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Equity Research: USA REITs (May 29, 2025)

Summary

This report primarily analyzes the performance and outlook of US retail Real Estate Investment Trusts (REITs), focusing is on mall operators Simon Property Group (SPG), Macerich (MAC), and Brookfield Properties (SKT), with notable mentions for department stores, apparel, restaurants, and mall fundamentals.

Key Findings & Highlights

1. April 2025 Retail Performance (Malls & Outlets): April 2025 saw a generally positive trend in foot traffic for malls, driven significantly by an easy year-over-year (YoY) comparison. Bothmall and outlet foot traffic improved compared to March, though multi-year trends for mall operators showed acceleration for MAC (+1.4%) and deceleration for SPG (-2.0%) and SKT (-2.8%).

   • Mall Foot Traffic YoY: MAC (+3.2%), SPG (+3.8%), SKT (+5.8%).
   • Mall Foot Traffic 2Yr: MAC (+1.4%), SPG (-2.0%), SKT (-2.8%).

2. April Performance vs. Pre-Pandemic Levels:

   • MAC's foot traffic in April was roughly consistent with pre-pandemic averages.
   • SKT's traffic was -7% below the pre-pandemic level.
   • SPG's traffic was -6% below the pre-pandemic level.

3. Department Store (B&M) Performance: Foot traffic growth for department stores continued to slow significantly year-over-year (-3.7% YoY) compared to March and their two-year trend. Macy's (M) and Nordstrom Rack performed relatively better despite declining YoY, while KSS (Kohl's) saw a significant pullback.

4. Apparel & Specialty Retail Insights:

   • Athletic Apparel: Showed its first non-negative YoY growth (+0.0%) in over a year in April and broader category trends were improving.
   • Specialty Retail: Performance was mixed, with some brands like ANF (Alo Yoga) showing strong gains (+31.2% YoY). Analyst noted a deceleration in April's blended B&M sales.
   • Restaurant Trends: April's slight improvement was attributed partly to an Easter shift offsetting reduced average check size.

5. Market Rent & Operations:

   • Mall occupancy (~95%) and asking rents were above the overall retail average (premium ~35%).
   • Mall asking rents remain significantly higher than the overall retail average (Approx $36 vs. ~$24 for overall retail). A tighter supply front suggests stabilized fundamentals but continued premium positioning.
   • Mall asking rents are approximately $40 vs. $24 for overall US retail (costly premium vs. overall retail). Supply creation is minimal, indicating stability.

Brief Risk Factors

• Broader macro uncertainty potentially weighs on consumer spending, particularly at the lower end, potentially impacting discretionary retail categories.
• Future comps may become less favorable, potentially impacting near-term growth for REITs with slowing traffic or sales.
• High rental rates for malls compared to overall retail pose sensitivity within the capital structure for REIT investors.