Retail Apocalypse Becomes Retail Euphoria

Summary

  • The "retail apocalypse" narrative that has been aggressively pushed by the financial media couldn’t have been more wrong. The stars are aligning for a record-smashing holiday season for retailers.
  • Financial conditions are ideal for robust growth in retail sales. Consumer confidence is near multi-decade highs, household net worth is surging, and wintery weather conditions have been favorable.
  • Brick and mortar sales trends have seen a resurgence in 2017 amid weakening growth in e-commerce. Retailers like Walmart are proactively emphasizing and encouraging the higher margin in-store sales channel.
  • Retailers themselves got a huge Christmas present from the tax reform package. Retailers stand to benefit more than any other industry from the corporate tax cuts.
  • After getting hammered in early 2017 amid a wave of store closures, retail REITs have rallied into year-end. The sentiment remains too negative and could reverse after the holiday season.

REIT Rankings: Shopping Center

In our REIT Rankings series, we analyze one of the fifteen real estate sectors. We rank REITs within the sectors based on both common and unique valuation metrics, presenting investors with numerous options that fit their own investing style and risk/return objectives. We update these rankings every quarter with new developments.

REIT Rankings: Shopping Center

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Shopping Center REIT Overview

We separate retail REITs into two categories: open-air shopping center REITs and enclosed mall REITs. We recently updated our quarterly mall report: "iMall X: A Holiday Resurgence." While the macro trends are similar with retail REIT categories, open-air shopping center REITs are generally seen as more resistant to e-commerce than malls and exhibit distinct operating characteristics.

Shopping center REITs comprise roughly 7% of the REIT Indexes (NYSEARCA:VNQ and NYSEARCA:IYR). Within our market value-weighted Shopping Center REIT index, we track ten of the eighteen shopping center REITs within the sector, which account for roughly $50 billion in market value. American Assets (NYSE:AAT) Acadia Realty (NYSE:AKR), Brixmor (NYSE:BRX), DDR (DDR), Federal Realty (NYSE:FRT), Kimco (NYSE:KIM), Regency Centers (NASDAQ:REG), Retail Opportunity (NASDAQ:ROIC), Retail Properties of America (RPAI) and Weingarten (NYSE:WRI).

shopping center REITs

We separate the space into three categories: power/strip centers, grocery-anchored centers, and street-level urban retail. Grocery-anchored centers have historically commanded premium valuations relative to power centers, a premium that has expanded in recent years as e-commerce has encroached on the competitive positioning of many "big-box" retailers that reside in power centers. Shopping center REITs have been proactive in recent years in transforming the tenant mix into a more "experience-oriented" portfolio that is less threatened by disintermediation.

retail

Despite these efforts, the

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