Deflation – Not Inflation – Is The Real Threat (Central Bank Week In Review For 8/31-9/4)

On Aug. 27, the Fed announced a new inflation targeting regime:

On price stability, the FOMC adjusted its strategy for achieving its longer-run inflation goal of 2 percent by noting that it “seeks to achieve inflation that averages 2 percent over time.” To this end, the revised statement states that “following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.”

There are several reasons for the change. The first is that the market interpreted the previous “symmetrical” program as imposing an inflation ceiling. Vice President Clarida explains (emphasis added):

For example, under our previous flexible inflation-targeting framework, the Federal Reserve declared that the 2 percent inflation objective is “symmetric.” This term has been interpreted by many observers to mean that the Committee’s reaction function aimed to be symmetric on either side of the 2 percent inflation goal, and that the FOMC set policy with the (ex ante) aim that the 2 percent goal should represent an inflation ceiling in economic expansions following economic downturns in which inflation falls below target.

A second reason for this change of course is that low inflation — which increases the possibility of deflation — is now the global norm.

Above is a chart for the EU’s core inflation rate since 2002. It last hit 2% in 2007-2009. Even then it barely moved above that level and then only for a little more than a year. Since then prices have trended lower.The situation in Japan is more pronounced. The blue line shows the absolute value of the CPI using the left scale. Prices have been near stagnant for over 20 years. The red line shows the Y/Y percentage change in CPI, which has only moved above 3% once in the last 25 years.

Above is a chart for the Y/Y percentage change in core CPI (in blue) and the core PCE price index (in red). Both have been very tame for about 20 years.

Low inflation is reflected in r* – the hypothetical interest rate that’s neither stimulative nor restrictive. The Richmond Fed calculates this amount as:

The data leads to this conclusion: In the developed world, deflation is far more a threat than inflation.

There are four reasons for weak pricing pressures. First, the EU, US, and Japan’s populations are trending older. As this occurs, people save more and consume less. The former increases the amount of available funds while the latter eases demand-pull pressures. Both lead to lower inflation. This was first explained by Ben Bernanke in his Global Savings Glut paper. Second, increased global competition has helped to contain costs. Third, increased price transparency – especially as a result of the web – has given purchasers more negotiating power. Fourth, the de-unionization of the US labor force has lowered wage pressures.

Now, let’s return to the Fed’s statement about inflation. They said they would tolerate a 2% average rate of inflation. Using simple numbers, let’s say the PCE price index is 1% for 10 months. It would have to run at 3% for the next 10 months before the Fed would raise rates. At this point, some people will argue that inflation could run out of control. But that ignores a basic fact: Deflation is now the primary threat to the US economy. Put another way, inflation just isn’t a problem right now.

For those of us who came of age during the 1970s and 1980s, the idea of tolerating higher inflation seems anathema. But Paul Volcker successfully broke inflation in the early 1980s, bring in the “great moderation.” Now the possibility of an extended period of deflation is far greater. The Fed is now doing everything it can to encourage and cultivate pricing pressure.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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IKEA’s shopping centers arm buys San Francisco mall in its first US real estate deal By Reuters

© Reuters. Outbreak of the coronavirus disease (COVID-19) in London


STOCKHOLM (Reuters) – IKEA’s shopping centers business has made its first U.S real estate acquisition, buying the 6X6 mall in San Francisco, after telling Reuters in May it was engaged in several negotiations for inner-city acquisitions in the United States.

It bought the 6X6 mall from Alexandria Real Estate Equities Inc and TMG Partners, an Ingka Centres spokesman said.

“We will be sharing details of our exciting plans for the 6×6 property, where IKEA Retail U.S. will play an integral role, in the near future,” the company said in an emailed statement.

Ingka Centres is one of the world’s biggest mall owners, with 45 across Europe, Russia and China, each anchored by an IKEA store. With the furniture retailer, it is shifting its focus towards city-centre from out-of-town locations.

It said in May that locations in New York, Los Angeles, San Francisco and Chicago were high on its wish list.

Ingka Centres, a division of Ingka Group which owns most IKEA stores worldwide, had a leasable area of 4 million square-metres globally and 480 million individual visits in the year through August 2019.

In the United States, it will be taking on mall giants such as Simon Property Group (N:), General Growth Properties (O:) and Westfield (AS:).

