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Zacks Industry Outlook Highlights: Simon Property Group, Federal Realty Investment Trust and Kite Realty Group Trust
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For Immediate Release
Chicago, IL – December 28, 2021 – Today, Zacks Equity Research discusses Retail REIT, including Simon Property Group, Inc. (SPG - Free Report) , Federal Realty Investment Trust (FRT - Free Report) and Kite Realty Group Trust (KRG - Free Report) .
Low unemployment, rising income backed by wage compensation and hefty savings accumulated during the pandemic have left consumers with enough money to spend. Coupled with widespread vaccination, shoppers’ confidence is getting a boost, in turn raising hopes for the Zacks REIT and Equity Trust - Retail constituents.
Amid these, with focus on efforts to support omni-channel retailing and e-commerce resistant sectors, together with adaptive reuse capabilities and opportunities emanating from consolidations, Simon Property Group, Federal Realty Investment Trust and Kite Realty Group Trust are well poised to grow. However, higher e-commerce adoption, intensified by the pandemic, might continue to affect retail landlords’ cash flows. Also, Omicron, supply chain issues and waning of stimulus might cast a pall on recovery.
Industry Description
The Zacks REIT and Equity Trust - Retail industry represents a group of REITs that are engaged in owning, developing, managing and renting space in a variety of retail real estates. Among these are regional malls, outlet centers, grocery-anchored shopping centers and power centers, which include big-box retailers.
Moreover, net lease REITs enjoy the ownership of freestanding properties, wherein both rent and the majority of operating expenses for the properties are borne by tenants. The overall health of the economy, job market and consumer spending are the main drivers of retail REITs.
Location of properties and trade area demographics play key roles in determining demand for spaces. Though dwindling footfall, store closures and retailer bankruptcies have been bothering this asset category, it is on its path of a rebound amid an improving economy and solid consumer spending.
What's Shaping the Future of the REIT and Equity Trust - Retail Industry?
Consumers’ Spending, Vaccination Drive to Fuel Recovery: With low unemployment, rising income backed by wage compensation and hefty savings accumulated during the pandemic, consumers have the money to spend. Moreover, while people staying indoors had earlier helped the e-commerce industry to flourish, widespread vaccination is now renewing people’s confidence to step out of their homes. They are now resuming their normal activities, going back to work, hitting the streets, going out for lunch and shopping around.
This is driving in-store sales. So, retailers’ focus has now shifted from the closing of stores to the revival of their growth plans, resulting in more demand for physical store spaces and creating opportunities for the retail REITs to flourish. Also, with the rapid formation of new businesses in the retail sector, lease signings and occupancies in retail real estates are likely to get a boost.
Structural Changes, Omni-Channel Strategy to be Key Focus: Omni-channel is the focal point for retailers and physical stores will be a vital sales channel over the long run because though there is convenience in online shopping, it cannot replace the benefits and satisfaction of visiting a brick-and-mortar store. Apart from serving as showrooms, physical stores also offer a convenient location for pick-up or exchange of goods, helping retailers counter the increasing costs associated with last-mile delivery.
Therefore, as retailers turn more toward the omni-channel strategy for higher customer satisfaction and more loyalty, with the aim of generating higher profits, it is logical for them to not only boost their online presence but also maintain brick-and-mortar stores in the best locations, raising hopes for retail REITs that focus on such locations. Digitally-native brands too are likely to keep boosting their physical presence in the days to come as part of the omni-channel strategy.
This is because the opening of stores helps them improve their connection with customers and drive expansion. Therefore, with the ebbing of pandemic concerns, brick-and-mortar stores will continue to regain their popularity in delivering physical experiences apart from becoming valuable in the fulfillment of digital sales.
Repurposing and Conversions Pick Up Pace: Adaptive reuse as well as the conversion of malls into distribution hubs has picked up pace as these distribution centers, being situated close to consumers of retailers, facilitate faster delivery of products and aid retailers in improving services, lower costs and make optimum asset utilization.
