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Kimco Realty Corp (KIM), Macerich Co (MAC): Great Value in Retail REITs

Q1 of 2013 saw meaningful increases for Kimco, with FFO clocking in at $0.33 compared to $0.31 for the same quarter last year; same-property net operating income (NOI) increased 4% compared to Q1 of 2012. EPS for Q1 of 2013 grew significantly from prior years ($0.13, as compared to $0.09 and $0.03 for Q1 of 2012 and 2011, respectively).

Kimco’s price/earnings (P/E) ratio for the trailing twelve months is roughly 47, assuming a share price of $21.70. The stock seems a little expensive, but when you factor in an almost 4% dividend yield (which is sustainable given Kimco’s FFO) and Kimco’s excellent growth prospects, I think it’s still a good deal.

Macerich reported EPS of $2.51 and FFO of $3.18 for 2012. The bottom line turned from a loss of $0.11 per share for Q1 2012 to a gain of $0.13 per share in Q1 of 2013. Macerich’s P/E ratio for the trailing twelve months is roughly 23, assuming a share price of $63. With a dividend yield similar to Kimco’s (and similarly sustainable), Macerich is an even better deal given how much cheaper the stock is.

One note of caution about Macerich – it is more leveraged than Kimco Realty Corp (NYSE:KIM) (Macerich’s debt/equity ratio is about 1.8, compared to Kimco’s, which is 0.7 according to Morningstar). While neither is carrying a debt load that is concerning for a REIT, Kimco may have an easier path for expansion via debt than Macerich.

A more speculative play

Retail Opportunity Investments Corp (NASDAQ:ROIC) is another shopping center REIT with great growth potential. It had a Q1 2013 FFO of $0.19 (a nice increase from $0.17 per share in Q1 of 2012) and has a strong balance sheet, with a debt/equity ratio of 0.5 according to Morningstar.

Revenue growth has been fantastic, with $16 million in revenue for 2010 growing to $75 million in revenue for 2012. The company is expanding rapidly, with four recent shopping center acquisitions. Its business model is built around grocery store-anchored neighborhood shopping centers, which is smart since fewer people are eating in restaurants right now.

The company is a little pricey for my taste with a P/E ratio of approximately 86, according to Morningstar. Also, it is West Coast-based; I tend to prefer companies with more geographic diversification (which I view as a good hedge for risk). Depending on your investment style, Retail Opportunity Investments Corp (NASDAQ:ROIC) may be right for you, but personally, I tend to favor more established companies like Kimco and Macerich.

The bottom line

Kimco and Macerich are great, long-term investments. Let the 4% annual dividend yields pay you to hold these companies while they retool their portfolios for greater profitability. As the American economy recovers, consumers will increase their spending, making these higher-class shopping centers more attractive (and therefore more profitable for their owners).

With so much of the financial industry getting bad press these days, it may be a greedy when others are fearful moment. Not surprisingly, some of Warren Buffett’s biggest investments are in the space.

The article Great Value in Retail REITs originally appeared on Fool.com.

Michael Douglass has no position in any stocks mentioned. The Motley Fool recommends Retail Opportunity Investments. The Motley Fool owns shares of Retail Opportunity Investments. Michael is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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