Retail REITs are Real estate investment trusts that own and operate retail properties. Retail REITs earn revenue by leasing those properties to retail tenants. Many retail REITs also operate retail centers owned by third parties, for which it receives a percentage of the center's revenues called a "management fee".
Retail REITs are particularly sensitive to U.S. Economic Cycles because they lease space to retailers. These retailers struggle during economic down cycles, decreasing the demand for retail property space. This has been a particularily relevant issue as the U.S. economy began to slump in 2008. In 2008 mid-size retailing chains such as Sharper Image (SHRP), Linen's and Things, and furniture store Levitz have declared bankruptcy. Foot Locker (FL), Zale (ZLC) and Ann Taylor have all announced they were closing over 100 stores, and even off-price retailers like T.J. Maxx are seeing slower sales. Store closures and tenant bankruptcies lower the demand for retail properties, and increase vacancy rates and decreasing rent collections.
The following retail REITs are listed in descending order of Market Cap as of 4/30/2008.
Cole REIT: Cole, a non-traded REIT, invests primarily in income-producing, single-tenant commercial real estate leased to high-quality, creditworthy tenants under long-term, net leases. They are also conservative to moderate in their use of financing. Cole currently owns and manages more than 1,100 properties valued at nearly $7 billion. This information is current as of February 2011.
Retail REITs generally have two types of tenants, "Anchors" and "Inline Tenants". Anchors are large stores which take up a disproportionately large share of space in a retail center and draw customers to the center. Typical anchor stores sell consumer staples, as in the case of grocery anchored centers, or are large easily recognized retail chains, as in the case of centers anchored by Barnes & Noble or Macy's. Anchor stores typically pay lower rents than inline tenants, and sign longer term leases. Inline tenants are smaller tenants which pay higher rental rates and sign shorter leases, and these stores benefit from the foot traffic anchor tenants bring to a retail center and account for the majority of rents at a retail center.
The retail properties owned by Retail REITs vary in size and market focus. Some Retail REITs concentrate on a particular property type to maximize their management expertise, while others other try to diversify their property types. The types of properties owned and operated by retail REITs are generally defined as:
Market share is listed by Funds From Operations (FFO), a metric that takes into account earnings from existing properties but not cash from acquisitions or sales of assets. Globally there are 38 REITs focusing on retail properties. Most of those were small companies, only 9 Retail REITs are listed in the Russell 1000.