Retail REITs are now focusing on adaptive reuse, which includes multifamily, hotel, office and medical components, resulting in the construction of mixed-use real estate destinations. However, the structural changes involve huge outlay, and therefore, the ones with solid balance-sheet strength are well poised to opt for such moves.
Omicron and Supply Chain Issues Cast a Pall on Recovery: However, the highly contagious Omicron variant of COVID-19 has made investors skeptical to an extent. The latest surge in cases raises concerns and this is likely to temporarily halt the reopening process and curtail economic growth, in turn affecting the retail sector as well as the retail landlords. Also, in the near term, supply-chain disruptions due to Omicron remain a cause of concern, while the waning of stimulus and depletion of savings might temper consumers’ willingness to spend to some extent.
Higher E-commerce Adoption to Remain a Concern: Over the past few years, consumers’ habits have transformed at a rapid pace. Traffic at retail real estates has suffered, with e-commerce capturing market share from the brick-and-mortar stores.
This was aggravated by social-distancing measures as even the reluctant ones, who once favored in-store purchases, started preferring online purchases to avoid physical contact. Although the reopening of the economy has again driven the preference for brick-and-mortar stores, the concern with higher e-commerce adoption is still there as more consumers have been learning about the convenience of online purchases.
Zacks Industry Rank Indicates Bright Prospects
The Zacks REIT and Equity Trust - Retail industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #50, which places it at the top 20% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of the positive funds from operations (FFO) per share outlook for the constituent companies in aggregate. Looking at the aggregate FFO per share estimate revisions, it appears that analysts are gaining confidence in this group’s growth potential. Over the past year, the industry’s FFO per share estimate for 2021 moved 2.1% north, while the same for 2022 surged 22.1%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags on Stock Market Performance
The REIT and Equity Trust - Retail Industry has underperformed the broader Zacks Finance sector, as well as the S&P 500 composite so far in the year.
The industry has gained 20.9% during this period compared with the S&P 500’s rally of 26.9%. During the same time frame, the broader Finance sector increased 21.1%.
Industry's Current Valuation
On the basis of forward 12-month price-to-FFO (funds from operations) ratio, which is a commonly used multiple for valuing Retail REITs, we see that the industry is currently trading at 17.29X compared with the S&P 500’s forward 12-month price-to-earnings (P/E) of 21.70X. The industry is trading above the Finance sector’s forward 12-month P/E of 16.37X.
Over the last five years, the industry has traded as high as 18.50X, as low as 10.21X, with a median of 15.49X.
3 Retail REIT Stocks Worth Betting On
Simon Property Group: This retail REIT is a behemoth in its industry and enjoys a portfolio of premium retail assets in the United States and abroad. The adoption of an omni-channel strategy and successful tie-ups with premium retailers have been aiding the company. It is also tapping growth opportunities by assisting digital brands to enhance their brick-and-mortar presence, as well as capitalizing on buying recognized retail brands in bankruptcy.
Additionally, Simon Property is exploring the mixed-use development option, which has gained immense popularity in recent years among those who prefer to live, work and play in the same area. Moreover, with solid balance-sheet strength and available capital resources, Simon Property Group looks poised to ride this growth curve and bank on opportunities emanating from market dislocations.
In the third quarter, Simon Property recorded increased leasing volumes, occupancy gains, shopper traffic and retail sales. Simon Property also announced a 10% sequential hike in its fourth-quarter 2021 dividend.
Simon Property Group currently sports a Zacks Rank #1 (Strong Buy). Over the past month, the Zacks Consensus Estimate for 2021 FFO per share witnessed upward revision of 2.1% to $11.52, reflecting analysts’ bullish outlook. The stock has also rallied 16.3% over the past three months.
Federal Realty Investment Trust: This North Bethesda, MD-based retail REIT boasts a portfolio of premium retail assets — mainly situated in the major coastal markets from Washington, D.C. to Boston, San Francisco and Los Angeles — along with a diverse tenant base, both national and local, which positions it well for decent growth.
Federal Realty has strategically selected the first ring suburbs of nine major metropolitan markets. Due to the strong demographics and infill nature of its properties, the company has been able to maintain a high occupancy level over the years.
