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The shopping center REIT Kite Realty Group Trust (NYSE:KRG) posted fourth-quarter results Thursday that prompted Bank of America Merrill Lynch to downgrade the stock.
The Analyst
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Bank of America's Craig Schmidt downgraded Kite Realty's stock rating from Buy to Neutral with a price target lowered from $20.50 to $18.
The Thesis
Kite Realty's funds from operations figure in the fourth quarter of $2.04 was in-line with expectations, but the company's 2018 guidance FFO range of $1.98 to $2.04 fell short of the $2.08 Schmidt was expecting and also fell short of the $2.07 consensus estimate, he said.
The midpoint of management's range would imply a 1.5-percent decline in FFO/share compared to 2017. Same-store net operating income was also projected to fall from 2017's level.
Kite Realty's 2018 guidance was surprising, but three underlying factors might explain the slowdown in growth, the analyst said:
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- An unexpected office tenant move-out.
- Rent reductions from Toys R Us stores.
- Higher cap rates on pending dispositions versus prior expectations.
Kite Realty's current dividend yield above 8 percent appears to be "secure" and was even raised by 5 percent on Thursday, Schmidt said. This demonstrates management's confidence in the long-term business outlook, and any headwinds are likely temporary setbacks, he said.
Price Action
Shares of Kite Realty Group were trading lower by 6.68 percent at the time of publication Friday.
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Photo from Wikimedia.
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.