WWhat retail apocalypse? That's what some of America's top commercial real estate CEOs are asking. In fact, they remain some of the retail industry's biggest cheerleaders.
While much of Wall Street is skeptical about retail's future — as evidenced by the less-than-stellar performance of the S&P 500 Retail ETF (XRT), compared to the broader market — there are still some believers around.
A slew of retail real estate investment trusts, or REITs, has reported quarterly earnings in recent days. The list includes Simon Property Group, General Growth Properties, Taubman and Macerich, shopping center landlord Kimco, and Sears spinoff Seritage Growth Properties.
Their results have offered a checkup on the health of retail's real estate. And, for the most part, much of these companies' results were positive.
"For the players that own the best assets, things are pretty good," said Floris van Dijkum, an analyst with Boenning & Scattergood. Other retail REITs Acadia Realty, Federal Realty and Regency Centers, which notably only owns grocery-anchored properties, are also reported "decent" results, he said.
"Continued results [from the retail REITs], like what we've just seen, will eventually get people to wake up," he told CNBC. "You have to be somewhat patient."
Many REIT CEOs are saying they've been patient for long enough. They are ready for the narrative to change.
'It will get better'
"Obviously, retail is under more pressure than it has been in the past," Simon CEO David Simon said on a conference call last week. "I do think that our environment is going to get better."
Notably, Simon raised its full-year earnings forecast to $6.20 to $6.28 per diluted share, up 4 cents from a prior estimate the REIT had issued in April. The REIT's stock rallied on the news, though shares of Simon have fallen more than 25 percent over the past 12 months.
Dijkum said Simon's earnings this quarter were "best in class."
"Despite high short interest in the mall sector," this is a company that isn't going to give in to pressure, Dijkum said.
"I think the retail community has been overly negative about the mall product," CEO Simon said on the earnings call. "I don't know why they do it, but we're just going to get up off the mat [and] keep doing what we do. ... This isn't sugar coating."
The retail REIT said that although there are more retail bankruptcies spilling out this year, Simon isn't oblivious to the changes taking place within the industry. Simon is taking steps like reducing exposure to apparel brands and increasing allocation to food services and lifestyle brands to reduce its risk.
Another bonus for the company, e-retailers looking to go physical also appear to be flocking to Simon.
Companies like UNTUCKit, Warby Parker, Bonobos, Fabletics and thredUP, which all got their start online, are now signing deals with Simon, among other REITs.
"They have all realized that having a well-positioned fleet of stores is certainly necessary and optimal for them to grow their business," Simon COO Richard Sokolov said on last week's earnings conference call. "It's going to be a process."
"There is a limit to attracting eyeballs online that [e-retailers] can't get in the physical world," CEO Simon added.
The company is employing other strategies to work with retailers, like offering shorter leases to tenants who are hesitant to lock in a space long term. "It makes sense to do short-term deals if you feel the environment is going to get better," Sokolov said. Retailers looking to test a format in a physical pop-up shop is not a new strategy, but it's one that's just recently gaining even more attention and popularity within the sector. read more