Strip Malls Vs. Shopping Malls, And Why Brixmor Is Now A Buy

Strip malls are in better shape than their enclosed counterparts, prompting Mizuho analyst Haendel St. Juste to upgrade Brixmor Property Group Inc BRX, which has one of the country’s largest portfolios of strip malls, from Neutral to Buy.

It’s been a tough year for retail REITs in general, with store closings and e-commerce slowing growth. But St. Juste said the upgrade of Brixmor is the result of favorable valuation and growth compared with its peers.

He set a price target of $22 (see his track record here).

Related Link: With Overhang Gone, Citi Upgrades Brixmor Property Group To Buy

Strips Stronger Than Malls

“2Q17’s operating results largely confirmed that fundamentals are still fairly intact, though the (deceleration) trend is clear,” he wrote in an analyst note. “We remain cautious on retail REITs overall, but see better structural support and stronger near-term ssNOI (Same Store Net Operating Income) and earnings growth for Strips, which we think can drive outperformance in 2H17.”

“Headwinds persist for malls in 2H, but ailwinds for strips. Mall and strip center REITs delivered solid overall operating results in 2Q17 with ssNOI of 3.0% for Malls / 1.6 percent for strip centers, down from 3.9 percent/ 3.3 percent 2Q16. Looking ahead, we expect Strip results to be more resilient than Malls.”

Brixmor owns and operates one of the nation's largest portfolios of open-air shopping centers, with more than 500 commercial real estate properties located across 38 states.