In January, it made its first acquisition of an existing mall location, buying Kings Mall in London.

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Simon Property Group: 7.4% Yield, Discounted Price, Real Risks (NYSE:SPG)

Retail REITs have been among the hardest-hit stocks during COVID-19 lockdowns, and blue-chip Simon Property Group (NYSE:SPG) has not been spared. Its dividend has been reduced significantly, and its share price has fallen dramatically. Furthermore, its former Taubman Centers (NYSE:TCO) deal, recent retailer buying spree, and rumors of a deal with Amazon (NASDAQ:AMZN) complicate matters further. In this article, we review the health of the business, valuation, risks, dividend safety, and conclude with our opinion about whether SPG is worth considering if you are a long-term, income-focused investor.

Note: this article was originally released to members of Big Dividends PLUS; access a PDF version here.


Simon Property Group, Inc. is a premium, mall-focused retail REIT that owns, develops and manages premier shopping, dining, entertainment and mixed-use destinations. The company’s portfolio is geographically diversified across North America, Asia and Europe and consists of 235 properties comprising 191 million square feet. SPG is the largest premium mall owner in the USA with 204 properties (99 malls, 69 premium outlets, 14 Mills, 4 lifestyle centers, and 18 other retail properties). Internationally, the company owns 31 Premium Outlets and Designer Outlet properties located in Asia, Europe, and Canada. SPG also owns a 22.4% equity stake in Klépierre SA, a Paris-based real estate company that owns shopping centers in 15 European countries.

For your reference, here is a breakdown of Net Operating Income for the six months ended June 30, 2020:

(source: Q220 Supplemental Data)

SPG’s tenant base is also highly diversified with no single tenant accounting for more than 3.5% of its base minimum rent for US properties. The Gap, Inc. (NYSE:GPS) is SPG’s single largest in-line tenant accounting for 2.1% of total square footage and 3.5% of total base rent revenue.

U.S. Malls and Premium Outlets Top Tenants:

(source: Q2-20 Supplemental Data)

Retail Recovery – Encouraging Early Signs

Despite all the COVID-19-related headwinds, including the loss of nearly 10,500 shopping days in Q2-20 (according to the Q2-20 Supplemental Data), the resiliency in the company’s premium retail portfolio helped it manage the situation well and generate profits. Q2-20 revenue saw a 24% decline to $1.1 billion, FFO was down ~30% from the previous year to $746.5 million or $2.12 per share, and NOI decreased by ~$315 million from the previous year comparable quarter to ~$1.2 billion. NOI was significantly impacted because of a $215 million hit the company took during Q2-20 on account of reduced lease income, rent abatements, tenant bankruptcies, and write-offs.

Mall and premium outlet occupancy were impacted by tenant bankruptcies and lower specialty leasing activity and stood at 92.9% at the end of Q2-20, which is not too far-off from SPG’s historical occupancy rates. The average base minimum rent increased 2.8% to $56.02, while leasing spreads were flat for the 12 trailing months June 2020 period.

As state economies started reopening, the percentage of tenants open across SPG’s US retail properties accelerated to 91% as of 7 August 2020 (from ~50% in mid-May). More than half of the remaining 9% remained shut due to government restrictions. Encouragingly, a number of SPG’s retailer tenants said that consumers are coming back more quickly than they expected, and sales volumes are more than 80% of prior-year levels. Internationally, all of SPG’s designer and premium outlets have opened and are operating with volumes of ~90% of prior-year levels.

With the reopenings, cash rent collection also accelerated from ~51% of contractual rent billed in April and May combined to ~69% in June and ~73% in July. We note that ~15-20% of Q2-20 rents were either not collected or were written-off or reserved for, and ~28-30% of rent payments are still being negotiated or are under litigation, including ~$66 million in rent being pursued from its biggest tenant, The Gap, Inc., under litigation. A negative outcome of the negotiations or litigation could put a dent on the company’s cash flows, but the company remains confident of reaching a deal on most of them. According to the company during its Q2-20 Earnings Call:

“The deferrals in July were de minimis. Deferrals in June were less than April and May. So, it’s all moving in the right direction, and the collections are – we haven’t given up on April-May as Q2 collections. We expect to – other than what we abated and wrote off through bankruptcy, we expect to reach a deal on the vast majority of it.”

