Retail
1. Recognizing The Bifurcation Of Retail: It’s worth noting that those REITs with high
tenant concentrations (i.e., CHP, CRT and CRR) generally have lower exposures to small
business tenants, and have, by extension, represented the ‘safety trade.’ To the extent that
looming recessionary pressures are prevalent and perhaps greater than anticipated in 2024,
these REITs may be more likely to outperform. On the other hand, REI, SRU, and FCR
continue to be characterized by significantly higher valuation optionality (but also higher risk
related to potential small business bankruptcies). To this end, we would suggest that the
valuation ascribed to these broad-based REITs will be driven by the larger sentiment towards
the severity of a recession; a bullish view on a 2024 recovery would, therefore, suggest a
bias towards REITs such as REI, SRU, and FCR.
2. Time For A Defensive Posturing: Despite the economically sensitive REITs (REI, FCR,
and SRU) continuing to trade at the largest valuation discounts within the retail peer group,
we believe investor sentiment in 2024 will largely centre around consumers and their financial
health, rendering a natural bias towards the more staples-oriented retailers as consumers
reduce their allocation to discretionary spending, redirecting it towards household necessities.