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Retail REITs: Double-Digit Yields, Secular Shifts And Mean-Reversion

Published Wed, 24 Jun 2020 09:47:34 -0400 on Seeking Alpha

Seeking AlphaREITsRetail REITs: Double-Digit Yields, Secular Shifts And Mean-ReversionJun. 24, 2020 9:47 AM ET|| Includes: CBL, MAC, O, SPGby: Roberts BerzinsRoberts Berzins Long only, value, Growth, long-term horizonSummaryRetail REITs have been one of the worst-performing REITs - not only since the outbreak of COVID-19 but also for a long period before that.
Retail REITs offer high double-digit yields, but already in the coming quarters, these yields will decline. Investors should assign a notable probability of experiencing further dividend cuts (2021+).
COVID-19 has accelerated many of the pre-existing structural shifts in retail (e.g., e-commerce) causing many retailers to file for chapter 11.
Given the long-lasting underperformance, retail REITs look attractive. For example, MAC currently trades at a ca. 75% discount to its NAV.
If you believe in a mean-reversion, REITs with sound balance sheets and strong value drivers should be considered in the portfolio.
Since the outbreak of COVID-19, REITs have been one of the worst-performing asset class trailing the S&P 500 by ca. 10% on a total return basis.
A bit more than a month ago I initiated a weekly coverage series scrutinizing the performance of all 16 equity U.S. equity REIT sectors (e.g., Equity REIT Performance In A Nutshell: Week 24). The key takeaways from these reports so far can be encapsulated in the following: the more virus-sensitive REIT sector is, the larger magnitude of returns comes along with each incremental move of the broader market. The cross-sector and inter-sector correlations are strong in both rising and falling markets.
In simpler terms, sectors such as retail, office, and lodging/hotels have exhibited larger moves than those of the market (i.e. beta) irrespective of the market's direction. Plus, all of the 16 U.S. equity REIT sectors have strongly correlated. The same applies to the underlying constituents of the sectors.

Retail and hotels, in... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
CBL & ASSOCIATES PROPERTIES 1.38   0.0 -0.95 0.35 27.34
MACERICH 33.33   43.9 0.76 3.00 8.91
SIMON PROPERTY GROUP 155.27   20.8 7.48 8.40 5.21
REALTY INCOME 74.49   56.9 1.31 2.72 3.69


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