Retail real estate investment trusts (REITs) have faced mounting pressure in recent years amid dwindling mall traffic numbers, store closures, and a string of bankruptcies. Although the group has gained about 17% so far this year, returns have lagged the REIT industry average by roughly 10% while also falling short the S&P 500's 18.81% advance.
As the retail game continues to take shape in the digital era, REITs targeting the space have adapted to meet changing tenant and consumer preferences. Retail real estate owners have a growing focus on occupying their properties with stores that have an omnichannel strategy to drive sales in brick-and-mortar locations as well as online, often referred to as click-and-mortar stores. Furthermore, they give preference to tenants that offer in-store pickup of online purchases that help drive foot traffic numbers.
Retail real estate developers have also made significant investments to redevelop properties into entertainment and lifestyle destinations, offering restaurants, cinemas, and fitness centers.
Below, we take a closer look at how three leading retail REIT players performed in the second quarter and touch on initiatives they have made to win over tenants in today's retail environment. We then review yesterday's technical breakout in each name and discuss trading strategies to capitalize on the move.
Simon Property Group, Inc. (SPG)
Simon Property Group, Inc. (SPG) owns premier shopping, dining, entertainment, and mixed-use real estate in North America, Europe, and Asia. The Indianapolis-based REIT reported second quarter funds from operations (FFO) of $2.99 per share, up by a penny on the year-ago figure. Revenue for the period came in at $1.4 billion to deliver a 0.5% top-line beat. Management cited an increase in leasing spread per square foot at the company's U.S. malls and premium outlets for the positive quarterly results. Earlier this month, the retail property giant announced the opening of Jockey International's first-ever pop-up retail store at The Edit @ Roosevelt Field, allowing the 143-year-old underwear and apparel retailer to test products and customer interactions in a new format. As of Sept. 10, 2019, Simon Property Group stock has a market capitalization of $47.99 billion, offers a 5.55% dividend yield, and is trading down 2.13% on the year.
Since a "death cross" appeared on the REIT's chart in early June, price continued tracking south before setting a year-to-date (YTD) low at $145.42 on Aug. 27. However, sentiment has turned more bullish recently, with the share price breaking above a five-month trendline on above-average volume. Those who buy at current levels should anticipate a move to $167.50, where price finds resistance from a horizontal line and the 200-day simple moving average (SMA). Think about setting a stop-loss order at the midpoint of Monday's wide-ranging day.
Macerich Company (MAC)
With a market value of $4.24 billion, Macerich Company (MAC) acquires, leases, manages, and redevelops regional malls throughout the United States. The company's total portfolio has 52.4 million square feet gross leasable area and averaged $692 in sales per square foot over the past 12 months. Despite the REIT's second quarter FFO contracting by 8.3% on a year-over-year basis, the metric still beat Street expectations by two cents per share. During its latest earnings call, the retail real estate manager reiterated its full-year 2019 FFO guidance of between $3.50 and $3.58 per share. In an initiative to increase demand for its properties, Macerich has partnered with coworking provider Industrious to add flexible-office spaces into its retail centers. The REIT's stock pays an enticing dividend yield of nearly 10% but has tumbled 21.44% YTD as of Sept. 10, 2019.
The bears have remained in control of Macerich's share price since the fourth quarter of 2018, although signs of waning seller momentum have begun to surface over the past few months. A bullish divergence has formed between price and the moving average convergence divergence (MACD) indicator, while more recently, the MACD line has risen above its signal line to confirm the recent uptick in price. The bull case grew stronger still in yesterday's trading session, with a breakout above a multi-month downtrend line. Those who go long here should consider setting a take-profit order near $38 – an area where the price encounters resistance from two prominent swing lows and the 200-day SMA.
Kimco Realty Corporation (KIM)
Kimco Realty Corporation (KIM) owns interests in over 400 shopping centers throughout the United States, representing 75 million square feet of leasable space primarily concentrated in the top major metropolitan markets. The retail property player delivered in-line second quarter FFO, while quarterly revenue of $284.90 million surpassed analysts' expectations of $282.5 million. Kimco credits an increase in portfolio occupancy coupled with favorable leasing spreads and positive same-property net operating income (NOI) for the solid performance. In recent years, the New Hyde Park, New York-headquartered company has focused on owning Sun Belt real estate located in the Southeastern and Southwestern United States to capitalize on areas experiencing strong population growth, as well as targeting omnichannel tenants. Kimco stock has a $7.92 billion market cap, issues a 5.79% dividend yield, and is up 38.70% YTD, outperforming the retail REIT industry average by 27.50% as of Sept. 10, 2019.
Kimco shares made the bulk of their 2019 gain during January and February but have continued to trend higher since, albeit at a slower pace. Price broke out to a fresh 52-week high on Monday that may trigger further momentum-based buying in subsequent sessions. Traders who want to play for additional gains should look for a move to $22, where the price finds major overhead resistance from a horizontal trendline extending back over the past five years. Implement risk management by placing a stop order about $1 below the entry price.