REITs Struggle After Landlords Faced Toughest Ever Quarter

Signs of optimism emerge for retail REITs — even as Bank of America warns that “accelerated bankruptcies and store closings will still push occupancy lower into 2021.”

Cheney Orr/Bloomberg

Cheney Orr/Bloomberg

The pandemic has battered real estate investment trusts that focus on retail stores, with Bank of America Corp. analysts calling the second quarter the toughest ever for landlords in the modern era of REITs.

Before the outbreak of Covid-19, store closings had been running at a slower pace than in 2019 — but now they’ve almost eclipsed last year’s total with still more than four months to go in 2020, the analysts said Thursday in a research report. The 9,544 of closures that Bank of America has tallied this year compares with 9,670 in all of 2019.

The jump in shuttered stores is weighing on real estate investments tied to malls and strip centers. Even with rent collections ticking up last month, mall REITs lost 11.6 percent in the third quarter through August 19, the report shows, while strip REITs tumbled 10.3 percent.

“Accelerated bankruptcies and store closings will still push occupancy lower into 2021,” the Bank of America analysts said in the report. “While near term investor focus is on rent collection, we look to leasing activity as a signpost of normalizing conditions.”

Ascena Retail Group, Barnes & Noble, the Gap, Macy’s, and Office Depot are now on Bank of America’s top tenant watch list for retail REITs due to their greater risk of store closings. PetSmart, PETCO Animal Supplies, Staples, J.C. Penney Co., L Brands, and Neiman Marcus are also on watch for REIT managers.


“In the first roughly eight months of 2020, the largest store closing announcements have come from Ascena and GNC,” the analysts wrote. “The bigger impact will be felt from Ascena store closings given the smaller size of an average GNC location (1,200 square feet).”

JCPenney, the iconic U.S. clothing and home furnishing chain that filed for bankruptcy protection in May, has led department store closings this year based on square footage, according to the report. The analysts said about 40 major retailers have filed for bankruptcy in 2020, more than doubling last year’s total.

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The second quarter was “without a doubt the toughest quarter retail REIT landlords have faced in the modern REIT era,” they wrote in the report. Still, the analysts pointed to improving rent collections in July and “encouraging leasing activity” at strip centers during the second quarter.

“Mall REIT management teams are facing a much more uphill battle,” they said, “but we are particularly encouraged by MAC’s leasing pipeline.”

MAC is the stock ticker for Macerich, which says on its website that its portfolio comprises “trophy properties in the most desirable, densely populated and highest-barrier-to-entry U.S. markets.” Bank of America analysts have a neutral rating on the REIT.

In their report, they recommended “higher quality portfolios,” with “buy” ratings on U.S. REITs including Acadia Realty Trust, Kimco Realty, Regency Centers Corp. and Weingarten Realty Investors.