Canada’s biggest retail REITs have seen their stock prices slump
As the likes of Amazon and other e-commerce giants shake up Canada's retail industry, the fate of retail real estate investment trusts (REITs) seemingly rests on how they can adapt as some of their major tenants crack under pressure and choose to close shop.
According to Matt Smith from the Motley Fool Canada, with the declining demand for retail spaces, REITs will become more dependent on smaller retailers, most of which are more volatile and less likely to commit to long-term rental deals.
Another factor that could spell further pressure for these REITs is overcapacity. Canada has too many shopping malls, outpacing the actual demand for spaces. More so, the closure of major anchor tenants such as department stores is creating a ripple effect, with smaller tenants being able to break their lease once an anchor tenant leaves.
"In this environment, many retailers are willing to close marginally profitable stores rather than risk having them become loss making and a liability, particularly if an anchor tenant leaves, causing foot traffic to decline sharply," Smith wrote.
With this turbulent environment, how are Canada's biggest retail REITs doing?
For starters, RioCan Real Estate Investment Trust has seen its share price fall by 9% over the past year due to the headwinds faced by brick-and-mortar retailers. Amongst its top revenue contributors are a number of department store chains which are currently suffering due to Amazon.
The outlook is also not so favourable for Choice Properties Real Estate Investment Trust. Its 537 retail properties across Canada are exposed to the impending shift due to the rise of e-commerce. And whilst it has grocery giant Loblaw Companies in its midst, it is still expected to endure pressure as Amazon forays into the fresh food segment.
Partners Real Estate Investment Trust will also be on the rocks. In fact, its stocks already dipped 10% over the past year due to Sears' bankruptcy filing.
"The headwinds facing the retail industry indicate that retail REITs could indeed be the candidate for the next big short, with many likely to come under considerable pressure because of rising retail bankruptcies and higher interest rates," Smith said.
For more of Wealth Professional's latest industry news, click here.
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According to Matt Smith from the Motley Fool Canada, with the declining demand for retail spaces, REITs will become more dependent on smaller retailers, most of which are more volatile and less likely to commit to long-term rental deals.
Another factor that could spell further pressure for these REITs is overcapacity. Canada has too many shopping malls, outpacing the actual demand for spaces. More so, the closure of major anchor tenants such as department stores is creating a ripple effect, with smaller tenants being able to break their lease once an anchor tenant leaves.
"In this environment, many retailers are willing to close marginally profitable stores rather than risk having them become loss making and a liability, particularly if an anchor tenant leaves, causing foot traffic to decline sharply," Smith wrote.
With this turbulent environment, how are Canada's biggest retail REITs doing?
For starters, RioCan Real Estate Investment Trust has seen its share price fall by 9% over the past year due to the headwinds faced by brick-and-mortar retailers. Amongst its top revenue contributors are a number of department store chains which are currently suffering due to Amazon.
The outlook is also not so favourable for Choice Properties Real Estate Investment Trust. Its 537 retail properties across Canada are exposed to the impending shift due to the rise of e-commerce. And whilst it has grocery giant Loblaw Companies in its midst, it is still expected to endure pressure as Amazon forays into the fresh food segment.
Partners Real Estate Investment Trust will also be on the rocks. In fact, its stocks already dipped 10% over the past year due to Sears' bankruptcy filing.
"The headwinds facing the retail industry indicate that retail REITs could indeed be the candidate for the next big short, with many likely to come under considerable pressure because of rising retail bankruptcies and higher interest rates," Smith said.
For more of Wealth Professional's latest industry news, click here.
Related stories:
Shares jump for Canadian grocer after merger talks revealed
Amazon bid becomes a two-way fight
