This is an analysis of several strip-, mini- and/or open-mall REITs. REITs are popular with many income oriented investors for the dividend income stream the REIT model necessitates, and also with individuals who want exposure to real estate as an asset class that might appreciate after any coming inflation. REITs may also offer returns that are relatively uncorrelated to traditional equities and bonds.
REITs must distribute at least 90% of their taxable income in order to eliminate the need to pay income tax at the corporate level. As a result, most REITs offer an above-average yield when compared to equities. Of course, some have below-average yields, and where there is a loss, rather than income, there may be no yield.
Below are the current yields, as well as the 1-month and 2012-to-date performance rates for seven REITs within these businesses:
Developers Diversified Realty Corp. (DDR)
- Yield: 3.4%
- 1-Month performance: -2.25%
- 2012-to-date performance: 17.08%
Equity One Inc. (EQY)
- Yield: 4.6%
- 1-Month performance: -2.64%
- 2012-to-date performance: 12.59%
Federal Realty Investment Trust (FRT)
- Yield: 2.9%
- 1-Month performance: 0.05%
- 2012-to-date performance: 6.17%
Kimco Realty Corporation (KIM)
- Yield: 4.0%
- 1-Month performance: -0.64%
- 2012-to-date performance: 15.58%
Regency Centers Corporation (REG)
- Yield: 4.3%
- 1-Month performance: -1.17%
- 2012-to-date performance: 13.90%
Tanger Factory Outlet Centers Inc. (SKT)
- Yield: 2.7%
- 1-Month performance: -2.39%
- 2012-to-date performance: Even
Weingarten Realty Investors (WRI)
- Yield: 4.6%
- 1-Month performance: -0.60%
- 2012-to-date performance: 14.80%
The primary method of calculating growth within retail property management and leasing is based upon forecasting each REIT's adjusted funds from operations (AFFO), or cash available for distribution. AFFO is usually calculated by deducting straight-lined rent (average rent over the lifetime of a lease) and reserves for costs that cannot be directly recovered from tenants, such as general maintenance. Fund analysis is always subject to change based upon future development and other events, including actions by tenants. Such future actions are difficult to predict.
Retail REITs are generally sensitive to economic cycles and the strength of the American consumer. The value of mall space is directly connected to the level of public consumption and the willingness for businesses to attempt expansion. Any future economic downturns should weaken the demand for mall property space, lower the amount of commerce completed within each square foot and increase commercial property vacancies. Conversely, improving economics should benefit these businesses.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: This article is intended to be informative, and should not be construed as personalized advice as it does not take into account your specific situation or objectives.