BofA's 7 REIT Takeaways: Why Grocer-Anchored Strip Malls Are A Highlight

Many real estate investment trusts offered 2021 funds from operations guidance this earnings season, and this will serve as a "key confidence booster" for the industry, according to BofA Securities.

The REIT Analyst: Craig Schmidt commented on the broader REIT sector.

The REIT Update Thesis: Schmidt offered the following highlights and takeaways from fourth-quarter REIT earnings.

1. REIT companies that issued 2021 FFO guidance imply an average year-over-year growth rate of 0.5%, Schmidt said in a note.

Compared to 2019 performance, the guidance implies an FFO decline of 31% for malls and a 17.5% decline for strip malls.

2. Grocery- and essential-focused strips showed the best same-store net operating income at down 9.4%, followed by discretionary peers at down 15% and malls at down 22.3%.

3. All REITs plan on paying a distribution in the first quarter. On average, distributions are trending at 66% of pre-COVID-19 levels, but are "normalizing" as visibility improves.

4. Retail REITs are benefiting from continued economic reopening trends.

5. Strip malls are best positioned to take advantage of their leasing pipelines.

6. Despite improving visibility, malls face continued headwinds related to returns, leasing spreads and occupancy space.

7. Investors should priotize exposure to grocery-anchored strip malls like Brixmor Property Group Inc BRX, Kimco Realty Corp KIM, Regency Centers Corp REG and Weingarten Realty Investors WRI. These companies offer lower store closing risk, faster FFO recovery versus peers and a better distribution outlook.

BRX, KIM, REG, WRI Price Action: Shares of Brixmor Property Group were trading higher by 0.93% at $20.70 Thursday.

Shares of Kimco Realty were trading 0.91% higher Thursday morning at $19.42.

Shares of Regency Centers were trading 0.54% higher Thursday at $59.97.

Shares of Weingarten Realty were trading up 0.74% at $27.13.