What happened

Shares of real estate investment trust (REIT) Federal Realty (NYSE:FRT) jumped just shy of 27% in November according to data from S&P Global Market Intelligence. Right there with it was STORE Capital (NYSE:STOR), which was up roughly the same amount. A bit further ahead, with a gain of 31.5%, was Simon Property Group (NYSE:SPG). The theme at all three of these REITs is their focus on retail assets, which should temper some of the excitement here.

So what

In early 2020 the world attempted to control the spread of the coronavirus with broad economic shutdowns. That left many retail stores closed and made it hard for landlords to collect rent. Investors pushed retail-related REITs sharply lower. In November, however, Pfizer and BioNTech, AstraZeneca, and Moderna all announced that they had made material progress with coronavirus vaccines. Investors shifted gears and pushed REITs with retail exposure higher. On the surface all of this makes logical sense, since a vaccine could mean a return to more normal shopping conditions, but it's too superficial a look at the situation.

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For example, STORE Capital is a net lease REIT, which means the tenants of its single-tenant properties are responsible for most of the costs of the assets they occupy. In addition, it tends to originate its own leases, so it can make sure it has highly productive properties and strong lease protections. Although its rent collection rates did dip into the low 70% range in the second quarter, it was up to 85% by July. In November it collected 90% of what it was owed. The business has recovered nicely. Occupancy, meanwhile, has remained near 100% throughout the pandemic.   

Federal Realty, which owns shopping centers and mixed-use developments, hasn't fared as well. In the early days of the pandemic it was only collecting around half of the rents it was owed. In October that number was up to 85%, which is a vast improvement but still not quite as good as what STORE Capital achieved. The real problem, however, shows up in the occupancy numbers. At the end of the first quarter 93.6% of the REIT's space was leased, down from 94.2% in the same period of 2019. By the third quarter that number had dropped to 92.2% and management warned during Federal Realty's third quarter 2020 earnings conference call that occupancy would likely dip into the mid- to high-80% range before things start to improve again. The reason is weaker and smaller retailers are going under and it needs to find tenants to replace them, which takes time. There's little question that the REIT will muddle through this rough patch, but the November gain may be pricing in more good news than investors are likely to see for a little while.  

SPG Chart

SPG data by YCharts

Simon Property Group, meanwhile, owns malls and outlet centers. These properties have been at the heart of the so-called retail apocalypse. Before 2020 that was a slow-moving trend in which retailers that weren't keeping up with customers' shifting buying habits and those with heavily leveraged balance sheets were closing locations or, worse, going bankrupt. The pandemic sped up the process, compressing what was likely to be years' worth of upheaval into just a few months. Like Federal Realty, Simon's properties are going to take time to recover and find new tenants. Worse, because many of its locations are enclosed malls, it will also need to convince shoppers that it is safe to return. A vaccine will help with that, but it is going to be months if not quarters before a vaccine is disseminated widely enough to have an impact on the pandemic. In the meantime, COVID-19 cases are rising again and Simon is collecting just 85% or so of its rents as it faces the very real prospect of additional vacancies.  

Now what

Of the three names here, STORE Capital appears to be the best positioned. Federal Realty, with largely open-air assets, is somewhere in the middle. And Simon Property Group is still dealing with material headwinds that could linger for a lot longer than investors may be thinking as it works back from the "apocalypse." 

Yes, the vaccine news from November will be good for each of these REITs. However, investors need to look deeper into the story and avoid making a blanket assessment when it comes to retail-focused REITs. There are very important differences that investors need to examined before buying into this rally.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.