April 17, 2018 / 6:41 PM / in 4 months

Kimco's U.S. asset sales show gap in public, private market prices

NEW YORK (Reuters) - Kimco Realty Corp (KIM.N), an owner of 492 open-air shopping centers whose share price has been slammed by e-commerce, recently sold almost two dozen properties to private investors at valuations it said were better than public prices.

The real estate investment trust (REIT) disposed of its interests in 21 shopping centers for $210.2 million at prices the company said were in line with its expectations of a 7.5 to 8 percent cap rate.

Cap rates indicate the expected annual return on an investment in real estate.

Kimco, like other publicly traded owners of shopping centers, believes its assets have been unfairly valued by investors who fear the rise of e-commerce will destroy brick-and-mortar retailers.

The private market is valuing shopping center assets better than the public market, said Alex Goldfarb, a REIT analyst at Sandler O’Neill + Partners LP in New York who covers Kimco.

“The private market is saying, ‘We do not share the public market skepticism about retail,’ and that’s why you’re seeing the REITs sell assets to private investors,” Goldfarb said on Monday.

The S&P Retail REITs index .SPLRCRERD is down 13 percent year-to-date, compared with a gain of almost 2 percent for the broader market. The index includes Kimco, Simon Property Group (SPG.N), Macerich & Co (MAC.N) and four other REITs.

Kimco is trading at an implied cap rate of 8.6 percent, Goldfarb said. Cap rates are like bonds; the higher price represents a riskier investment.

The public market is an indicator for private market pricings and usually leads because the ease of selling is greater, according to Scott Crowe, chief investment strategist at CenterSquare Investment Management in Philadelphia.

Shopping centers are undergoing a “permanent repricing” because of online shopping, while cap rates for warehouses used for e-commerce will continue to compress, he said.

“You’re going to see cap rate expansion in retail at this point in time,” Crowe said last week.

CenterSquare recently launched the “REIT Cap Rate Perspective,” which seeks to quantify the valuation gap between the public and private market price of $1.5 trillion in real estate in U.S. REITS and signal the private market’s direction.

CenterSquare began to see data about two years ago in retail that led the asset manager to stop buying traditional retail and private retail real estate, Crowe said.

“We found it really useful in terms of making private real estate decisions,” he said.

Reporting by Herbert Lash in New York; Editing by Matthew Lewis

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