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Portfolio > Alternative Investments > Real Estate

Retail REITs See Rising Occupancy, Says Analyst

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According to S&P Capital IQ, retailer sentiment is buoyant, “with sales rising, retailers expanding, and many retail REITs trading at elevated levels driven by improving operating results and relatively rich dividend yields.

As of March 20, the average shopping-center REIT had a dividend yield of 3.3%, the real-estate industry group NAREIT says, vs. 1.96% for the S&P 500. S&P Capital IQ expects shopping-center REITs touse their improving cash flows to increase dividends over the course of 2012.

“Signs that the economy is on the mend, combined with what we view as continued positive retailer sentiment and expansion plans, bode well for the sub-industry, in our view,” said S&P Capital IQ equity analyst Robert McMillan in a March 21 report.

Plus, S&P Capital IQ is forecasting that GDP will advance 2.1%, year on year, in 2012, up from a 1.7% gain in 2011, and that personal consumption will rise 2%, after a 2.2% gain in 2011. This bodes well for retail.

Data from CBRE Econometric Advisors supports this view with an outlook of absorbed retail space in the U.S. jumping to +29.4 million and +37.4 million square feet in 2012 and 2013, respectively, from -3.9 million and +2.1 million square feet in 2010 and 2011.

“While we anticipate that shopping-center development will pick up, we anticipate that the larger REITs will spearhead development and will remain cautious towards new developments; we believe that smaller local and regional shopping center developers will continue to face hurdles,” explained McMillan.

The real estate market supply/demand dynamics should increasingly benefit retail REITs, he says, “especially those with highly productive centers in supply constrained markets with barriers to entry.”

Average occupancy for the fourth quarter increased to about 93.2%, from 92.9% a year earlier, the analysts adds.

Simon Property Group (SPG), for instance, saw occupancy levels in the fourth quarter climb to 94.8% from 94.5%, while CBL & Associates Properties (CBL) experienced a jump in occupancy to 93.6% from 92.4%.

“In general, we expect the retail REITS we follow to generate positive year-over-year improvement in occupancy levels in the first quarter as well as for 2012,” the analyst concluded.


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