Nonetheless, with the reopening, SPG’s mall tenants are on the path to recovery as suggested by the decreasing rent deferral requests, which implies that there will be less intense headwinds from rent deferrals in the coming months. Going forward, we believe rent collections should further accelerate to track at +85%, provided any additional rounds of lockdowns are not imposed.

Balance Sheet – On Solid Footing

Higher-quality REIT balance sheets such as SPG’s typically tend to be backed by higher-quality properties. SPG has ~$23.6 billion in geographically diversified, high-quality, at-cost investment properties (net of depreciation) on its balance sheet.

Moreover, the company’s balance sheet is rated highly amid a negative outlook due to the pandemic. A higher rating, along with its significant debt compliance cushion, provides SPG with major benefits through which it can maintain a strong liquidity position despite uncertainty and bankruptcies in the retail sector.

(source: Q2-20 Supplemental Data)

SPG’s liquidity position remains strong with $8.5 billion at its disposal as of 30 June 2020, consisting of $3.6 in cash (including a share of joint venture cash) and $4.9 billion of available credit facility and borrowing capacity. SPG also has $1.5 billion in net tenant receivables and accrued revenue on its balance sheet, a major chunk of which, we believe, should convert into cash as the company pushes for collection of deferred rents either through negotiations or through litigation in the coming months.

Subsequent to Q2-20, on 7 July 2020, SPG raised $2 billion from the sale of senior notes, part of which was used to pay down certain debts maturing later this year. The company’s ability to tap the low interest-rate environment to raise debt amid these uncertain times reflects on its balance sheet strength. Additional debt on the balance sheet does raise some concerns, but SPG has managed its balance sheet well by structuring its debt maturity profile favorably.

(Source: Q2-20 Supplemental Data)

Overall, we are confident that with a solid balance sheet and available capital resources, SPG will efficiently navigate through the current uncertainties and capitalize on opportunities stemming from market dislocation due to the current operating environment.

Dividend Safety – Management’s Reassurances are Believable

Income-oriented investors typically own REITs because their operating structure requires them to pay at least 90% of their taxable income to shareholders as dividends. Amid the uncertainties caused by the pandemic, many retail REITs have reduced or suspended their dividend payouts. However, SPG has assured its shareholders of its intent to continue with regular dividend payments. The following is a statement by the company’s chairman and CEO, David Simon, during the Q1-20 earnings conference call:

“We expect to pay out at least 100% of our taxable income in 2020 in cash. As a point of reference, there have been over 175 public companies who have either suspended or reduced their common stock dividend by 50% or more. We will not be one of those companies.”

As with other retail REITs, the pandemic took a bite out of SPG’s latest quarterly dividend as well. SPG cut its dividend by ~38% from $2.10 in Q1-20 to $1.30 per share during Q2-20, implying a payout ratio of 61% of its FFO of $2.12 per share. Comparing this to the 2019 dividend payout ratio of 69%, it seems that the company is being a little conservative, given the macro circumstances. However, SPG again assured investors of regular dividend payments for the rest of 2020. Here is a statement by Mr. Simon from the Q2-20 earnings conference call:

“The board will declare a third-quarter dividend by September 30th and we expect in total for 2020 to pay at least $6 per share in cash for dividends.”

Considering the overall retail REIT universe dividend payment scenario, we think a $6 yearly dividend for 2020 is still extremely good from a yield perspective, which works out to an 8.6% yield at the current share price. Some digging into SPG’s historical dividend yield before the onset of the pandemic reveals that the company exhibited a much lower dividend yield, and at an 8.6% yield, the company’s stock is attractive.

(Source: YCharts)

Bankrupt Retailer Acquisitions – Generating Sideline Value

SPG and its acquisition partner Authentic Brands Group through their 50-50 joint venture, SPARC Group, have snapped many struggling retailers on the verge of bankruptcy or during bankruptcy auctions, including Aéropostale, Forever 21, and most recently Lucky Brand Jeans and Brooks Brothers. There is a wide circulating belief that SPG buys out these struggling retailers to ensure its rent payments. But SPG says that it does these investments because it sees value in them and expects them to pay back within a very short duration. Here is what Mr. Simon had to say on this during the Q2-20 earnings conference call:

“It’s a sideline business. And I do see the narrative that — and I don’t buy into this, that we’re buying into these retailers to pay us rent. We’re doing it because we — for one reason only, we believe in the brand and we think we can make money.

