Morgan Stanley says the string of retail failures after Christmas is a bad sign for not only the sector but also retail REITs.
“It is somewhat normal to see a number of retailers fail early in the year, as businesses will typically attempt to trade through the busy Christmas period before declaring themselves insolvent,” the investment bank told clients.
“However, 2020 has been a notably bad year, with major chains…already announcing store closures in the first two weeks of the year. Further, the Australian bushfires have placed additional pressure on already-stretched retailers.”
Given the concerning trend, Morgan Stanley says it’s “cautious” towards select retail REITs.
“With structural and cyclical headwinds facing the sector, we see ongoing downside risk from store closures, negative leasing spreads, and weak sales figures.,” it said. “While pure-plays VCX and SCG trade at around 13 per cent discount to net tangible assets, we see limited catalysts to close the gap to our preferred exposures of SGP, MGR, and GMG.”
