This year, the U.S. holiday season has been encouraging for retailers and their landlords —the retail REITs. This is because consumers not only splurged throughout the season but also returned to stores.

According to a recent report from Mastercard SpendingPulse, holiday retail sales, excluding automotive, has surged 8.5% year over year this holiday season, running from Nov 1 through Dec 24. Even though e-commerce continued to expand, increasing 11.0% year on year, in-store sales too witnessed an 8.1% increase relative to 2020.

Apparel and department stores experienced strong growth during Nov 1 to Dec 24, with apparel registering a whopping 47.3% increase year on year. Department stores witnessed a 21.2% surge from last year and a gain of 11% from the pre-pandemic levels.

Steve Sadove, senior advisor for Mastercard and former CEO and Chairman of Saks Incorporated noted that “Shoppers were eager to secure their gifts ahead of the retail rush, with conversations surrounding supply chain and labor supply issues sending consumers online and to stores in droves.”

Obviously, with low unemployment, rising income backed by wage compensation and hefty savings accumulated during the pandemic, consumers had the money to splurge. Moreover, while people staying indoors had earlier helped the e-commerce industry to flourish, widespread vaccination renewed people’s confidence to step out of their homes.

This translated into greater benefits for the real estate sector — particularly the REITs. Higher retail sales — whether online or at physical stores — bring huge profits for these REITs as increased footfall at malls and shopping center would create further demand for space, while online sales too need real space for storage and efficient distribution.

Retailers are also utilizing the last-mile stores as indispensable fulfillment and distribution centers to serve the dense population close by. This is also helping them to outperform pure e-commerce players on delivery times and cost efficiency. Also, curbside pick-up, combined with click-and-collect options, is likely to continue gaining attention in the present environment. And REITs that are making efforts along these lines are likely to add a competitive advantage in current times.

Stock Picks

To capitalize on this trend, we have handpicked four stocks from these high-performing industry groups. Aside from having solid fundamentals, these better-ranked REITs have high chances of market outperformance over the next 1-3 months. These stocks are witnessing positive estimate revisions too, reflecting analysts’ upbeat view.

We suggest investing in Simon Property Group (SPG Quick QuoteSPG - Free Report) , which is a behemoth in the retail REIT industry and enjoys a portfolio of premium retail assets in the United States and abroad. The adoption of an omni-channel strategy and successful tie-ups with premium retailers have been aiding the company. It is also tapping growth opportunities by assisting digital brands to enhance their brick-and-mortar presence, as well as capitalizing on buying recognized retail brands in bankruptcy.

Additionally, Simon Property is exploring the mixed-use development option, which has gained immense popularity in recent years among those who prefer to live, work and play in the same area. Moreover, with solid balance-sheet strength and available capital resources, Simon Property Group looks poised to ride this growth curve and bank on opportunities emanating from market dislocations.

In the third quarter, Simon Property recorded increased leasing volumes, occupancy gains, shopper traffic and retail sales. Simon Property also announced a 10% sequential hike in its fourth-quarter 2021 dividend.

Simon Property Group currently sports a Zacks Rank #1 (Strong Buy). Over the past month, the Zacks Consensus Estimate for 2021 FFO per share witnessed an upward revision of 2.1% to $11.52, reflecting analysts’ bullish outlook.

Another retail landlord is Federal Realty Investment Trust (FRT Quick QuoteFRT - Free Report) , a North Bethesda, MD-based retail REIT that boasts a portfolio of premium retail assets — mainly situated in the major coastal markets from Washington, D.C. to Boston, San Francisco and Los Angeles — along with a diverse tenant base, both national and local.

Federal Realty has strategically selected the first ring suburbs of nine major metropolitan markets. Due to the strong demographics and infill nature of its properties, the company has been able to maintain a high occupancy level over the years.

Moreover, Federal Realty’s focus on open-air format and “The Pick-Up” concept has poised it well to lure tenants even amid the current health crisis. The resumption of the economy, widespread vaccination and solid consumer spending have poised the retail REIT to benefit from its superior assets in premium locations and experience an improving leasing environment.

Currently, FRT flaunts a Zacks Rank #1 and has a long-term growth rate of 9.9%. Moreover, for 2021, the stock has seen the Zacks Consensus Estimate for FFO per share being revised 1.3% upward to $5.43 over the past month. This also suggests an increase of 20.1% year over year.

The cart will be incomplete without industrial REITs as this asset category is a great beneficiary of the e-commerce boom and the supply chain strategy transformations.

Therefore, our next pick is an industrial REIT stock — Prologis (PLD Quick QuotePLD - Free Report) — a leading industrial REIT that acquires, develops, operates and manages industrial properties in the United States and worldwide. The company continues to benefit from the scale of its platform.

This industrial REIT behemoth’s performance in the recent quarters reflects robust demand for its properties, an increase in market rents and low vacancies. Along with the fast adoption of e-commerce, logistics real estate is anticipated to gain from a rise in inventory levels. Given Prologis’ capacity to offer high-quality facilities in key markets and robust balance-sheet strength, it is well poised to bank on these trends.

PLD currently carries a Zacks Rank of 2 (Buy). The Zacks Consensus Estimate for the ongoing year’s FFO per share has been revised marginally upward to $4.12 over the past two months. This calls for an increase of 8.4% year over year.

The cart will be incomplete without another industrial REIT. A promising one on the shelf is Rexford Industrial Realty, Inc. (REXR Quick QuoteREXR - Free Report) which is focused on the acquisition, ownership and operation of industrial properties situated in Southern California infill markets. Recently, Rexford announced shelling out of $141.4 million for the acquisition of five industrial properties in the prime infill Southern California submarkets.

With these buyouts, Rexford’s 2021 acquisition activity reached $1.6 billion. Also, more than $350 million of acquisitions are under contract or an accepted offer. Southern California is considered a highly valued industrial property market with supply constraints in the United States.

Presently, Rexford carries a Zacks Rank #2. The Zacks Consensus Estimate for the ongoing year’s FFO per share has been revised 1.2% upward over the past two months. This also indicates a projected increase of 23.5% year over year.

Here’s how the above stocks have performed in the past three months.

Image Source: Zacks Investment Research

Note: All EPS numbers presented in this write-up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.