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Better REIT: Retail Opportunity Investments vs. Simon Property Group

By Nicholas Rossolillo and Jason Hall – Oct 8, 2021 at 7:45AM

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These two REITs look similar, but comparing them side-by-side might not be the best route to go.

Commercial real estate got hit hard by the pandemic, but several companies are poised to do well in this "new normal" for retail shopping. In response to a viewer question, Fool.com contributor Jason Hall discusses the differences between Retail Opportunity Investments (ROIC 1.58%) and Simon Property Group (SPG -0.11%) in this Motley Fool Live segment from "The Five" recorded on Oct. 1.

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Jason Hall: We talked about [Retail Opportunity Investments] ROIC last hour in the earnings previews. ROIC is a retail REIT, real estate investment trust, that owns strip malls mainly in the West Coast. After I put it that way, it sounds like a terrible business to own but they are actually really good. They're really focused on just the West Coast. They find anchor tenants, strip malls in really high-wealth, high-traffic areas. They do a really good job. Through the pandemic, they maintained 100 percent of their anchor tenants, and they've seen a very tiny decrease in their non-anchored tenants. They still have 97 percent occupancy, which is incredibly high.

Ryan mentions Simon Property Group, ticker SPG. It says, "Is SPG a better investment than ROIC?"

Besides the fact that they are both real estate investment trusts and they're both in retail, it's apples and catfish. Simon Property Group is gigantic. It's one of the largest mall owners in North America. It is a huge company. It is a very well-run company. They also own a lot of class A malls. They own top-tier malls, that they are pretty good at tenanting and that really good retailers want to be in because they're in the right areas.

They have all of the same important characteristics. They are two very different businesses. I don't think it's good to put them side-by-side and rank them on comparative valuations and see which one comes out ahead of the other just because they are different real estate investments. They focus on very different things. ROIC is a tiny little business. Simon Property Group is one of the biggest in the world. They're very different from that perspective.

The thing that I like about ROIC right now is the opportunity for dividend and growth because the dividend is still far below where it was pre-COVID, they cut it substantially to preserve cash. They were able to reinstate it relatively quickly, but there's still a lot of growth just to bring it back up to its pre-COVID level. I like that about it. When you're looking at it, look at the dividend that it was paying a year-and-a-half ago and look at it as an opportunity over the next couple of years to recapture that dividend and that growth to it. Simon Property is not going to grow its dividend as quickly because it's been able to maintain it pretty well.

Nicholas Rossolillo has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Retail Opportunity Investments. The Motley Fool has a disclosure policy.

Stocks Mentioned

Retail Opportunity Investments Stock Quote
Retail Opportunity Investments
ROIC
$15.44 (1.58%) $0.24
Simon Property Group Stock Quote
Simon Property Group
SPG
$117.12 (-0.11%) $0.13

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