Overcapacity Or Opportunity? 2 Retail REITs To Bet On

The end of Cyber Monday, a day which witnesses the single largest volume of online purchases, is possibly a good time to take stock of e-commerce’s fortunes. Fresh estimates from Adobe Systems Inc. (ADBE) indicate that expenditure via the e-commerce route registered a near 17% increase to hit $6.6 billion this Cyber Monday.

In fact, the holiday season as a whole will see online expenditure touch nearly $107 billion, more than 11% of total retail holiday sales. While this is great news for the likes of Amazon.com, Inc. (AMZN), brick and mortar retailers are an embattled lot. But the fallout of the e-commerce assault isn’t limited to this segment alone. Retail REITs are also increasingly feeling the heat.

General Growth Property’s Dilemma

The problems faced by U.S. retail REITs are best illustrated by the case of GGP, Inc. (GGP - Free Report). On Nov 11, GGP received a $15 billion offer from Brookfield Property Partners, aimed at buying the shares it still doesn’t in this major mall owner.

Reportedly, GGP had already been in talks with Brookfield about going private. But Brookfield offered to pay only $23 per share, only marginally higher than Nov 10’s closing price of $22.20 in a cash and equity deal.  

This case serves to illustrate how acute the situation seems for retail REITs. This Chicago-based REIT is believed to be well above its peers in terms of the quality of its real estate portfolio. Most of its malls are considered to be “Class A” level, those which generate the highest level of sales per square foot.

Has E-commerce Caused Retail Overcapacity?

But GGP is already facing a large number of problems, store closures and retail bankruptcies to name a few, all of which are a fallout of the switch to online purchases. Share prices of several major retail REITs are down year to date. This includes the likes of Simon Property Group (SPG - Free Report), Federal Realty Investment Trust (FRT - Free Report) and Kimco Realty Corporation (KIM - Free Report) which have lost 12%, 8% and 27.7% over the last one year.