| NEW YORK
NEW YORK May 25 Strong earnings from the
battered U.S. retail sector, which helped lift Wall Street on
Thursday, also boosted shares of the hard-hit real estate
investment trusts (REITs) that own the properties where the
retailers are located.
Sears Holdings Corp, which reported on Thursday its
first quarterly profit in nearly two years, brought the retail
REITs rally to roughly 7 percent since early least week.
Retail REITs pushed the overall sector to just shy of an
all-time high on Thursday, with Macerich Co rising 1.6
percent and GGP Inc gaining 1.5 percent.
Both Macerich and GGB own high-end Class A malls. Close
behind was Simon Property Group, the largest retail
property owner among the REITs, which rose 0.58 percent.
"We got a snap-back," said Scott Crowe, chief investment
strategist at CenterSquare Investment Management, a unit of the
Bank of New York Mellon Corp. "We're getting a little
bottom put into the sector."
Stocks of the retail REITs, a small sub-sector, have been
crushed by more than 30 percent since last summer. They have
started to turn higher as investors focus on those expected to
survive the e-commerce onslaught, which has robbed their tenants
of foot traffic and sales.
Analysts said fears that malls and shopping centers were
engulfed in a death spiral were overdone. Lower quality centers,
with low foot traffic and undesirable stores, will bear the
brunt of downsizing.
"There will be some winnowing in this space and it's largely
going to happen in Class B and C malls in outer suburban
locations where you just don't have the foot traffic or the
barriers of entry," said Jay Leupp, who helps oversee some $1.4
billion in global real estate assets at Lazard Asset Management.
TOP PROPERTIES HOLD UP
The owners of high-end malls in premium urban locations are
poised to deliver 5 percent to 6 percent dividend growth over
the next two to three years, he said.
"Their properties are in high demand, both by brick and
mortar retailers, traditional and new concepts as well as online
retailers that are using omni-channel strategies," Leupp said.
An omni-channel strategy combines online selling with an actual
Vacancy rates at malls have declined from 5 percent in 2009
to 4.3 percent in the first quarter of this year, according to
brokerage Jones Lang LaSalle and CoStar Realty Information.
The data also shows asking rents are up from a
post-recession bottom of $16.26 a square foot in the first
quarter of 2015 to $19.81 in the first three months of the year.
One example of an investor putting money behind the retail
REIT sector is the nearly $500 million spent by Long Pond
Capital LP, a hedge fund that mostly invests in well-capitalized
real estate and related assets that are in distress.
Long Pond Capital declined to discuss its portfolio, a
glimpse of which can be seen in filings with the Securities and
Exchange Commission that show its holdings as of March 31.
"Tactfully, I would not be going out and shorting a lot of
retail REITs, they've gone down a lot," said Crowe.
(Reporting by Herbert Lash; Editing by Daniel Bases and David