These investments are expected to generate positive EBITDA soon after their integration into Sparc. We expect any equity investments should be returned within a year after integration of operations.”

We think of these acquisitions of bankrupt retailers as profitable investments done at extremely cheap valuations, which, of course, is enabling the viable retailers to survive and keep paying their rents. SPG may also generate large capital gains from selling out these investments once their operations become stabilized and they are past the “valley of death.”

Brief Round-up of SPG in the News

Taubman Centers Acquisition Deal: SPG has been legally trying to pull itself out of the $3.6 billion deal to acquire Taubman Centers, accusing TCO of doing little to mitigate the financial impact of the pandemic. As per the latest reports, the court has ordered both companies to be ready for a jury trial in the mid of November this year. There are rumors that with the litigation, SPG is trying to get a better acquisition price. Whether SPG gets a better deal price or not is a different matter, it will be a long drawn out legal battle where both the companies will have some financial implications.

Talks with Amazon: As per a recent WSJ article, SPG has been in talks with Amazon to explore the possibility of turning some of its anchor department stores (possibly the shuttered J.C. Penney and Sears stores) into Amazon distribution hubs. Although it is too early to comment, in case a deal with Amazon happens, it will mark the entry of SPG into one of the least volatile industrial REIT business. However, the company is likely to face hurdles in converting the stores to warehouses.

Interest in J.C. Penney: As per several news reports, SPG is reportedly interested in buying the bankrupt J.C. Penney in alliance with Brookfield Property Partners (NASDAQ:BPY). While SPG’s management termed it as speculation and declined to comment on the possibility of buying out the retailer, we think there can be no smoke without the fire. Considering that J.C. Penney stores account for just over 5% of SPG’s leased square footage in the US, buying out the retailer would not be such a bad option, given that SPG would also get to keep up with its rent from the J.C. Penney stores.


Similar to the entire retail REIT industry, SPG has sold off significantly since the imposition of coronavirus shutdowns in March. Year-to-date, the company has delivered a -51.16% total return. However, with reopenings ramping up, and positive retail data trends, we believe SPG’s share price will continue to make up significant ground, keeping in mind that a return to pre-covid levels will not happen overnight due to the financial stress created by the pandemic and ongoing uncertainties.

(Image source: YCharts, data as of 4-Sept-20)

At its current price of just over $70, SPG trades at 6.7x its 2020E FFO, which is much lower than the ~16x multiple it traded at just one year ago. Comparing SPG to other mall focused retail REITs, as classified by NAREIT, shows that it trades at a relative premium to its peer group. However, none of its peers compare to SPG with regards to underlying fundamentals. For example, despite a ~$27 billion debt load on its balance sheet, SPG’s Net/Debt to NOI ratio is lower than peers. It also maintains an extremely healthy interest coverage ratio, and its balance sheet is backed by high-quality real estate assets. The company also continues to pay a healthy dividend in an environment where many of its competitors have suspended their dividends altogether.

(Source: Blue Harbinger Research, Yahoo Finance, Company data)

Although the coronavirus turmoil is likely to affect SPG significantly in the near to mid term, we believe it is well-positioned to weather the storm.


Litigation with Taubman Centers: After SPG backed out of the acquisition of Taubman, both companies are involved in a legal fight. In case the court gives out a decision in favor of Taubman, SPG might have several financial implications, including fines.

Tenant Bankruptcies: SPG is exposed to the risk of tenants not being able to meet their rental obligations owing to the difficult operating environment. However, SPG’s diversification, both across geographies and across tenants, is a key mitigant. Further, with the dividends being backed by high-quality assets, it seems highly unlikely that tenant bankruptcies will threaten its dividend safety. Nonetheless, should some of these tenants face financial trouble, it could lead to future cash flow interruption.

Further government-imposed lockdowns: Because most of SPG’s tenants operate in the non-essential retail category, any further lockdowns imposed by the government in case of a dramatic rise in the number of COVID-19 cases, might cause business closures and adversely impact the company’s cash flows.

