Retail plays a huge role in the commercial real estate world, of course, and here at Millionacres, we pay a lot of attention to its place among real estate investment trusts (REITs).
So does Nareit, which defines the category this way: "Retail REITs include REITs that focus on large regional malls, outlet centers, grocery-anchored shopping centers, and power centers that feature big-box retailers."
Nareit places 30 companies in that category, and as a whole they show striking recovery from the economic effects of COVID-19, posting a year-to-date total return of 35.13% after plunging to -25.18% as a group in 2020.
That said, there's wide diversity in geography, business models, and portfolio composition among retail REITs, including substantial investment by many in things that don't seem so retail, like industrial buildings or mixed-use developments that include offices and apartments.
Here, we take a look at two very different retail REITs worthy of real estate investor consideration for a September back-to-school buy.
STORE Capital (NYSE: STOR) has only been publicly traded since 2014 but has made its mark since then, growing to a market cap of nearly $10 billion and a portfolio that as of 2Q21 included 2,738 properties leased to 529 customers in 49 states.
STORE's name is self-descriptive. It comes from Single Tenant Operational Real Estate, and that's what this Scottsdale, Arizona-based REIT does: specialize in net lease arrangements while building a business with a tenant base that's 70% investment-grade and anchored by restaurants, early childhood education, automotive repair and maintenance, health clubs, and metal fabrication businesses.
Service businesses comprised 64% of the portfolio, along with 17% retail and 19% manufacturing at quarter's end. STORE says its properties were 99.6% leased as of June 30, with an average weighted remaining contract of about 14 years.
That lends confidence to STORE's ability to continue paying quarterly dividends, as it has without fail since December 2014, including without any reductions during the pandemic. And its one-year return of 54.39% is some nice ROI, especially for a retail REIT. (Plus, Warren Buffett is a major investor.)
STORE stock closed at $36.07 on Aug. 31, 2.85% off its 52-week high of $37.13 from July 30 and good for a yield of 4.01% based on annual dividends of $1.44 per share.
Tanger Factory Outlet Centers
Tanger Factory Outlet Centers (NYSE: SKT) has a much different story than STORE. The Tanger name has become synonymous with outlet shopping and as a destination in and of itself for bargain seekers in their hometowns and on the road. Plus, it's a mall stock.
As of 2Q21, Greensboro, North Carolina-based Tanger owned or had an ownership interest in 36 centers operating in 20 states and Canada, with a client list of more than 500 brand-name companies operating more than 2,500 stores.
That all sounds good, but many of those were just the kinds of stores that got hammered by pandemic shutdowns. And Tanger lost rent and clients. That forced management to suspend the dividend for the final two quarters of 2020 before restoring the payout this past January at half the previous level.
Given that reality and seeing what's happened to other mall operators, it's easy to assume Tanger is in trouble. But that's not necessarily so. Its 2Q21 results show marked improvement in tenant sales and rent collections, among other signs of pandemic recovery. It'll be a struggle, but there's reason to believe in this REIT's future, too.
Besides the coronavirus, Tanger's brick-and-mortar clients are in pitched battles against another foe. Check out this online discussion with our Matt Frankel and Deidre Woollard posted on Aug. 28 and titled "Here's How Tanger Outlets Will Win the Fight Against E-Commerce."
Tanger stock closed at $16.72 on Aug. 31, 25.36% off its 52-week high of $22.40 from March 4 and good for a yield of 4.25% based on annual dividends of $0.71 per share. According to Nareit, Tanger stock has posted a total one-year return of 170.70% at this writing, but keep in mind it was tanking last year, hitting a 52-week low of $5.46 last Sept. 14.
The Millionacres bottom line
Tanger stock looks too beaten down right now, if you believe it can withstand the pressures of a resurgent pandemic and keep building back its business. STORE looks more recession-proof but is more fully priced right now, it seems. Either of these real estate stocks, however, could be a good buy to fall back on this September, just for different reasons.