^{MIZUHO SECURITIES USA INC.  |  US EQUITY RESEARCH}

Summary

We recently hosted a meeting with retail REIT expert Josh Podell of Podell Real Estate Advisors (PREA) to discuss trends (positive and negative) facing retailers and their retail REIT landlords. With declining traffic/retail sales, and the growing prevalence of online shopping with Millennials, Mr. Podell envisions: 1) mall closures (“at a 20% decline,” but mostly in lower productivity cohort we believe) and emergence of new mall formats; 2) decreasing gross occupancy rates; 3) more favorable renewals (slowing pace of rent growth for landlords); and 4) online retailers increasingly testing “pop up” spaces. 

Key Points

■ Following our discussion and Mr. Podell's analysis, we continue to view retailers such as KATE (high eCommerce penetration), PLCE (portfolio rationalization benefits) and TIF (superior strategic position) as better positioned and accordingly maintain our Buy ratings.

■ On the landlord side, we continue to prefer 'A' mall REITs given their superior risk-adjusted growth profiles in the current environment of slowing retail sales, eCommerce cannibalization and ongoing store closures and maintain our Buy ratings on GGP, SPG and TCO. 

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