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REIT investors eye weak retailer results, store closing plans

  • Notably lower today with the major averages in the green are retail REITs Realty Income (O -1.5%) and National Retail Properties (NNN -1.7%), and shopping-center REITs like Kimco (KIM -1.1%), Inland Real Estate (IRC -0.6%), Federal Realty (FRT -1%), and Brixmor (BRX -1.2%).
  • Investors may be mulling over a continuing string of disappointing retail earnings reports and plans for mass store closings from the likes of RadioShack and Staples.
  • Brixmor is also the subject of a downgrade from Buy to Neutral from UBS.
Comments (6)
  • MintyFresh32
    , contributor
    Comments (358) | Send Message
     
    Long-term holders of O are not worried, and are buying on weakness:http://bit.ly/1idwMFn
    6 Mar, 10:54 AM Reply Like
  • Captain Pike
    , contributor
    Comments (512) | Send Message
     
    Helps to know your stocks in depth. To my knowledge, ARCP has no exposure to RS and only 1 staples location, which may stay open. And once you know which stocks are solid with good futures, you take yield. Which is why I can not understand the affinity for O at this time. It is over-bought. When something gets over-bought you have to sell off and move to the better offering. It's not a sports team, it's business.
    6 Mar, 11:42 AM Reply Like
  • Savlanoot
    , contributor
    Comments (13) | Send Message
     
    Good thoughts, Captain Pike. O is slightly above its mean price target ($41.41 acc. to Yahoo Finance). Still, I like the monthly dividend and probably will add to my position at a lower price.
    6 Mar, 09:54 PM Reply Like
  • smurf
    , contributor
    Comments (3790) | Send Message
     
    O's not going anywhere...it'll be just fine.

     

    Long and will accumulate below 40.
    6 Mar, 10:52 PM Reply Like
  • Captain Pike
    , contributor
    Comments (512) | Send Message
     
    That's right Smurf, O should not be going anywhere. It is fully valued and should sit at its current price for a couple years, unless of course everyone piles into Reits from the broad market for the return given that the market is fully priced.

     

    BUT some Reits like ARCP and MNR, both very sound, as solidly positioned or better than O, should be going up quite a bit until their yields are brought into line with O. So getting in them now brings a higher yield and more price appreciation. It is just logic.

     

    You have to constantly assess the situation, I have been in XTEX for a little while, got in under $20 when yielding 7%. It got bought out, price has bumped to $32 and now after listening to the conf call, I realize they will be in neutral for at least a year as the merger and growth get put into place. So reluctantly I sell, take my profit, and move to the better yield and growth. Still a great company that I may move back into if the situation is right.

     

    That is where O is now, great company just plateaued. Why give up 2%?
    7 Mar, 08:19 AM Reply Like
  • Palladium31
    , contributor
    Comments (438) | Send Message
     
    Captain - ARCP's Post-Cole debt is financed about 40% mortgages, about 10% long-term bonds/convertibles, and about 50% short term debt (bonds/credit facility/term loan). In particular, the short debt concerns me because these are maturing in the next 3-5 years and reflect today's very low interest rates (i.e. 1.5-3%). Once the debt matures and needs to be refinanced, assuming we are in a higher interest rate environment, this will have a very significant adverse affect on the company's FFO/AFFO.

     

    O also has debt that is maturing in the next 3-5 years, but that debt was originally long term debt which is in the last 3-5 years of its term, so it reflects much higher interest rates (i.e. 4-6.5%). When that debt matures and is refinanced, assuming O were to take out the same term and interest rate as ARCP, there will be a much smaller impact on O's FFO/AFFO.

     

    Thus, the 3.5% spread over O that ARCP currently enjoys on this 3-5 year debt is one of the key reasons ARCP has a lower credit rating than O and is also a key reason ARCP trades at a much lower FFO multiple to O.

     

    Additionally, O has not plateaued. After ARCT, O went on to acquire another $1.7BN in assets last year, and plans another $1-1.5BN this year based on guidance. This is why O's DCF valuation is in the $41-42 range now (instead of $39-40 last year).

     

    Thus, I'm sticking with O for the bond replacement part of my portfolio at this time.

     

    Regards,
    P
    8 Mar, 12:26 AM Reply Like
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