Retail REITs own and operate retail properties like retail malls, shopping centers, and free standing buildings. In the following section, we’ll elaborate on retail malls and free standing REITs.
Retail mall REITs
Retail malls are normally huge. They usually range from 1 million square feet to 3 million square feet. As a strategy, most retail malls have two types of tenants—anchor tenants and inline tenants. Anchor tenants are the key tenants with large stores and a prestigious name in the business. Anchor tenants attract other smaller tenants and customers to the mall. In contrast, inline tenants are small tenants. They benefit from the footfall that anchor tenant bring into the mall. Anchor tenants pay lower rent and enter into a long-term lease duration compared to inline tenants.
Consumer spending is the main driver of retail REITs. Weak consumer demand can lead to higher vacancy and lower leases. Other major demand drivers are demographics, tenant mix, and the mall’s location.
There are eight REITs in the retail mall segment with a combined market capitalization of $100 billion. They account for 11.20% of the total REITs market capitalization. Simon Property Group (SPG) is the largest retail REIT with a market capitalization of $53.8 billion. It’s followed by General Growth Properties (GGP) with $22.7 billion and Macerich (MAC) with $11.8 billion. The average dividend yield of retail mall REITs was 4.39% as of June 2015. WP Glimcher (WPG) provided the highest dividend yield in the sector at 7.39%.
Free standing REITs
Free standing REITs own and operate stand-alone single tenant properties like gas stations, convenience stores, fast food restaurants, buffet restaurants, fitness centers, and child care facilities. There are only six REITs in this segment with a combined market capitalization of $22.8 billion. They comprise 2.60% of the total REITs market capitalization. Realty Income (O) is the largest REIT in the segment. It has a market capitalization of $10.3 billion. It’s followed by National Retail Properties (NNN) with $4.7 billion. The average dividend yield of the free standing REITs was 5.30% as of June 2015.
Investors looking for diversification in the REIT sector can get exposure to REIT ETFs like the Vanguard REIT ETF (VNQ), the iShares U.S. Real Estate ETF (IYR), and the iShares Cohen & Steers REIT ETF (ICF).