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Shopping Center REITs - Dividend Outlook 2021

Jun. 02, 2020 12:29 PM ETBRX, FRT, FRT.PR.C, KIM, KIM.PR.L, KIM.PR.M, REG, ROIC, RPT, RPT.PR.D, WRI, KRG, SITC, UE17 Comments
Joe X profile picture
Joe X


  • Most of the shopping center REITs have suspended their common dividends.
  • Payout ratios were far too high anyway, averaging 97% of 2019 AFFO.
  • A review of dividend tax allocations provides helpful insight.
  • An expected dividend 'reset' to sustainable levels will come in 2021.

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A Quick History of Shopping Center REITs

Shopping center REITs represent an established category within the REIT space, dating back to Federal Realty's (FRT) IPO in 1962. Typically anchored by a grocery store, these local community centers are a suburban mainstay and historically churned out 3% NOI growth like clockwork. Yet there has been stress on the shopping center REITs over the last few years, resulting in elevated dividend payout ratios. These problems can be attributed to three general areas:

  • The trend toward lower leverage is dilutive to cash-on-cash returns. For example, Retail Opportunity (ROIC) went from 9.5x Net Debt/EBITDA in 2012 to 7.1x in 2019. That's a tough headwind for dividends, even as the ROIC portfolio performed well.
  • Portfolio cleanups have been expensive. Acquisition sprees left more than a few REITs with far-flung portfolios and complicated JV structures. Shopping center REITs have now embraced the Federal Realty model - fewer centers, upscale demographics, and constant reinvestment to remain competitive. Kimco's (KIM) downsizing from 888 properties in 2012 to 409 properties at the end of 2019 illustrates the dramatic shift in portfolio composition, echoed by SITE Centers' (SITC) 62% decrease in store count over the same time frame.
  • Backfilling tenant vacancies requires capex dollars. Shopping center REITs have done a decent job of maintaining occupancy in a weak retail environment. But recurring capex spending for tenant improvements and leasing commissions has been high. For the REITs profiled in our shopping center group, recurring capex increased from 12.0% of EBITDA in 2015 to 17.5% for 2019. This reduces free cash flow and crowds out dividend capacity.

2019 Dividend Payout Ratios Were Far Too High...

The following chart shows AFFO dividend payout ratios for 2019 and the status of dividends for 2Q'20. Of the group, only Regency (REG

This article was written by

Joe X profile picture
Joe X is a veteran REIT analyst and former portfolio manager. He is now a partner in a technology platform specializing in financial and securities data.

Analyst’s Disclosure: I am/we are long REG, ROIC, SITC.PK, KIM.PM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (17)

Joe X profile picture

Guys - ROIC just reinstated the dividend at $0.11 ($0.44 annualized) versus our annualized estimate of $0.55. I think what's going to happen is that some of these initial dividends will increase sequentially through 2021, particularly if tenants on cash accounting get their businesses running at a higher level as the vaccines roll out.

Hope everyone is staying safe and healthy in the meantime.


Joe X.
Joe X profile picture
Guys - Urban Edge (UE) just announced that it will reinstate dividends in 2021 starting at $0.15 in the first quarter. This is very close to the $0.16 we had predicted on our article. The 2019 dividend was $0.22/qtr.

This is actually very good news from UE. They are essentially providing $0.60 of annual dividend guidance now, which speaks to confidence on 2021 leasing/occupancy trends.


Joe X.
Joe X profile picture
Guys - as an update on forward dividends, BRX just announced a $0.215 dividend for 4Q'20, which kind of sets a run-rate of $0.86 for full-year 2021.

In the table above we had predicted $0.85 for 2021.

We'll see how the rest of the predictions play out over the next few months, but dividends are clearly being right-sized against expectations for 2021 taxable income.


Joe X.
Great insights on what % of divi is ordinary income vs potential fluff. I don’t recall seeing this called out so clearly on any other article on REITs I have read here in the past year. Thanks
Joe X profile picture
Kite Realty (KRG) finally cut its dividend 84% for the second quarter, which is consistent with the actions taken by the rest of the shopping center group. Again, the percentage of KRG's dividend covered by ordinary income had been declining for at least the past two years, providing a leading indicator that the dividend was at risk.


