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Here's Why Retail REITs Crashed in June


Jul 20, 2020 by Liz Brumer

In late May and early June, things were looking up for retail real estate investment trusts (REITs) as the economy slowly started opening back up. Restaurants, shops, and businesses received the green light to reopen following new safety guidelines and protocols. This created optimism for retail owners and consumers to rebound from the closures and loss of income they'd suffered since the coronavirus outbreak began in early March.

On June 8, 2020, Simon Property Group (NYSE: SPG) was up 112% from its March 18, 2020, low, a huge jump by any means. And they're not the only retail REIT to bounce back so quickly. Numerous retail REITs like Kimco Realty Corp (NYSE: KIM), who owns retail shopping centers across the U.S., saw a 101% gain from their April low, and Realty Income Corp (NYSE: O), who specializes in single-tenant retail properties, saw a 51% move from March lows.

Hope comes to a halt

On June 13, 2020, the number of confirmed COVID-19 cases started to spike following an alarming trend of new record reported cases daily with the number of confirmed cases nearly tripling just 30 days later. Several states revoked their orders for opening, closing down the same businesses they'd reopened just a few weeks later.

While some retail REITs are in a better position to fare another round of closures, like Kimco Realty Corp, who's shopping centers are comprised of 43% essential retailers who remained opened during the first round of retail closures like Home Depot (NYSE: HD), Costco (NASDAQ: COST), and other grocery stores -- others, like Simon Property Group, who are mostly comprised of shopping, dining, and mixed-use properties like malls, will likely feel the pinch if closures are extended for a long period of time.

What it means for investors

The ups and downs retail REITs are facing right now will probably continue as long as uncertainty looms over increased cases and when businesses will be able to safely reopen. It's a volatile time for our country, and that volatility will continue to be reflected in the performance and consumer confidence of stocks, REITs, and the businesses that are directly affected by the pandemic. Many retail REITs, even those who are hit hard from pandemic closures, are in positive enough shape to weather the coronavirus storm in the long run, but true recovery will take time. While several retail REITs are at historically low prices, it doesn't mean they are a buy. Having a firm understanding of where each company stands financially is crucial before buying.

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Liz Brumer-Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Home Depot. The Motley Fool recommends Costco Wholesale and recommends the following options: long January 2021 $120 calls on Home Depot and short January 2021 $210 calls on Home Depot. The Motley Fool has a disclosure policy.

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