The retail real estate sector is a major one.
Real estate investment trusts, known as REITs, can help you hedge against stock market volatility. Retail REITs might catch your eye if you're interested in investing in shopping centers, supermarkets and other retail space. Retail is a recession-prone sector, says Andrew Schrage, CEO and co-founder of Money Crashers, though not uniformly so. "Properties with recession-resistant anchors, think Walmart and mass-market grocery stores, tend to retain value better than high-end properties," he says. REITs, in general, may be better able to hold their own in a low interest rate environment compared with other investments. The key is choosing the right ones to invest in since asset quality can be uneven, Schrage says. With that in mind, here are seven of the best retail REITs to buy now.
Realty Income Corp. (ticker: O)
As one of the largest REITs, Realty Income is an attractive choice. O's tenant roster includes Walgreens Boots Alliance (WBA), Dollar General Corp. (DG) and 7-Eleven, with a total portfolio spanning more than 6,400 properties in the U.S., Puerto Rico and the United Kingdom. Scott Crowe, chief investment officer at CenterSquare Investment Management, says Realty Income is promising since the businesses it invests in tend to be insulated against the effects of e-commerce growth. Walgreens, for example, is continuously adding services such as in-store health clinics to remain relevant to the communities it serves. The current dividend yield is 3.74%. The REIT has been charting consistent revenue and earnings growth in the last five years, which could bode well for the future.
National Retail Properties (NNN)
National Retail Properties specializes in retail investments for properties that utilize triple-net lease arrangements, in which tenants pay some or all of the costs of ownership. This retail REIT's portfolio includes more than 3,100 properties in 48 states, with top tenants such as 7-Eleven, Camping World (CWH) and AMC Entertainment Holdings (AMC). The bulk of NNN's investments are focused on convenience stores, followed by restaurants and auto service retailers. Revenue and earnings have risen steadily over the last few years, with the current dividend yield clocking in at 3.9%. National Retail Properties has managed to keep a consistent pace with the rest of the market, averaging a 10-year annual return of 15.1%, versus 13.5% for the S&P 500.
Slate Retail REIT (SRRTF)
SRRTF invests in U.S. commercial properties with a specific focus on grocery-anchored retail space. Among shopping center REITs, it stands out for its approach to growth. "Once properties are acquired, the management team finds ways to increase rents, improve lease terms and drive occupancy," says David Dunn, CEO of Slate Retail REIT. The REIT's portfolio includes 76 properties totaling approximately 9.9 million square feet, with a 93% occupancy rate. Holdings tend to be clustered near major cities, such as Atlanta and Charlotte. SRRTF's current dividend yield is 9.06%, making it one of the best dividend-payers across the sector and putting in on the same playing field with some of the largest REITs in the market.
Cedar Realty Trust (CDR)
Compared with other shopping mall REITs that own properties nationwide, CDR has a narrower focus. This retail REIT invests in primarily grocery-anchored shopping centers in high-density urban markets extending from Boston to Washington, D.C. Anchors include recognizable brands such as Walmart (WMT), Food Lion and Kroger Co. (KR) but holdings also included properties anchored by Home Depot (HD) and Big Lots (BIG). Earnings took a slight dip in 2019, though revenues have held steady year to year since 2016. While it has a much smaller market capitalization than the largest REITs, Cedar Realty Trust still manages a competitive dividend yield of 7.72%. Looking ahead, the REIT currently has several major redevelopment projects including a mixed-use property totaling 1 million square feet in Philadelphia.
SITE Centers Corp. (SITC)
SITC invests in nearly 70 retail shopping centers, with tenants ranging from retailers to restaurants to grocery stores. Holdings span from coast to coast, with properties in major cities such as New York, San Antonio and San Francisco. Schrage characterizes SITE Centers as a value buy, given its diverse range of tenants and dividend yield of 6.75%. "It's not the flashiest pick to be sure but it's a beacon of safety in an uncertain environment," he says. People still need to buy food, regardless of whether the economy is booming or busting. SITE Centers, with its focus on supermarket anchors, could offer consistent and stable dividend income, regardless of how the broader stock market is moving.
Simon Property Group (SPG)
SPG is the largest of the shopping mall REITs and one of the largest retail REITs in general. Its size and management strategy work in its favor when staying competitive in the market. "Simon is one of the few retail REITs with the capital to maintain their prime locations and invest in new value-creating projects, such as adding hotels and new entertainment areas to their malls," says Tyler Hardt, portfolio manager at Pelican Bay Capital Management. SPG invests in open-air and other shopping mall properties in the U.S. and abroad, including the United Kingdom, France, Japan and Malaysia. Low exposure to underperforming locations, a strong balance sheet and a dividend yield of 6.86% add to this retail REIT's appeal.
KIMCO Realty Corp. (KIM)
KIM is one of the largest operators of open-air shopping centers in North America. The REIT's portfolio spans more than 400 shopping centers from New York to California, with many properties in major metropolitan markets. Of late, KIMCO's investment strategy has increasingly focused on signature series properties that cater to more affluent consumers, with tenants ranging from boutique hair salons to supermarkets. The success of that strategy is demonstrated by its near full-occupancy rates. The REIT's earnings declined from 2018 to 2019 but revenues held steady at $1.16 billion, and KIM is seeking to expand its footprint in major cities such as Tampa, Florida; Austin, Texas; and Portland, Oregon. The current dividend yield is a healthy 6.31%.
The best retail REITs to buy now are:
-- Realty Income Corp. (O)
-- National Retail Properties (NNN)
-- Slate Retail REIT (SRRTF)
-- Cedar Realty Trust (CDR)
-- SITE Centers Corp. (SITC)
-- Simon Property Group (SPG)
-- KIMCO Realty Corp. (KIM)
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