Shopping center

Brixmor property: Run to this mall owner (NYSE: BRX)

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REITs had a decent run in the 12 months to May, and that’s when it all started to fall apart. Worries about rising inflation, rising rates and tenant profitability have dampened the stock prices of many REITs and the Mall segment has not been immune to this.

This brings me to Brixmor Property group (NYSE: BRX), which has seen significant share price weakness in recent weeks. In this article, I outline what makes BRX a quality income buy amid market chaos, so let’s get started.

Why BRX?

Brixmor Property is one of the largest shopping center REITs in the United States, owning and operating a high-quality portfolio of 380 shopping centers covering 67 million square feet. Its properties are well located and distributed across 118 metropolitan statistical areas, and are diverse among more than 5,000 national, regional and local tenants.

As shown below, the majority of BRX’s top 10 tenants are either top-tier grocers like Kroger (KR) and Publix, or well-known and popular discount chains like TJ Maxx (TJX), Ross Stores (ROST ) and Dollar Tree (DLTR). ).

Main tenants of Brixmor Property

Brixmor’s Top Tenants (Investor Presentation)

BRX’s share price has taken a bit of a hit lately, dropping from the $27 level recently hit in late April to $21.79. It is currently showing an RSI score of 35, indicating that the stock is approaching oversold territory.

Worries around BRX can revolve around the possibility of a recession, which could hurt tenant profitability, and higher interest rates. However, I consider BRX to be well positioned against these risks, as more than 70% of its centers are either anchored in a grocery store or run by discount retailers, making them more resilient to recession and trade. electronic.

Additionally, BRX’s maintains a solid 92% occupancy rate, and that includes 87% occupancy of smaller stores, above the 85% level that I consider healthy. Also encouraging, BRX is seeing strong tenant demand for its properties, executing 780,000 square feet of new leases in the first quarter, the highest total in the first quarter since 2018.

It is also experiencing strong rental growth rates, with a mixed gap between new leases and renewals of 18%. Notably, its new lease differential of 31% is significantly higher than the 12% average of its peers. These factors helped generate a respectable 8.4% YoY NOI growth for same-store and an impressive 11.4% YoY growth in FFO/share.

BRX also appears to be well positioned for rising rates, as it recently received a credit rating of BBB flat (instead of BBB-) from Fitch. It also maintains plenty of cash at $1.4 billion and has no debt maturities until 2024. This supports BRX’s 4.4% dividend yield, which is well protected by a low payout ratio of 49 % (based on a first quarter FFO per share of $0.49). The dividend was last increased by 11.6% in November last year, and I expect to see another healthy increase this year.

Looking ahead, I remain bullish on BRX’s outlook as management has proven adept at recycling capital and has an active acquisition pipeline, as noted on the recent conference call:

To date, we have completed over $720 million of accretive reinvestments impacting over 30% of our portfolio and our pipeline remains strong with an additional $419 million of leased and ongoing active reinvestment projects at a yield. average spread of 9%, as well as the fictional pipeline of nearly $1 billion of opportunities at attractive returns that we will continue to convert into assets over the next few years.

We invite you to tour our assets with our regional teams in markets like Southern California, Texas, Chicago, South Florida, Philadelphia and New York to not only see the transformation that has occurred, but the future value as we continue to execute on our disciplined capitalization strategy on attractive rents.

I see value in BRX after the recent price drop. At the current price of $21.79, BRX has a forward P/FFO of just 11.3, well below its close peer Kimco Realty (KIM), which comes with a forward P/FFO of 13.5. Sell-side analysts have a consensus Buy rating on BRX with an average price target of $27.83, implying a potential one-year total return of 32% including dividends.

Key takeaway for investors

I see value in Brixmor’s stock after its recent liquidation and believe it is well positioned for potential risks such as a recession or higher interest rates. Additionally, management has proven adept at recycling capital and has sufficient cash to fund its pipeline of active acquisitions. Long-term dividend investors would do well to buy the decline in this quality stock.