Moreover, Federal Realty’s focus on open-air format and “The Pick-Up” concept has poised it well to lure tenants even amid the current health crisis. The resumption of the economy, widespread vaccination and solid consumer spending have poised the retail REIT to benefit from its superior assets in premium locations and experience an improving leasing environment.
Currently, FRT carries a Zacks Rank #2 and has a long-term growth rate of 9.9%. Moreover, for 2021, the stock has seen the Zacks Consensus Estimate for FFO per share being revised 1.3% upward to $5.43 over the past month. This also suggests an increase of 20.1% year over year. The stock has also gained 11.1% over the past three months.
Kite Realty Group Trust: This retail REIT headquartered in Indianapolis, IN, is engaged in ownership and operations of open-air shopping centers and mixed-use assets. It is poised to benefit from its mainly grocery-anchored portfolio located in high-growth warmer and cheaper markets, and select strategic gateway markets.
With the combination of necessity-based grocery-anchored neighborhood and community centers, along with vibrant mixed-use assets, Kite Realty Group is poised to lure both retailers and consumers and enjoy increasing traffic.
Subsequent to third-quarter 2021 end, on Oct 22, 2021, KRG completed the transformative merger with Retail Properties of America. The move is immediately accretive to FFO and net asset value. Apart from increasing geographic footprint in high-growth warmer and cheaper markets, the move offers enhanced growth opportunities through several active development projects.
Currently, Kite Realty Group flaunts a Zacks Rank of 1. The Zacks Consensus Estimate for this year’s FFO per share has been revised marginally upward to $1.38 over the past month, indicating a year-on-year improvement of 6.9%. The stock has appreciated 3.3% over the past three months.
Note: Funds from operations (FFO) is a widely used metric to gauge the performance of REITs rather than net income as it indicates cash flow from their operations. FFO is obtained after adding depreciation and amortization to earnings and subtracting the gains on sales.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights: Simon Property Group, Federal Realty Investment Trust and Kite Realty Group Trust
For Immediate Release
Chicago, IL – December 28, 2021 – Today, Zacks Equity Research discusses Retail REIT, including Simon Property Group, Inc. (SPG - Free Report) , Federal Realty Investment Trust (FRT - Free Report) and Kite Realty Group Trust (KRG - Free Report) .
Link: https://www.zacks.com/commentary/1843693/3-top-reits-to-buy-from-a-rebounding-retail-reit-industry
Low unemployment, rising income backed by wage compensation and hefty savings accumulated during the pandemic have left consumers with enough money to spend. Coupled with widespread vaccination, shoppers’ confidence is getting a boost, in turn raising hopes for the Zacks REIT and Equity Trust - Retail constituents.
Amid these, with focus on efforts to support omni-channel retailing and e-commerce resistant sectors, together with adaptive reuse capabilities and opportunities emanating from consolidations, Simon Property Group, Federal Realty Investment Trust and Kite Realty Group Trust are well poised to grow. However, higher e-commerce adoption, intensified by the pandemic, might continue to affect retail landlords’ cash flows. Also, Omicron, supply chain issues and waning of stimulus might cast a pall on recovery.
Industry Description
The Zacks REIT and Equity Trust - Retail industry represents a group of REITs that are engaged in owning, developing, managing and renting space in a variety of retail real estates. Among these are regional malls, outlet centers, grocery-anchored shopping centers and power centers, which include big-box retailers.
Moreover, net lease REITs enjoy the ownership of freestanding properties, wherein both rent and the majority of operating expenses for the properties are borne by tenants. The overall health of the economy, job market and consumer spending are the main drivers of retail REITs.
Location of properties and trade area demographics play key roles in determining demand for spaces. Though dwindling footfall, store closures and retailer bankruptcies have been bothering this asset category, it is on its path of a rebound amid an improving economy and solid consumer spending.
What's Shaping the Future of the REIT and Equity Trust - Retail Industry?
