Market Commentary | February 24, 2025

Selling the News

Reading the February 2025 edition of The State of REITs, I was surprised to learn that Shopping Center REITs were the second worst-performing sector in January (down 6.46%). For almost three years now, we’ve been unabashedly bullish on retail real estate and the market has rewarded us. However, at the start of 2025, despite nearly universally strong 4Q earnings for the sector, some trepidation has set in, and the selling has continued throughout February.

Sector Spotlight: Shopping Center REITs Y-T-D 2025

A Remedy for Seller’s Remorse

Though we have remained bullish, respect for fickle market sentiment encouraged us to prudently trim our shopping center positions last year as share prices rose. As strong leasing demand continues, both occupancy and rents are climbing, and we feared we had become under-exposed to the retail sector. Successive earnings reports revealed strong same-store NOI, double-digit lease roll-ups, and dividend hikes. Then the selling accelerated.

On 02/12, Kite Realty Group (KRG) reported strong leasing, rent growth, and a strong balance sheet; the shares are down 13% YTD. After market close on Thursday 02/20, CTO Realty Growth (CTO) announced acquisition activity and a strong leasing environment; shares fell as much as 10% in early Friday trading. Whitestone REIT (WSR) has not yet reported, but the shares were recently trading at a double-digit discount to the $15 cash buyout it rejected last summer. All shopping centers are reporting near-record operations; all of their shares are priced in the doldrums.

The retail real estate sector has just reported its tenth quarter of FFO growth and guides for more of the same in 2025 and 2026. We bemoaned our prior exit from some of these positions, but a nervous stock market has cured our seller’s remorse and provided the opportunity to re-enter at significant discounts to our exit prices. Portfolios will soon hold more of these familiar names and new retail operators as well.

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