Joe X.
Thanks for the great insights. Any specific reason why you haven't included MAC, TCO, SPG ?
Visual Capital profile picture
@Joe X From your analysis I can understand why you're REG. Could you elaborate on what you find alluring about ROIC (I'm guessing the next highest % ordinary income) and SITC.PK?
Joe X profile picture
@Visual Capital - ROIC reported one of the highest April collection rates at 68% of base rent and CAM, and more recently said that they've received 71% of May base rent. So they seem to be doing ok on being able to cover operating costs, interest, and capex. Can't wait to see the 2Q numbers for the group, although there's likely to be a lot of noise with rent deferrals and receivable write-offs.

I would say that ROIC might be something of an asset play as well. Not easy to assemble a West Coast shopping center portfolio, and ROIC is kind of bite-sized and might be of interest to private equity. ROIC also has a very advantageous debt maturity schedule - nothing due in 2020 or 2021, then just $24.5 million in 2022. This gives them plenty of flexibility to work through tenant/operations issues over the next year or so.

The SITE.PK has a fairly high coupon at 6.25% and is callable now. I'm guessing management will want to take out at some point with either debt or common equity, so it's really just an opportunity to generate some yield and maybe a small capital gain if bought below par.

I will caution everyone that when CFO's were talking about "breaking even" for 2Q, I didn't hear anyone say that included preferred stock dividends. We'll see how the numbers shake out for 2Q, but I wouldn't say there's a margin of safety at the moment. The corporate bonds though are well covered and might provide some decent yield.


Joe X.
Your numbers look flat out wrong. ROIC for example (according to SA) had 125.7m shares outstanding and FAD of 133m. That's a payout ration of ~75% [(125.7 * 0.8)/133].

WRI had 2.09 AFFO/share for a payout ratio of ~75% (1.58/2.09).

I could go on but I've got better things to do than check them all. Even if your numbers are closer to the truth than SA's, I still have a problem with statements like, "Now's the chance to place dividend policy on a firmer footing by setting the 2021 dividend just above taxable minimums".

Why? So you can perhaps get your dividends at some indeterminate future date rather than right now? Never understood that logic.

FWIW I bought every stock on that list in the last month EXCEPT FRT and REG.
Joe X profile picture
@dkMazz - one thing to keep in mind is that we do our own numbers here and they may vary from other sources. As you probably know, ROIC does not publish AFFO/share, but does give you all the pieces on p. 6 of the 4Q'19 supplemental to DIY. So let's take a look at 2019:

$138.067 - FFO

- $3.083 - straight line rent
- $15,618 - MTM lease adjustment
- $25.648 - recurring capex

= $93.718 - AFFO

125.741 - diluted shares

= $0.745 AFFO/share

$0.788 - dividends / share

= 105.8% AFFO Dividend Payout

Note that this calculation does not add back $2.6mm of financing costs and $8.5mm of stock comp. We consider these real economic costs to the investor and that's our point of reference.


Joe X.
Other Side Of Trade profile picture
Interesting point of view. Thanks for the article. Long FRT, KIM and UBP (common and preferreds).
Sobering, yet realistic projections. 10% drop for 2021 ffo may even be optimistic.

New follower.

Joe X profile picture
Thanks Sip.
Landlord Investor profile picture
Interesting that 2 of your 4 positions in this sector are in the preferreds yet your article doesn't discuss preferreds. Any thoughts you could add as to why you like the SITC and KIM preferreds? You didn't cover BFS or their preferreds but that's a solid REIT as well.
Joe X profile picture
@Landlord Investor - you're correct on the preferred holdings, it's really just a way of trying to generate some income in the space while waiting for the common dividends to get turned back on. Assuming that cash collections don't materially worsen for the group, there's plenty of liquidity to cover the preferred dividends. Traditional preferred analysis like looking at fixed charge coverage (might not even be 1.0x for 2Q) clearly isn't going to work for the next couple quarters - it's all about excess cash balances for any margin of safety. I will also add that it's critical to maintain access to the fixed income markets, and passing on the preferred dividends would send a really bad signal to your banks and bondholders.

Thanks for the comments.


Joe X.
Good analysis, Thanks
Joe X profile picture
Thanks Big.
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