Interest rate risk: The US Federal Reserve has cut interest rates to essentially zero and even though we expect interest rates to remain relatively tame, dramatically rising rates could create challenges. As REITs are often seen as an alternative to bonds, higher interest rates could mean decreased demand for REITs, thereby causing a decline in their share price.

Sensitivity to Consumer Spending: With projections from renowned institutions such as the IMF pointing to a global recession, we think consumer spending and confidence will be hit and in general will be negative for retail-focused REITs. However, the resilient nature of SPG’s business should help it weather any downturn. Although the company is much better placed, a global recession is likely to hurt its earnings.


Although the challenges created by social distancing are daunting, the latest retail trends are encouraging, and this should help SPG accelerate its rent collections. Furthermore, the dividend is backed by a strong balance sheet, and management’s reassurance gives us confidence that the dividend is among the safest in the industry. Further still, there are reasons to believe significant long-term price appreciation can be achieved based on current valuation multiples and retail trends. For these reasons, if you are a long-term, income-focused investor, shares of Simon Property Group are worth considering for a spot in your portfolio.

Simon Property Group is currently ranked #7 on our newly released report, Top 10 Big-Dividend REITs.

The complete report is available to members of Big Dividends PLUS. We are currently offering a 20% Off discount to all new subscribers as part of our Labor Day Sale (*Offer Expires Monday, September 7th). Get access to the full report now.

Disclosure: I am/we are long SPG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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Do Compounding Returns On Pretend Stock Price Gains Produce Real Value?

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By Rob Bennett

Buy-and-Holders believe that stock price gains are caused by economic developments. That means that those gains have substance, that they have real and lasting value and can be relied on to finance a retirement.

What Causes Stock Price Gains?

Valuation-Informed Indexers believe that some stock price gains are caused by economic developments but that gains in excess of the fair-price CAPE value are caused by irrational exuberance. Those gains are temporary and cannot be relied on.

An argument could be made that the irrational exuberance gains don’t matter. Investors who enjoy such stock price gains only get to possess them for a limited time. Eventually those gains disappear into the mist. Investors who lower their stock allocation at times of crazy high prices don’t need to worry about missing out on bull-market gains because those gains are sooner or later going to disappear.

That argument does not tell the full story. High stock prices can remain in effect for a long time. The CAPE value went to crazy high levels in 1996 and has remained at such levels for most of the 24 years since. If the CAPE level falls to fair-price levels tomorrow, the investor who has been holding stocks for those 24 years still obtains the benefit of the higher return she has been earning compared to the return she would have been earning had she been invested in a non-stock asset class.

So the Buy-and-Holders are right! Investors should disdain market timing and stick with their high stock allocations regardless of how high stock prices go.

That argument does not quite tell the full story either, in my assessment.

Oversized Loss During Long Bull Markets

When stock prices crash, they do not crash only to fair-price levels. The crashes that come in the wake of long bull markets take stock prices down to levels just as crazy on the low side as they were crazy on the high side during the bull years. So the investor who stuck with a high stock allocation during the bull years suffers an oversized loss. Irrational exuberance is transformed into irrational depression. And the poor returns obtained during the bear years cancel out much of the performance advantage gained during the bull years.

The investor who lowered his stock allocation when prices reached super high levels is able to buy stocks at good prices during the irrational depression days and can enjoy outsized stock price gains on those purchases for many years to come. The Buy-and-Holder does not have funds available to purchase more stocks when the asset class goes on sale; most of his assets are already tied up in stocks and of course he made his purchases at much higher prices.

Another issue is that investors who are open to the idea of moving a portion of their assets into non-stock investments can often obtain better-than-normal returns on those investments by looking for alternatives to stock when prices go out of control. Treasury Inflation-Protected Securities (TIPS) were paying a return of 4 percent real in January 2000. Stocks purchased at that time have offered a return of only 3.7 percent real during those years. That 4 percent return was an exceptional deal, to be sure. But I don’t think that it was a coincidence that an amazing return was being offered on a non-stock investment class at the time in U.S. history when irrational exuberance was at its height. It took that sort of return to attract investors to a non-stock asset class at that time. Investors who were unwilling to participate in the irrational exuberance were properly rewarded by the market for their contrary convictions.

