2 Retail REITs Poised to Gain Despite Industry Challenges

Core Viewpoint - The Zacks REIT and Equity Trust - Retail industry is facing challenges due to e-commerce growth, fiscal and trade policies, and changing consumer spending patterns, which may lead to high interest rates negatively impacting retail REITs [1][4]. Industry Overview - The industry includes REITs that own, develop, manage, and lease various retail properties, with performance significantly influenced by economic conditions, employment levels, and consumer spending trends [3]. - The industry is experiencing a rebound driven by renewed consumer interest in in-store shopping, despite past challenges such as declining foot traffic and store closures [3]. Market Dynamics - Macroeconomic uncertainty and tariff impacts present risks to the retail real estate market, with potential fluctuations in consumer spending due to economic volatility [4]. - The rise of e-commerce is challenging brick-and-mortar retailers, leading to downsizing and consolidation of physical stores, particularly in sectors like apparel and electronics [5]. Consumer Trends - A resilient consumer environment and limited new construction support stable demand, with high-quality locations outperforming [2]. - Experiential retail is expected to play a significant role in revitalizing retail real estate by enhancing customer experience through entertainment and interactive features [6]. Performance Metrics - The Zacks REIT and Equity Trust - Retail industry has underperformed the broader Zacks Finance sector and the S&P 500, advancing only 6.6% over the past year compared to the S&P 500's 24.1% [11]. - The industry is currently trading at a forward 12-month price-to-FFO of 16.37X, below the S&P 500's forward P/E of 22.71X and the Finance sector's 17.38X [13]. Company Highlights - Essential Properties Realty Trust, Inc. (EPRT) focuses on single-tenant properties leased to service-oriented businesses, with a weighted average lease term of 14 years and a projected FFO per share growth of 8.6% year-over-year for 2025 [16][18]. - Urban Edge Properties (UE) operates in densely populated regions, with 75% of its portfolio value grocery-anchored, ensuring stable cash flows and a projected FFO per share growth of 3.7% year-over-year for 2025 [19][21].