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Retail Properties Buys Mixed-Use Asset to Boost Portfolio

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Retail Properties of America, Inc. (RPAI - Free Report) enhanced its portfolio with the acquisition of Main Street Promenade in the Chicago Metropolitan Statistical Area (MSA). The company shelled out $88.0 million as gross price for acquiring this property. This move is likely to drive its top line, going forward.

This mixed-use project, situated in the center of Downtown Naperville, IL, comprises a total of 182,000 square feet of space, with retail space covering around 103,000 square feet and office space accounting for roughly 79,000 square feet. The property is presently 93.1% occupied. In addition, there is a vacant parcel with sanction for future development of up to 62,000 square feet of mixed-use space.

The transaction seems a strategic fit for Retail Properties of America. In fact, it is situated in the center of Downtown Naperville, IL, which is home to more than 100 national and boutique stores, 40 national and local restaurants, and 300 businesses. This raises prospects for a mixed-use property like Main Street Promenade.

Demand for mixed-use property has been high, as such assets enable more diversification and also involve lesser risks. In fact, retail properties in surrounding of thriving locations with offices and residences are likely to experience higher footfall. This, in turn, would aid in commanding higher rents from tenants.  

Further, the property enjoys strong trade-area demographics with average household income of $130,000 and population of 215,000 within a five-mile radius. With an affluent and well-educated surrounding, the property is therefore anticipated to experience elevated demand for space.

Notably, Retail Properties of America is focused on acquiring high quality assets in its target markets. During its third-quarter 2016 earnings release, the company stated that since the beginning of 2016 through Nov 1, 2016, it had completed or was under contract to close in 2016, $408.3 million of acquisitions, mainly on an unencumbered basis. The company enjoyed ownership of 174 retail operating properties, representing 26.5 million square feet as of Sep 30, 2016.

This retail REIT is slated to come up with its fourth-quarter 2016 earnings release on Feb 14, after the market closes. The fourth-quarter estimate for funds from operations (FFO) per share is currently pegged at 25 cents. The company has been a steady performer, having beaten the Zacks Consensus Estimate in each of the past four quarters, with an average beat of 5.85%. This looks quite encouraging for the company’s performance in the quarter to be reported.

However, over the past one year, shares of Retail Properties of America underperformed the Zacks categorized REIT and Equity Trust – Retail industry. Retail Properties’ shares have, in fact, ascended just 3.8%, against 7.7% gain of the industry. Moreover, over the past 30 days, estimates for 2016 and 2017 FFO per share remained unchanged.  

The stock currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the REIT industry include The GEO Group, Inc. , Mack-Cali Realty Corp. (CLI - Free Report) and Urban Edge Properties (UE - Free Report) . While The GEO Group sports a Zacks Rank #1 (Strong Buy), Mack-Cali and Urban Edge carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The GEO Group’ 2016 estimates inched up 1% to $2.94 per share, over the past 60 days.

Mack-Cali’s 2016 FFO per share estimates ascended 1.9%, over the past 60 days, to $2.20.

For Urban Edge Properties, the projected growth rate for FFO per share is 37.6% for 2016 and 6.3% for 2017.

Note: Funds from operations (“FFO”) a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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