eResearch | The commercial real-estate market was significantly impacted by the COVID-19 pandemic, leaving retail businesses and tenants unable to pay rent due to lower or non-existent sales.
As a result, real estate investment trusts (“REIT”) in North America focused on retail and shopping centres, including National Retail Properties, Inc. (NYSE: NNN), Macerich Company (NYSE: MAC), and RioCan Real Estate Investment Trust (TSX: REI.UN). All experienced a deterioration in Net income in their most recent Q2/2020 earnings.
National Retail Properties
In Q2/2020, National Retail Properties (NNN), a U.S. REIT focused on the retail space with 3,117 properties containing 32.5 million square feet, reported receiving 69% of rental payments.
The real estate investment trust experienced a significant increase in rental collections in July with 84% of rents paid, compared with May when it reported only receiving 50% of rental payments.
NNN’s occupancy rate remained constant at 99%, as 80-85% of their tenants renewed leases at similar terms.
In Q2/2020, NNN reported revenues of US$163.7 million versus US$164.7 in the same quarter last year, with Net Income of US$42 million in Q2/2020, a 42% decrease year-over-year.
NNN’s stock price is currently trading at US$35.80 per share, a 32% decrease year-to-date and a 34% decrease in the past year.
Macerich
In Q2/2020, Macerich, a U.S. REIT focused on shopping centers with 52 properties containing 51 million square feet, reported receiving 46% of rental payments.
In May and April, the real estate investment trust received 40% of rental payments, which improved in June and July as rental collections came in at 58% and 66%, respectively.
During the earnings call, Thomas O’Hern, CEO of Macerich, said, “Our results were obviously adversely impacted in the quarter due to most of the centers being closed for two-thirds of the quarter. By July 10th, all but two of our assets, both in New York City, had reopened.”
In Q2/2020, Macerich reported revenues of US$179 million, a 22% decrease year-over-year, with a Net Loss of US$26.7 million compared with a gain of US$13.9 million the same quarter last year.
Macerich’s stock price is currently trading at US$8.00 per share, a 69% decrease year-to-date and a 73% decrease in the past year.
RioCan
In Q2/2020, RioCan, a Canadian REIT focused on retail with 289 properties containing 44 million square feet, reported receiving 87% of rental payments, which included short-term deferral arrangements and anticipated Canada Emergency Commercial Rent Assistance (“CECRA”) proceeds.
In July, the real estate investment trust received 85% of rental obligations, with 85% of tenants now open and operating retail locations, as the majority of Canada moves into phase-3 re-openings.
In Canada, the government implemented the CECRA program, which supports businesses who lost at least 70% of monthly revenues, by covering 50% of rental obligations, leaving tenants to pay only 25% of rent and landlords to cover the remaining 25%.
In Q2/2020, RioCan reported revenues of C$270 million, an 18% decrease year-over-year, with a Net Loss of C$351 million compared with Net Income of C$253 million in Q2/2019.
RioCan’s stock price is currently trading at C$15.52 per share, a 41% decrease year-to-date and a 41% decrease in the past year.
CHART 1: National Retail Properties (blue), Macerich (red), and RioCan (black) – Yearly Stock Performance
U.S. Outdoor Shopping Center Market Net Absorption Reaches Record Low
Retailers and malls were hit the hardest by the pandemic as consumer behaviour drastically changed towards online markets, while brick-and-mortar stores struggled to keep afloat as they were forced to make pre-COVID levels of rental payments while revenue significantly deteriorated.
According to Cushman & Wakefield PLC’s Q2 2020 U.S. Shopping Center Marketbeat report, in Q2/2020, Net absorption in the U.S. outdoor shopping center market is expected to reach a record low of negative 7.7 million square feet, as more rental spaces were vacated or supplied than leased or absorbed.
In H2/2020, total net absorptions in the U.S. outdoor shopping center market are expected to reach negative 12.2 million square feet.
Uncertainties are still present for the commercial real-estate industry as a vaccine is yet to be widely available, with possibilities of re-opened economies shutting down again if another wave of the contagion starts.
CHART 2: U.S. Shopping Market Net Absorptions (Q2/2019 – Q2/2020)