Consumers’ Spending, Vaccination Drive to Fuel Recovery: With low unemployment, rising income backed by wage compensation and hefty savings accumulated during the pandemic, consumers have the money to spend. Moreover, while people staying indoors had earlier helped the e-commerce industry to flourish, widespread vaccination is now renewing people’s confidence to step out of their homes. They are now resuming their normal activities, going back to work, hitting the streets, going out for lunch and shopping around.
This is driving in-store sales. So, retailers’ focus has now shifted from the closing of stores to the revival of their growth plans, resulting in more demand for physical store spaces and creating opportunities for the retail REITs to flourish. Also, with the rapid formation of new businesses in the retail sector, lease signings and occupancies in retail real estates are likely to get a boost.
Structural Changes, Omni-Channel Strategy to be Key Focus: Omni-channel is the focal point for retailers and physical stores will be a vital sales channel over the long run because though there is convenience in online shopping, it cannot replace the benefits and satisfaction of visiting a brick-and-mortar store. Apart from serving as showrooms, physical stores also offer a convenient location for pick-up or exchange of goods, helping retailers counter the increasing costs associated with last-mile delivery.
Therefore, as retailers turn more toward the omni-channel strategy for higher customer satisfaction and more loyalty, with the aim of generating higher profits, it is logical for them to not only boost their online presence but also maintain brick-and-mortar stores in the best locations, raising hopes for retail REITs that focus on such locations. Digitally-native brands too are likely to keep boosting their physical presence in the days to come as part of the omni-channel strategy.
This is because the opening of stores helps them improve their connection with customers and drive expansion. Therefore, with the ebbing of pandemic concerns, brick-and-mortar stores will continue to regain their popularity in delivering physical experiences apart from becoming valuable in the fulfillment of digital sales.
Repurposing and Conversions Pick Up Pace: Adaptive reuse as well as the conversion of malls into distribution hubs has picked up pace as these distribution centers, being situated close to consumers of retailers, facilitate faster delivery of products and aid retailers in improving services, lower costs and make optimum asset utilization.
Retail REITs are now focusing on adaptive reuse, which includes multifamily, hotel, office and medical components, resulting in the construction of mixed-use real estate destinations. However, the structural changes involve huge outlay, and therefore, the ones with solid balance-sheet strength are well poised to opt for such moves.
Omicron and Supply Chain Issues Cast a Pall on Recovery: However, the highly contagious Omicron variant of COVID-19 has made investors skeptical to an extent. The latest surge in cases raises concerns and this is likely to temporarily halt the reopening process and curtail economic growth, in turn affecting the retail sector as well as the retail landlords. Also, in the near term, supply-chain disruptions due to Omicron remain a cause of concern, while the waning of stimulus and depletion of savings might temper consumers’ willingness to spend to some extent.
Higher E-commerce Adoption to Remain a Concern: Over the past few years, consumers’ habits have transformed at a rapid pace. Traffic at retail real estates has suffered, with e-commerce capturing market share from the brick-and-mortar stores.
This was aggravated by social-distancing measures as even the reluctant ones, who once favored in-store purchases, started preferring online purchases to avoid physical contact. Although the reopening of the economy has again driven the preference for brick-and-mortar stores, the concern with higher e-commerce adoption is still there as more consumers have been learning about the convenience of online purchases.
Zacks Industry Rank Indicates Bright Prospects
The Zacks REIT and Equity Trust - Retail industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #50, which places it at the top 20% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of the positive funds from operations (FFO) per share outlook for the constituent companies in aggregate. Looking at the aggregate FFO per share estimate revisions, it appears that analysts are gaining confidence in this group’s growth potential. Over the past year, the industry’s FFO per share estimate for 2021 moved 2.1% north, while the same for 2022 surged 22.1%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags on Stock Market Performance
The REIT and Equity Trust - Retail Industry has underperformed the broader Zacks Finance sector, as well as the S&P 500 composite so far in the year.
The industry has gained 20.9% during this period compared with the S&P 500’s rally of 26.9%. During the same time frame, the broader Finance sector increased 21.1%.
