Raising FVEs for Shopping Center REITs as 2021 Sees Strong Brick-and-Mortar Sales Growth

We are increasing our fair value estimates for no-moat Federal Realty to $136 from $122, for no-moat Kimco Realty to $26.50 from $21, and for no-moat Regency Centers to $75 from $66. While the pandemic posed a significant threat to brick-and-mortar retail, retailers are seeing very strong sales growth in 2021. Many sales shifted online early in the pandemic as people stayed at home and avoided public spaces, leading to significant e-commerce sales growth at the expense of brick-and-mortar sales. However, the negative impact of the pandemic on brick-and-mortar retail disappeared in the second half of 2020. While foot traffic was down in 2020, consumers were spending more per ticket due to extra income from the government stimulus checks and due to less competition for disposable income from travel and experiences. In 2021, foot traffic returned to prepandemic levels while spending levels remained high, leading to double-digit growth in brick-and-mortar sales in each of the first three quarters of 2021.