Analyst Note| Kevin Brown |
The coronavirus pandemic has had a massive impact on retail sales, which we believe will have significant repercussions for retailers and their mall-REIT landlords. As consumers were forced to stay home in the second quarter, sales shifted online with non-store sales growing 22.8% in April and 30.8% in May while we estimate that brick-and-mortar sales fell 29.9% and 16.9% in those months, respectively. A prolonged shutdown could lead to store closures and unpaid rent, which will impact revenue for mall REITs in the short term. However, we have observed a strong downward sloping trendline for e-commerce sales growth. We believe that the current crisis will end at some point in 2021 and e-commerce sales growth will return to this long-term trendline, which will lead to brick-and-mortar sales growth returning to low but positive growth. Given our new outlook, we have slightly changed our fair value estimates to $34 from $33 for Macerich and $152 from $154 for Simon Property Group and maintained our no-moat and negative trend ratings for both companies.