The commercial real estate sector has faced a tricky 2024, with rising vacancy rates and slowing rent growth in most areas. But the retail segment has shown some grit, keeping vacancy rates around 4% - the lowest among all commercial real estate sectors. This standout performance has caught the eye of industry analysts and investors, prompting Goldman Sachs to update its high-conviction stock picks and highlight promising opportunities in retail real estate.
Specifically, analysts at Goldman Sachs (GS) recently added Brixmor Property Group (BRX), a retail REIT, to its prestigious Conviction Buy list, signaling strong confidence in the company's growth prospects. The industry also offers plenty of appeal for passive income investors, as evidenced by the iShares Global REIT ETF (REET) delivering a trailing yield of 3.5% and the Nuveen Short-Term REIT ETF (NURE) offering a 4% yield, highlighting the income potential of this asset class.
With a forward yield of 4.82% and an average Wall Street price target of $25.50 suggesting there's double-digit upside potential in the shares, Brixmor is an attractive option for income-seeking investors and those looking for capital appreciation, too. Let's dive into the details.
Outperforming the Market: BRX's Impressive Run and Attractive Valuation
Brixmor Property Group Inc. (BRX) is a real estate investment trust (REIT) that owns and operates grocery-anchored community and neighborhood shopping centers across the U.S. Their strategy is all about leasing space to a mix of retailers, restaurants, entertainment spots, and fitness centers. Their portfolio has a relatively defensive tilt, as its grocery-anchored shopping centers have held up well, despite economic uncertainties.
BRX stock has been fairly quiet over the last year, up just 4.4% in 52 weeks. Like many REITs, which appeal to investors primarily by way of their outsized dividend yields, BRX has declined off its December highs alongside investors' hopes for imminent Fed rate cuts. However, the shares are still up about 16% from their October lows.
Financially, BRX has been impressive. In Q1 2024, they reported Funds from Operations (FFO) of $0.54 per share, beating the $0.51 estimate. Revenues hit $320.2 million, up from $304.8 million the previous year, with same-property NOI growth at 5.9%. This was driven by strong leasing activity, with 1.3 million square feet of new and renewal leases, including 0.7 million square feet of new leases. New leases saw a 39.7% rent increase.
For 2024, BRX is expecting to deliver FFO per diluted share between $2.08 and $2.11, with same-property NOI growth projected between 3.50% and 4.25%. These numbers highlight BRX's solid performance and ability to generate steady income.
A Resilient Portfolio & Growing Dividends: The Backbone of BRX's Success
Brixmor Property Group's portfolio of grocery-focused neighborhood shopping centers have proven to be reliable revenue generators, even when times are tough. Recently, BRX snapped up West Center, a 43,000 square foot grocery-anchored shopping center in New York, for $17.3 million. This new addition, right next to their existing Three Village Shopping Center, offers great leasing and value creation opportunities, potentially boosting future revenue.
And when it comes to dividends, BRX has a stellar track record. They've been consistently paying dividends for 10 years.
For Q2 2024, they declared a quarterly dividend of $0.2725 per share, a 4.8% bump from the previous dividend. That brings the forward dividend yield to an attractive 4.82%.
BRX has increased its dividends for three consecutive years, showing their commitment to returning value to shareholders.
Wall Street's Stamp of Approval: Analysts Are Bullish on BRX's Prospects
Valuation-wise, BRX looks appealing. Their price-to-FFO ratio is 15.38, roughly in line with the industry average. With a market cap of about $6.8 billion, BRX is an attractive option for those looking to invest in the resilient retail REIT sector - and its growth just might impress even the bulls.
That's what happened to Truist Financial's Ki Bin Kim, for example. The analyst remains bullish on BRX on after earnings, and said management's newly raised 2024 FFO guidance of $2.095 per share at the midpoint surpassed his own forecast.
Kim has a price target for BRX of $25, about 10.6% higher than Friday's close. The average price target is $25.20, implying about 11.6% upside potential.
As for Goldman Sachs, which expects the REIT to attract new tenants at higher lease rates thanks to property upgrades, the price target is even a little higher, at $26 - a premium of 15%.
Out of 17 analysts, 10 have given BRX a "Strong Buy" rating, while 7 recommend a "Hold." This consensus of "Moderate Buy" shows a strong belief in BRX's growth and stability.
Income and Growth: Why BRX Deserves a Spot in Your Portfolio
Brixmor Property Group is a standout pick for anyone looking to balance income and growth in their portfolio. With its solid lineup of grocery-anchored shopping centers, BRX has shown it can weather economic ups and downs. The company’s consistent dividend increases and strong portfolio make it a reliable choice.
Plus, recent strategic moves and positive earnings forecasts add to its appeal. Analysts are optimistic, and Goldman Sachs' coveted Conviction Buy endorsement is a big vote of confidence. If you're looking for a dependable REIT with growth potential, BRX is definitely worth a look.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
