Equity One (EQY) is a community shopping center real estate investment trust (REIT) with key locations but a mix of tenants that leave it vulnerable to a downturn.
As of Sept. 30, it had 199 properties holding about 20.7 million square feet of leasable space located in desirable, densely-populated urban areas. That includes Miami, Atlanta, Boston, New York, San Francisco and Los Angeles.
Grocery and drug stores anchor most of the centers. An average of more than 83,000 people with annual household incomes of $78,000 on average reside within three miles of Equity One's centers, according to Morningstar.
Those are good numbers. So is the REIT’s 90.6 percent occupancy rate for its core properties as of Sept. 30. The anchor tenants are able to command low rents for their large space, but they provide stable income for the REIT thanks to long-term leases. The anchor tenants also draw customers to the center’s other stores.
As a result, Equity One can charge higher rent to smaller stores. But these smaller stores are more vulnerable to a tepid economy. Equity One recently had an occupancy rate of 97 percent for its anchors, but only 78 percent for its non-anchors, Morningstar reports.
The small shops take up about a third of the REIT’s available space, but make up almost half of minimum rents. Until the economy starts growing in earnest, that’s a problem.
Long-term optimism
Standard & Poor’s equity analyst Robert McMillan has a hold rating on Equity One shares.
“We believe shareholders will benefit over the long term from EQY's position as a large owner of community shopping centers in the densely populated, relatively affluent major metropolitan areas of the southern and northeastern U.S. and from its strong relationships with numerous retailers,” he writes.
The stock offered an annualized total return of 16.94 percent over the last three years, lagging Morningstar’s retail REIT index by 18 percentage points.
Equity One reported funds from operations, a key metric for REITS, of $12.8 million for the third quarter, down 42 percent from a year earlier. Revenue jumped 26 percent to $72.8 million.
The company next reports earnings Feb. 22.
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