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- BMO analyst Juan Sanabria upgrades retail REITs Regency Centers (NASDAQ:REG) and Federal Realty Investment (NYSE:FRT) to Outperform on growing retailer demand, he writes in separate notes to clients.
- Both (REG +3.8%) and (FRT +4.4%) climb so far on Tuesday.
- "Well-capitalized REITs are taking share & retail demand is growing with brick & mortar locations serving as key last-mile distribution centers," the analyst notes.
- With regards to Regency Centers (REG), the company has the strongest demographics among its peers, with its grocery portfolio providing downside protection in a choppy macro environment, the note says.
- Expects the company to have the ability to debt fund over $500M of acquisitions and remain within its target, which could represent ~2% upside vs. the analyst's 2022 FFO estimate
- Shifting to Federal Realty Investment (FRT), the company's development pipeline offers compelling risk adjusted returns with strong and predictable demand, the note says.
- "We also see FRT exposure to office & residential (22% of ABR) driving upside, along with its modest hotel & parking exposure."
- Still, the Outperform rating diverges from the Neutral Quant Rating, with Revisions as its best factor grade; it also disagrees with the Neutral Wall Street Analyst Rating (2 Very Bullish, 3 Bullish, 14 Neutral).
- In addition, Sanabria upgrades Brixmor Property Group (NYSE:BRX) to Market Perform from Underperform for the same macro reasons as REG and FRT.
- Shares of BRX rise nearly 4% intra-day.
- Specifically, as the company reinvests in its portfolio, "we see affordable rents continuing to drive strong spreads and rent growth," the analyst writes.
- Additionally, its balance sheet seems solid with moderate and improving leverage and strong liquidity.
- Still, unlike REG and FRT, Brixmor (BRX) is anticipated to have softer demographics to keep rents below peers, the note says.
- Overall, REG makes it to first place on Seeking Alpha's Top Retail REITs screener, with Cedar Realty coming in second, as per the diagram below.
- In the past year, with REG +52% performing the best, retail REITs outperform the Schwab U.S. REIT ETF (NYSEARCA:SCHH) and the iShares U.S. Real Estate ETF (NYSEARCA:IYR), according to the chart below.
- However, most retail REITs, along with REIT ETFs are trading in net negative territory M/M, with FRT as the exceptional gainer.
- Some other retail REITs that are trading higher during the session include Kimco Realty (KIM +2.8%), Site Centers (SITC +2.5%), Simon Property Group (SPG +1.7%) and Tanger Factory Outlet Centers (SKT +1.6%).
- Previously, (Sep. 1) Retail REITs were initiated with an Overweight rating at Barclays.
