My favorite shopping center REIT right now

thiI always enjoyed building shopping centers back when I was a commercial real estate (CRE) developer. There was something incredibly rewarding about the process from start to finish.

Identifying the right locations… assembling the lands… finding growing retailers such as PetSmart, Walmart, Hibbett Sports, and Barnes & Noble to fill them…

Best yet, shopping centers had an impressive tendency to pay off, generating dependable, long-term returns.

As a bonus, I got to learn about consumer behavior along the way. A successful retail location, after all, isn’t just about putting a structurally sound building together – even if you make it as physically attractive as possible, inside and out.

You have to also understand traffic patterns, demographics, merchandising, and which tenants could create long-term value together under one roof. Both a science and an art, this shopping center strategy has opened up an entire real estate investment trust (REIT) sector that tends to do very well.

The headlines might be telling you that our current economic conditions are putting pressure on traditional retail. But they’re missing the mark when it comes to high-quality shopping center REITs.

These corporate landlords are quietly generating durable cash flows and growing their dividends. And they’re doing so, not in spite of the reality around them…

They’re actually benefitting from some of the strongest real estate fundamentals we’ve seen in years.

Believe it or not, the retail outlook today is really quite positive. So much so that it’s leading to a whole lot of enthusiasm going into next week’s ICSC 2026.

Known as the retailer’s Super Bowl, this enormous convention – held in Las Vegas every year – brings developers, landlords, vendors, brokers, and investors together from all around the world. It’s an in-person and enormous forum to discuss trends and opportunities that are shaping the future of retail.

Back before Covid hit, I made sure to attend ICSC every single year. And I’m hoping to get back there again this time around, especially considering current conditions.

Shopping center supply, you see, is actually very limited these days… even while demand is growing. So I’m sure there will be lots to see, hear, and say that, frankly, I’d rather not miss.

That’s not to say there aren’t sector-specific issues to be addressed. For instance, while high- and middle-income consumers remain resilient, the lower tiers are much more price-sensitive these days.

And, overall, there is a definite shift toward value, convenience, and health and wellness products and services.

It’s just that, even with all those considerations, shopping center traffic and sales continue to grow. Retail leasing remains healthy thanks to strong store-level profitability and retailer expansion plans.

Just a few examples include how:

Now, much of this demand comes from grocery, off-price, fitness, and service-oriented tenants. But it’s demand nonetheless, and it’s maintaining and increasing these REITs’ bottom lines at an attractive clip.

It certainly helps that there hasn’t been much shopping center construction done over the past few years, thanks to higher interest rates. Plus, retailers are realizing how important physical stores are even in our increasingly digitized age.

Not only do today’s brick-and-mortar locations cater to those who want to shop in person. They also function as e-commerce fulfillment hubs to round out profitable omni-channel strategies that are becoming the new norm.

There are about a dozen shopping center REITs today with a market capitalization of around $70 billion. They’ve grown by around 12% over the last 12 months and 15% over the last five years.

On average, they have a 4.1% dividend yield, which is higher than the overall REIT average of 3.7%. And their average price to funds from operations (P/FFO) multiple is 14.7x compared to the overall REIT average of 19.9x.

Clearly then, there’s plenty to like about this sector.

However, there is one particular player that stands out especially.

Regency Centers Corporation (REG) owns and operates high-quality, grocery-anchored shopping centers in affluent suburban markets. Its main tenants include Publix, Kroger, Whole Foods, Trader Joe’s, and Safeway/Albertsons.

These big names draw consistent foot traffic for smaller tenants as well, creating thriving hubs of commerce.

Regency’s contracts include annual rent escalators, leasing spreads, redevelopment projects, and re-tenanting below-market leases. So the REIT has almost guaranteed growth year in and year out.

This gives it recurring cash flow, strong demographics, and inflation protection that, in turn, produces attractive dividends for shareholders… all while allowing it to make acquisitions like its 2023 purchase of smaller peer, Urstadt Biddle.

Regency described that acquisition as perfectly aligning with its goal of owning “irreplaceable” suburban retail real estate. The all-stock transaction was valued at roughly $1.4 billion, including debt and preferred stock.

And, sure enough, it’s been a credit to Regency’s bottom line ever since.

It also hasn’t hurt this high-quality REIT’s investment-grade balance sheet. Regency retains relatively conservative leverage, strong liquidity, and a low cost of capital. And its dividend yield – which is well-covered by a 75% payout ratio – is 3.9%.

Yet the REIT is trading at 19.8x, below its normal multiple of 21.8x. So we’ve got a nicely priced opening to take advantage of today.

I’m sure I’ll get more information about Regency and the larger shopping center sector at ICSC next week. But looking at the wide range of details I have even now, I’m reminded why I’ve always enjoyed this corner of CRE.

Well-located retail centers can generate durable cash flows, dependable dividends, and attractive long-term total returns. That was true when I was owning them flat-out back 20 years ago.

And it’s just as true for shopping center investors today.

Happy SWAN Investing!

Brad Thomas
Editor, The Wide Moat Daily

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