Bullish on Retail: Standard & Poor's Stock Analyst Robert McMillan Says Consumer Financials and Commercial Real Estate Investment Trusts Can Offer Solid Returns
Anderson, James A., Black Enterprise
STANDARD & POOR'S INDUSTRY ANALYST Robert McMillan has been particularly bullish when it comes to certain types of commercial real estate plays. Covering consumer financial and retail real estate investment trusts (REITs), which are basically owners of large shopping malls, he offers an upbeat forecast for these two sectors in coming months despite gloomy headlines these days. While the media has focused a lot of attention on a sluggish U.S. economy and Europe's ongoing debt troubles, McMillan has uncovered a different story that may interest investors: McMillan's selections have been insulated. Landlords bank rental income set by long-term leases across five to 20 years. While unemployment rates have remained stubbornly high, consumer spending has held steady and could rise in the next 12 months, according to McMillan. That paradox has translated into high occupancy numbers for some REITs in the industry.
Meanwhile a number of factors have pushed REITs upward: Through Nov. 30, 2011, the S&P Retail REIT Index was up 8.7%, compared to 0.8% for the S&P 500. What is most important is yield, especially when bond payouts remain low. By law, REITs have to pay out 90% of their profits to investors. McMillan reports REITs yielded 3.6% at the end of November 2011, compared to 2.1% for the S&P 500.
Consumer finance companies have seen signs of improvement, too. S&P looks for personal consumption to rise 2.3% in 2011 and 2.2% in 2012. What's more, says McMillan, finance companies have taken steps to protect themselves by increasing loss provisions. The expectation is that charge-offs will drop as well in 2011 and 2012, even with persistent unemployment. Put it all together, and it makes sense that an SOP index of consumer finance companies rose 11.9% from Jan. 1 to Nov. 30 in 2011.
1 SIMON PROPERTY GROUP INC. (SPG) is one of the largest shopping center operators in the U. …