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US bank branch closings reach all-time high in 2018; 11 REITs exposed to sector

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US bank branch closings reach all-time high in 2018; 11 REITs exposed to sector

Banking technology adoption is on the rise, and bank branch footprints are shrinking.

Branch closings continue to significantly outpace new openings, as customers continue to take advantage of a growing offering of online and mobile banking services. U.S. bank branch closings reached an all-time annual high of 3,023 in 2018, according to S&P Global Market Intelligence data, while new U.S. branch openings in that year totaled 1,060. Year-to-date through May 29, closed U.S. branches total 965.

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The pro forma combined entity of BB&T Corp. and SunTrust Banks Inc. has closed the highest number of branches so far this year, at 160. The two banks are undergoing a merger of equals with a projected $1.6 billion in cost-saving opportunities, including closing bank branches with overlapping footprints. On a Feb. 7 merger conference call, BB&T CFO Daryl Bible said the two companies will have 740 branches within two miles of each other post-merger.

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Among publicly traded real estate investment trusts that lease space to banks to house branches, retail-focused companies are most exposed to the bank branch sector, leasing locations for banks to run its branch operations at their shopping centers and other stand-alone properties. Eleven publicly traded U.S. retail REITs report banks as top tenants. REITs typically disclose in regulatory filings those tenants to which they lease the most space.

American Finance Trust Inc. reported 135 occupied leases with SunTrust as of March 31, aggregating $20.7 million in annual rental revenue, making it the REIT's top tenant at about 8% of its total rents. American Finance's lease count with SunTrust has dropped in recent years from 213 leases totaling 17.9% of the REIT's rental revenue at the end of 2014.

U.S. Bancorp has closed 82 branches this year through May 29. During the bank's first-quarter earnings call, Chairman, President and CEO Andrew Cecere noted his plan to reduce the bank's 3,054-branch footprint by 10% to 15% over the next couple of years. No REITs report U.S. Bancorp as a top tenant.

Wells Fargo & Co., meanwhile, closed 314 branches in 2018, the most of any bank, and another 62 year-to-date in 2019. Three retail REITs — Regency Centers Corp., Whitestone REIT and Federal Realty Investment Trust — report Wells Fargo as a top tenant in their quarterly financials.

Seven retail REITs report JPMorgan Chase & Co. as a top tenant, the largest count of any bank. Retail Opportunity Investments Corp. held 22 leases with the bank at the end of the first quarter, totaling 1.5% of the shopping center REIT's total base rents. JPMorgan closed 35 branches in the U.S. thus far in 2019, following 201 the year prior.

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For further REIT tenant analysis, try S&P Global Market Intelligence's Tenant Exposure portal on the Market Intelligence website.