According to a recent report from BTIG, the pressure on REIT shares appears overdone from Amazon’s entry into bricks-and-mortar grocery. While the company said that the deal did put pressure on strip center stocks, which were down about an average of 7%, they believe that the sell-off is overdone.
“Groceries in the US are competitive, and existing grocers have gone through several disruptions recently. Also, after spending 10 years trying to scale grocery through e-commerce, we view Amazon’s acquisition of a retail footprint as a sign that grocery is perhaps one of the few areas that cannot be disrupted solely through technology.”
And while the acquisition includes high-quality locations, most of the US doesn’t live within a typical Whole Foods trade area, the firm adds.
The firm points out that it continues to see opportunities for REITs like Retail Opportunity Investments, Kimco and Kit Realty, to name a few. “Based on the current landscape of the US grocer market, the performance of well-located grocer anchored portfolios during prior disruptions in the marketplace, and the potential performance of Amazon’s Whole Foods acquisition, we believe that the drawdown in share prices is overdone at current levels.”
Even during the recession following the financial crisis, the firm says that the Strip Center REIT relative multiple never dropped below 0.95x. “By comparison, the space currently trades at a 0.84x relative multiple, more than a full standard deviation below the prior lower bound of the sector’s relative multiple range.”
So, while BTIG doesn’t take disruptors in the industry lightly, especially when they have been as successful historically as Amazon, the firm says that the grocery market is different. They note that the scope of their Whole Foods acquisition, with less than 500 of the nation’s 38,000+ grocery locations, suggests the immediate risks to anchors is limited.