Inland Real Estate Corporation (NYSE:IRC) is a small capitalization market company with 19 million square feet located in the central United States and expanding into the Southeast. It is the largest single opener of shopping center REIT in Chicago and Minneapolis. Senior management, which has been in the industry for decades, defines IRC as a defensive open-air shopping-center REIT anchored in groceries.
Its growth strategy has been to drive growth within, and diversify, its portfolio, and to strengthen its balance sheet, especially by using recycled capital or refinancing to pay off secured debt. The results are evident in the redevelopment of 600,000 square feet in 2013; expansion through recent institutional joint ventures; and reduction of debt-to-capitalization to 44 percent in Q1 2015.
Another repercussion of IRC’s strategy is the strengthening of its portfolio. Over the years, the company has reduced exposure to any one tenant. Of the annual base rent, 77 percent corresponds to either national or regional tenants and is in high-household-income areas. Most of the NOI is generated by first- or second-tier assets.
FFO per share has increased 22 percent in Q1 2015 from Q1 2014, and the dividend payout ratio has decreased to 57 percent. The management is not seeking two-digit growth rates; a high single digit suffices. IRC is looking to acquire at 6.5 percent cap rates and develop at 8 percent.
Current dividend yield has been an attractive 5.8 percent, and price-to-FFO has been below those of IRC’s peers, though still on a par with its historic norm. Market capitalization, historically high leverage and location may explain this disconnect.
Source: Inland Real Estate Corporation, ReitStream, Fast Graphs
Written by Heli Brecailo
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