Industry's Current Valuation
On the basis of forward 12-month price-to-FFO (funds from operations) ratio, which is a commonly used multiple for valuing Retail REITs, we see that the industry is currently trading at 17.29X compared with the S&P 500’s forward 12-month price-to-earnings (P/E) of 21.70X. The industry is trading above the Finance sector’s forward 12-month P/E of 16.37X.
Over the last five years, the industry has traded as high as 18.50X, as low as 10.21X, with a median of 15.49X.
3 Retail REIT Stocks Worth Betting On
Simon Property Group: This retail REIT is a behemoth in its industry and enjoys a portfolio of premium retail assets in the United States and abroad. The adoption of an omni-channel strategy and successful tie-ups with premium retailers have been aiding the company. It is also tapping growth opportunities by assisting digital brands to enhance their brick-and-mortar presence, as well as capitalizing on buying recognized retail brands in bankruptcy.
Additionally, Simon Property is exploring the mixed-use development option, which has gained immense popularity in recent years among those who prefer to live, work and play in the same area. Moreover, with solid balance-sheet strength and available capital resources, Simon Property Group looks poised to ride this growth curve and bank on opportunities emanating from market dislocations.
In the third quarter, Simon Property recorded increased leasing volumes, occupancy gains, shopper traffic and retail sales. Simon Property also announced a 10% sequential hike in its fourth-quarter 2021 dividend.
Simon Property Group currently sports a Zacks Rank #1 (Strong Buy). Over the past month, the Zacks Consensus Estimate for 2021 FFO per share witnessed upward revision of 2.1% to $11.52, reflecting analysts’ bullish outlook. The stock has also rallied 16.3% over the past three months.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Federal Realty Investment Trust: This North Bethesda, MD-based retail REIT boasts a portfolio of premium retail assets — mainly situated in the major coastal markets from Washington, D.C. to Boston, San Francisco and Los Angeles — along with a diverse tenant base, both national and local, which positions it well for decent growth.
Federal Realty has strategically selected the first ring suburbs of nine major metropolitan markets. Due to the strong demographics and infill nature of its properties, the company has been able to maintain a high occupancy level over the years.
Moreover, Federal Realty’s focus on open-air format and “The Pick-Up” concept has poised it well to lure tenants even amid the current health crisis. The resumption of the economy, widespread vaccination and solid consumer spending have poised the retail REIT to benefit from its superior assets in premium locations and experience an improving leasing environment.
Currently, FRT carries a Zacks Rank #2 and has a long-term growth rate of 9.9%. Moreover, for 2021, the stock has seen the Zacks Consensus Estimate for FFO per share being revised 1.3% upward to $5.43 over the past month. This also suggests an increase of 20.1% year over year. The stock has also gained 11.1% over the past three months.
Kite Realty Group Trust: This retail REIT headquartered in Indianapolis, IN, is engaged in ownership and operations of open-air shopping centers and mixed-use assets. It is poised to benefit from its mainly grocery-anchored portfolio located in high-growth warmer and cheaper markets, and select strategic gateway markets.
With the combination of necessity-based grocery-anchored neighborhood and community centers, along with vibrant mixed-use assets, Kite Realty Group is poised to lure both retailers and consumers and enjoy increasing traffic.
Subsequent to third-quarter 2021 end, on Oct 22, 2021, KRG completed the transformative merger with Retail Properties of America. The move is immediately accretive to FFO and net asset value. Apart from increasing geographic footprint in high-growth warmer and cheaper markets, the move offers enhanced growth opportunities through several active development projects.
Currently, Kite Realty Group flaunts a Zacks Rank of 1. The Zacks Consensus Estimate for this year’s FFO per share has been revised marginally upward to $1.38 over the past month, indicating a year-on-year improvement of 6.9%. The stock has appreciated 3.3% over the past three months.
Note: Funds from operations (FFO) is a widely used metric to gauge the performance of REITs rather than net income as it indicates cash flow from their operations. FFO is obtained after adding depreciation and amortization to earnings and subtracting the gains on sales.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.