A final factor to consider is that the investor who goes with a lower stock allocation at times when prices get out of hand endures less risk as a result of doing so. Buy-and-Holders often argue that, so long as prices have not crashed, they are better off having stuck with stocks. But of course they were taking on more risk by investing in an asset class that could crash at any moment even if that crash did not take place. If they were rational, they would insist on being compensated for taking on the extra risk. So a Buy-and-Holder needs to earn a return that more than matches the return earned by the Valuation-Informed Indexer just to be properly considered as being even with him.

All that said, there is a case to be made for sticking with a high stock allocation during years in which stock prices remain high for a long time. The edge is not nearly as great as investors have been led to believe by those promoting Buy-and-Hold strategies. But there can in at least some circumstances be an edge if prices remain high for as long as we have seen them remain high in recent years. This is one reason why it is a bad idea for valuation-informed investors to take extreme positions. It makes sense to go with a somewhat lower stock allocation when stock prices go sky high. It is generally not a good idea for the typical investor ever to exit the stock market entirely.

Disclosure: None

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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Bargain-hunters look to U.S. real estate stocks as S&P nears records By Reuters

© Reuters. The spread of the coronavirus disease (COVID-19) in New York

By David Randall

NEW YORK (Reuters) – As the S&P 500 approaches fresh highs, some investors hope to pick up bargains in the battered U.S. real estate sector, where values of some major stocks have been cut in half this year.

Coronavirus-fueled lockdowns and a major shift toward working from home have weighed on residential and retail U.S. real estate investment trusts. The sector has slid 7% this year compared with a 3% gain on the S&P 500.

Yet investors say stocks in the sector could jump if a coronavirus vaccine loosens the pandemic’s hold on the U.S. economy.

“You’re going to find more attractive spots in the REIT space than you will in some areas of the market like technology, that have the growth but are getting expensive,” said Mark Freeman, chief investment officer at Socorro Asset Management.

Among his largest positions is Alexandria Real Estate Equities Inc (N:), which rents space for medical research, and Prologis Inc (N:), which owns warehouses used for ecommerce fulfillment by companies such as Inc (O:).

Drugmakers will likely have tens of millions of doses of coronavirus vaccines in the early part of next year, Anthony Fauci, the top U.S. infectious diseases official, told Reuters in an interview on Wednesday.

Such a breakthrough would be a boon for companies like mall landlord Simon Property Group Inc (N:), said John Creswell, executive managing director at Duff & Phelps Investment Management Co.

Shares of the company are down 58.2% for the year to date and trade at a trailing price to earnings ratio of 9.6, less than half of their 52-week high of 22.9.

The company, which is expected to report earnings on Aug. 10, is managing the effects of the pandemic by capping its spending until consumers once again feel comfortable congregating in large groups, Creswell said.

“They’re showing that they can live with COVID, not just get through COVID,” Creswell said.

An extension of unemployment benefits and another stimulus bill would likely provide an outsized lift to retail and residential REITs that have lagged hot sectors such as data centers, said Michael Knott, Green Street’s head of U.S. REIT Research.

“Given that consumption is such a critical aspect of GDP, bridging toward an environment that starts to look more normal will be pretty important to the retail and residential space,” he said.

There are plenty reasons to be skeptical of a quick rebound. Enhanced unemployment benefits lapsed last week, and Congress has, as of Friday, had failed to pass another stimulus bill that would provide relief. Those enhanced benefits had funded continued spending for many of the more than 20 million Americans who have lost their jobs since February.

More than 30% of mall-based businesses and office tenants are expected to withhold at least part of their rent payments this year, according to estimates from Green Street Advisors.

Valuations in the sector also tend to vary widely, thanks to rallies in warehouse and data-center stocks that have skewed averages higher. Data center operator Digital Realty (NYSE:) Trust, for example, is up 31% for the year to date and trades at a P/E of 55.2. On the whole, companies in the sector trade at 37 times earnings, compared to 24 for the S&P 500.

Still, Freeman of Socorro Asset Management has raised his exposure to the REIT sector, expecting that consumers will return to physical retail stores and workers will return to offices once the pandemic is over.

He also plans on adding to his exposure to apartments and retail centers, in part due to more attractive yields than those available from government or corporate bonds.

“We are going to see how fundamentals play out before we become much more aggressive, but we’re starting to get much more comfortable with the space,” he said.

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