Q4 Retail REIT Earnings Vs. The New Retail Sales Report: Which One Should Investors Believe?

On Feb. 15, 2024, the Commerce Department announced the advance retail and food service sales for January and it showed a decline of 0.8%, well above the street's expectations for a 0.3% drop. The January number was also a large decline from the 0.4% gain in December. The decline in sales was fairly widespread, in particular, affecting building materials, gasoline, motor vehicle parts and garden supplies. The report was surprising, and a heavy decline in consumer spending could portend a higher risk for a recession in 2024. 

The advance monthly retail sales report contains the advance estimates for the reporting month, (February), as well as preliminary sales data for the previous month by major businesses. The report is used by the Bureau of Economic Analysis to estimate gross domestic product (GDP), and the Federal Reserve uses the report to anticipate future economic trends.

But the weaker advance retail numbers are surprising, given some very good Q4 earnings by several retail real estate investment trusts (REITs). So which of the numbers most accurately represent what's actually going on in retail? Take a look at how several of the retail REITs have recently performed.

Tanger Inc. SKT, formerly called Tanger Factory Outlet Centers Inc, is a Greensboro, North Carolina-based retail REIT that owns 40 indoor shopping centers and outdoor factory outlet malls with 15.6 million square feet and over 3,000 stores across 20 states and in Canada. Tanger Factory Outlet Centers was founded in 1981 and had its IPO in May 1993. Tanger's occupancy rate at the end of 2023 was 97.3%.

Tanger has performed well for a long time. It was the second leading REIT overall in 2023, with a total return of 63.58%, overcoming the popular idea that in-store retail shopping is in decline from the popularity of Amazon.com Inc. AMZN and other online websites.

On Feb. 15, 2024, Tanger reported its Q4 operating results. Funds from operations (FFO) of $0.52 per share beat the analyst consensus estimate of $0.50. Revenue of $127.48 million easily beat the estimate of $119.04 million and was ahead of revenue in Q4 2022 of $116.46 million.

In addition, Tanger announced its full-year 2024 Core FFO will be in a range from $2.01 to $2.09, versus the street's estimate of $2.03. So Tanger is expressing an optimistic view for the full year ahead.

InvenTrust Properties Corp. IVT is a Downers Grove, Illinois-based retail REIT that owns, manages and leases grocery-anchored retail stores in sunbelt markets of the U.S. As much as 95% of its 62-property portfolio is located within the sunbelt states of Florida, Tennessee, Texas, Georgia, and the Carolinas, and 87% are grocery-anchored. Some of its largest tenants include Publix, Kroger, TJX, Whole Foods, PetSmart and Best Buy. As of Sept. 30, 2023, it had a 95.1% leased occupancy rate.

On Feb. 13, 2024, InvenTrust reported its Q4 operating results. FFO of $0.41 per share was better than the analyst consensus estimates of $0.39 per share.  Revenue of $64.72 million beat the estimate of $64.29 million and was a 9.20% increase over revenue of $59.27 million in Q4 2022.

NNN REIT Inc. NNN, formerly known as National Retail Properties, is an Orlando, Florida-based triple net-lease REIT that owns a diversified group of standalone retail outlets across the U.S. It presently has 3,511 properties of approximately 35.8 million square feet over 49 states. NNN REIT has a very stable base of approximately 400 tenants, including 7-Eleven, Sunoco, Best Buy, Wendy's, Camping World, BJ's Wholesale Club, Taco Bell and Chuck E. Cheese. Its portfolio is presently 99.2% occupied.

On Feb. 8, 2024, NNN reported its Q4 operating results. FFO of $0.85 per share was in line with estimates and a 6.25% increase over FFO of $0.80 per share in Q4 2022. Revenue of $216.23 million beat the consensus estimate of $206.86 million and was an 8.92% increase over NNN's revenue of $198.52 million in Q4 2022.

On Jan.16, 2024, NNN announced a quarterly dividend of $0.565 per share, in line with its previous quarterly dividend. There are only three publicly traded REITs that have increased annual dividends for 34 or more consecutive years, and NNN is one of them.

Simon Property Group Inc. SPG is an Indianapolis-based retail REIT that owns and leases over 250 properties consisting of shopping malls, restaurants, outlet centers and entertainment venues. It has locations in the top 25 population markets across the U.S. Simon Property Group was founded in 1960 and launched its IPO in 1993. Its occupancy rate for its U.S. malls and premium outlets at the end of Q4 2023 was 95.8%, up from 94.9% in Q4 2022

On Feb. 5, 2024, Simon Property Group reported its Q4 operating results. FFO of $3.69 per share easily beat the consensus estimate of $3.34. Revenue of $1.53 billion was ahead of estimates of $1.36 billion by 12.38% and was a 9.07% increase over Q4 2022 revenue of $1.40 billion.

Simon followed this up by raising its quarterly dividend from $1.90 to $1.95, the third small dividend raise over the past year, and by announcing a new $2 billion common stock repurchase program over the next 24 months, another sign of optimism. This repurchase program replaces the previous $1.7 billion program that was to expire on May 16.

Given the REIT Q4 numbers, it's difficult to believe the January advanced retail sales numbers could be so weak. However, the REIT earnings reflect the last three months of 2023 and are then compared to Q4 2022, whereas the Commerce Department report reflects a hesitancy by consumers to continue spending in the new year as they did in 2023. Therefore, even though both the earnings and the Commerce Department reports are accurate, investors may have to temper their enthusiasm for the Q4 earnings as that may not be reflective of future months to come. And on Wall Street, investors are always looking ahead. 

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