On April 4, 2011, Equity One broke ground on The Gallery at Westbury Plaza – a 330,000 square foot retail center in Nassau County, New York. This project is anticipated to provide an unleveraged return of around 10% with tenants named (signed) including Trader Joe’s, Nordstrom, and Container Store. In addition, Equity One’s redevelopment program ($33 million) should provide returns on capital of 9% or greater.

Like many of the peer REITs, Equity One has cut dividends with its annual dividend payout of $2.20 in 2007, $1.20 in 2008, $1.12 in 2009, and $.88 in 2010. The company’s quarterly common stock dividend of $.22 has remained unchanged for the past 6 quarters. The current yield is 4.6% - higher than many of the peer shopping center REITs:

Shopping Center REITs





Equity One






Federal Realty












Regency Centers













Equity One has begun to transform into an “urban owner model” and the company should benefit from the higher quality sites. In addition, the development strategy should provide some increased lift (FFO) with average development pricing of around 9.5%. As the company continues to dispose of non-core assets and reduce its debt (S&P rating is BBB- and Moody’s rating is Baa3), the modest net debt to market cap (currently 38.8%) will be further reduced and provide enhancement to cash flow and future acquisitions. With over 80 years of senior management experience, Equity One should provide positive growth with its repositioning strategies and its latest initiatives.

Equity One joined the FTSE NAREIT indexes in June 1998. Through December 2010, the compounded average annualized total return was 12.81%, which was 23rd highest among the 86 publicly traded REITs (during this period). For the FTSE NAREIT All Equity REIT Index it was 8.80%, for the FTSE NAREIT All REITs Index it was 8.14%, and for the FTSE NAREIT Shopping Center REITs Index it was 8.38%. Annualized volatility over that period was 23.38% for Equity One, which was 12th lowest. Equity REITs was 23.31%, All REITs was 22.37%, and the Shopping Center REITs index was 26.27%.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.