Shares of Macerich (NYSE:MAC), a mall-focused real estate investment trust (REIT), were higher by 13% at 1 p.m. EDT on Wednesday. Shopping center REIT Brixmor Property Group (NYSE:BRX) was up 12%. And the stock of STORE Capital (NYSE:STOR), a single-tenant net lease landlord, had advanced just a touch under 10%. The theme here, if you didn't figure it out already, is that all of these REITs own some sort of retail property.
Retail focused REITs have been hit particularly hard by the efforts to contain COVID-19. Nonessential businesses that occupy malls, strip malls, and even single-tenant properties were shut down. Retailers that remained open, like grocery stores and pharmacies, often had to deal with reduced customer flows due to social distancing, heightened cleaning costs, and employee concerns over the coronavirus. Yes, some retailers thrived, but most physical stores had a rough go of it.
To put some numbers on that, STORE Capital said during its first-quarter 2020 earnings conference call that it was only able to collect around 70% of its rents in April. With roughly 65% of its portfolio tied to service-type retail properties (restaurants and gyms, for example) and another 20% or so filled by retail tenants, like car dealerships, that's not exactly a surprising figure. But it is terrible news for the REIT's top and bottom lines.
By the time Brixmor reported first-quarter earnings on May 5, it had only collected about two-thirds of its rent roll. But it gave an interesting breakdown, explaining that tenants considered essential had paid roughly 96% of their rents, while nonessential tenants or those with a mixed offering (restaurants capable of providing takeout, for example) fell well short of that number.
Macerich, meanwhile, was the worst of the lot, explaining in its first-quarter 2020 analyst conference call that it had only received 26% of its rents. That's not surprising, given that malls were essentially shut down.
That, however, is practically ancient history today by Wall Street standards. The U.S. economy is starting to reopen and people are going out again. And while they're out, they appear to be shopping. For example, retailers Abercrombie & Fitch and American Eagle Outfitters have both said they are seeing demand return very quickly as they reopen their stores. There's still a long way to go before things are back to anything like a pre-COVID-19 normal, but the early signs are definitely positive for retailers and, in turn, their landlords.
Which is why the stock of retail landlords, across a broad spectrum of property types, are rising today as investors are again taking a risk on attitude based on high hopes for a smooth reopening.
There are very different risk/reward tradeoffs here, however. For example, the enclosed malls that Macerich owns will likely take more time to bounce back, since it will face material extra costs for cleaning and may even have to limit the number of consumers it lets into its malls.
By contrast, STORE Capital's properties tend to be freestanding, so they won't face the same issues. Brixmor is somewhere in between the two, owning shopping centers, but it, too, won't likely face the types of headwinds that Macerich will have to contend with.
That said, investors shouldn't get too excited here. The efforts to contain COVID-19 are probably going to push the U.S. economy into a recession. That won't be good for retail tenants already struggling to deal with the impact of the coronavirus. In other words, there could be more volatility here in the not too distant future.