Retail REITs allow diversification and access to the real estate market to investors and offer stable income streams, low volatility, and high potential for long-term capital appreciation. Also, the changing consumer preferences and adoption of innovative solutions pave more avenues for the market.
Given this backdrop, fundamentally sound retail REITs Alexander's, Inc. (ALX), EPR Properties (EPR), and Simon Property Group, Inc. (SPG) could be ideal portfolio additions amid e-commerce growth.
The global retail market is expected to project strong growth in the coming years. The market is anticipated to grow to $42.76 trillion by 2028, expanding at a CAGR of 8.1%, driven by innovative technologies, the impact of data analytics, and consumer preference for shopping locally.
Further, the global retail e-commerce is set to expand at a notable CAGR of 9.5% until 2029. Also, the American online retail market is projected to surpass the $1.5 trillion mark by 2026 with expected strong growth.
Amid this, Retail REITs look positioned to outperform other asset classes with their stable and reliable income generation traits. Retail REITs invest in and manage retail real estate and rent space in those properties to tenants and these REITs generally focusses on properties like large regional malls, outlet centers, grocery-anchored shopping centers and power centers.
The combined market capitalization of the ten leading retail real estate investment trusts (REITs) in the United States reached about $155 billion as of December 29, 2023 with increase in market caps of all REITs in the year.
Further, REITs can be a well-suited investment alternative for the income-oriented investors seeking regular passive income stream. This is so because such companies earn reliable income through their long and stable tenant leases, and as per regulations, REITs require to distribute at least 90% of their taxable income to shareholders as dividends.
In light of these encouraging trends, let’s look at the fundamentals of the three best REITs - Retail, beginning with number 3.
Stock #3: Alexander's, Inc. (ALX)
ALX is a REIT engaged in leasing, managing, developing, and redeveloping its properties.
On July 31, ALX’s Board of Directors declared a regular quarterly dividend of $4.50 per share payable on August 30, 2024, to stockholders of record on August 12, 2024. ALX pays an annual dividend of $18, which translates to a yield of 7.48% at the current share price. Its four-year average dividend yield is 7.76%.
On May 6, ALX announced an 11-year lease extension agreement with Bloomberg LP to commence from the current lease's expiration in 2029. This will lead to continuation of a long-standing headquarters presence at 731 Lexington Avenue through 2040.
During the first quarter ended March 31, 2024, ALX’s revenues increased 16% year-over-year to $61.40 million. Its net income of $16.11 million and $3.14 per common share indicating growth of 43.5% and 43.4% from the prior year’s quarter, respectively.
Furthermore, the company’s non-GAAP FFO came in at $25.53 million and $4.98 per share, up 37% and 37.2% year-over-year, respectively.
Over the past six months, the stock has soared 10.2% and 25.3% over the past year to close the last trading session at $242.30.
ALX’s solid outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Momentum and Stability. Within the REITs - Retail industry, ALX is ranked #4 out of 30 stocks.
Click here to access additional ratings of ALX (Growth, Value, Sentiment, and Quality).
Stock #2: EPR Properties (EPR)
EPR is a leading diversified experiential net lease REIT which specializes in select enduring experiential properties in the real estate industry. The company focusses on real estate venues which create value by facilitating out of home leisure and recreation experiences.
On July 15, EPR’s Board of Trustees declared monthly cash dividend to common shareholders of $0.28 per common share, payable on August 15, 2024, to shareholders of record on July 31, 2024.
EPR pays an annual dividend of $3.42, which translates to a yield of 7.48% at the current share price. Its four-year average dividend yield is 5.86%. Also, the company’s dividend payouts have increased at a CAGR of 137.5% over the past three years.
EPR’s trailing-12-month EBIT margin and gross profit margin of 52.04% and 91.59% are 139.1% and 39.1% higher than the respective industry averages of 21.77% and 65.84%.
During the second quarter ended June 30, 2024, EPR’s total revenue increased marginally year-over-year to $173.09 million. Its net income available to common shareholders of $39.06 million or $0.51 per common share reflects increases of 416.7% and 410% year-over-year, respectively.
In addition, the company’s adjusted funds from operations came in at $92.29 million and $1.20 per common share, respectively.
As per the company’s updated 2024 guidance, EPR expects AFFO per common share to range between $4.76 and $4.96.
Street expects EPR’s revenue for the fiscal year (ending December 2025) to increase 2.7% year-over-year to $638.82 million and its FFO is expected to grow 3.3% year-over-year to $5.02 for the same year. Further, the company has surpassed the consensus revenue estimates in each of the trailing four quarters.
EPR’s shares have gained 9.7% over the past month and 1.7% over the past six months to close the last trading session at $45.
EPR’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has a B grade for Quality and Momentum. Within the same industry, EPR is ranked #3 out of 30 stocks.
In addition to the POWR Ratings highlighted above, you can check EPR’s ratings for Growth, Value, Sentiment, and Stability, here.
Stock #1: Simon Property Group, Inc. (SPG)
SPG is a real estate investment trust (REIT) engaged in the ownership of premier shopping, dining, entertainment and mixed-use destinations and is an S&P 100 company.
On July 10, SPG and bp (bp) entered into a deal for bp's global EV charging business, bp pulse, under which bp will install and operate EV charging gigahubs on 75 sites with SPG. Under the arrangement, bp pulse will install its ultra-fast gigahubs at 75 Simon® locations. This will add over 900 charging bays across the US.
On June 14, WHP Global, in collaboration with an affiliate of SPG, Brookfield Properties, and Centennial Real Estate, formed PHOENIX, a new retail operating platform, and has received court approval to acquire a majority of Express, Inc. operations. The new joint venture, PHOENIX, will operate all direct-to-consumer commerce in the U.S. for Express and Bonobos.
SPG’s total revenue increased 6.8% year-over-year to $1.44 billion during the first quarter ended March 31, 2024. Its consolidated net income rose 62% from the year-ago value to $841.15 million. The company’s funds from operations came in at $1.33 billion and $3.56 per share, up 30% and 29.9% from the prior year’s quarter, respectively.
According to the full-year 2024 guidance, SPG expects it net income attributable to common stockholders per share to range from $7.38 to $7.53. Its estimated FFO per share is expected between $12.75 and $12.90.
Street expect SPG’s EPS for the second quarter (ended June 2024) to increase 2.2% year-over-year to $2.94. For the fiscal year 2024, the company’s EPS is expected to grow 2% year-over-year to $12.76. Furthermore, the company surpassed the consensus revenue estimates in each of the trailing four quarters.
SPG’s stock has gained 10.7% over the past six months and 23.2% over the past year to close the last trading session at $153.44.
SPG’s strong prospects are reflected in its POWR Ratings. The stock has an overall grade of B, translating to a Buy in our proprietary rating system.
SPG has a B grade for Stability, Quality, Sentiment, and Momentum. It has topped the list of 30 stocks within the REITs - Retail industry.
To see the other ratings of SPG for Growth and Value, click here.
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SPG shares were trading at $151.79 per share on Thursday afternoon, down $1.65 (-1.08%). Year-to-date, SPG has gained 9.21%, versus a 14.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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