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Here’s Why Seritage Growth Properties and Other Retail REIT Stocks Are Soaring

By Matthew Frankel, CFP® – Updated Jun 12, 2020 at 10:57AM

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The developer of mixed-use real estate is one of the biggest movers in the stock market.

What happened

After the worst day for the market since March, stocks are rebounding sharply on Friday. Some of the most beaten-down stocks are among the best performers, and retail real estate stocks are one group doing quite well.

Seritage Growth Properties (SRG 0.34%) is a particular standout, with shares up by 18% as of 10 a.m. EDT today. Other retail REITs are certainly having an excellent day. Mall REIT Simon Property Group (SPG -0.64%) is 7% higher on the day and Tanger Factory Outlet Centers (SKT -1.75%) is up by 8%, to name a couple of examples.

Two young women paying in a store with credit card.

Image source: Getty Images.

So what

Retail real estate investment trusts, or REITs, are a group of stocks that stand to gain a lot from the economic recovery, and also stand to lose more than most if the COVID-19 pandemic worsens or the economic effects are worse than expected. So, on days when the news is bad or investor pessimism is high, they've been taking a beating. In fact, all three of the stocks mentioned above were down by double digits in Thursday's massive sell-off.

Conversely, when the market rebounds, economic news is good, or investors are optimistic about the recovery, retail REITs tend to be one of the best-performing parts of the market, and that's what we're seeing in today's rebound.

Now what

Seritage is an especially reactive stock because it is in a more precarious financial position than the other two. Seritage's business model involves redeveloping former Sears properties into modern mixed-use developments. The company requires lots of capital to complete its redevelopment projects, doesn't have a ton of access to credit right now, and simply cannot afford a prolonged period of tenants not paying rent.

So when bad news comes out, Seritage tends to get hit worse than its peers. In fact, at one point during the pandemic, Seritage was nearly 90% off its 52-week high. Conversely, when it looks like the economic recovery is moving forward, Seritage investors breathe a big sign of relief.

The COVID-19 pandemic is still a very fluid situation, and retail REITs (especially Seritage) are likely to take investors on quite a roller coaster ride until the economic recovery is much further along.

Matthew Frankel, CFP owns shares of Seritage Growth Properties (Class A), Simon Property Group, and Tanger Factory Outlet Centers. The Motley Fool owns shares of and recommends Seritage Growth Properties (Class A). The Motley Fool recommends Tanger Factory Outlet Centers. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Tanger Factory Outlet Centers Stock Quote
Tanger Factory Outlet Centers
SKT
$19.14 (-1.75%) $0.34
Simon Property Group Stock Quote
Simon Property Group
SPG
$116.71 (-0.64%) $0.75
Seritage Growth Properties (Class A) Stock Quote
Seritage Growth Properties (Class A)
SRG
$11.80 (0.34%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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