What Are We Going to Do with these Plunging Mall REITs?

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Wolf Richter wolfstreet.com, www.amazon.com/author/wolfrichter

Note the bifurcation: weakest plunged 80% from peak, strongest “only” 30%.

This is my now classic twice-a-year progress report on the decline of mall REITs. The series began in May 2016, shortly before the peak of mall REITs in July 2016. Their shares started getting hit in August that year, and the pain hasn’t abated since.

All along the way, the industry and its Wall Street analysts soothed our rattled nerves with assurances that the brick-and-mortar meltdown didn’t actually exist, that there were more new stores being opened than closed, that the selloff at each stage was overdone and that these were buying opportunities.

They keep pointing out that online retail is only around 10% of total retail. But they’re hiding the fact that mall retailers are the ones under attack, not gasoline stations, auto dealers, bars, restaurants, grocery stores, and other categories that are considered “online resistant.” And these mall retailers have surrendered a large part of their sales to the Internet – see: Brick & Mortar Meltdown Hits These Stores the Most.

And then there are rumors that leave room for hope. Today’s rumor of hope is that Amazon is considering buying some of the locations of Toys ‘R’ Us, which is being liquidated. Similarly, in 2015, Amazon considered buying some of the locations of RadioShack as it was heading into bankruptcy for the first time. And nothing came of it.

With already too many malls in America to begin with, the brick-and-mortar meltdown is now putting further pressure on them, and investors have taken a huge licking. So here are some of the mall REITs and how they have performed recently, in no particular order, except for the top two:

CBL Properties (CBL): Shares closed at $4.36 today, down 55% from a year ago, down 68% from end of August 2016, and down 83% from May 2013. As part of its earnings fiasco report last November, CBL announced it would slash its quarterly dividend by nearly 25% to $0.20 a share. At today’s share price, the dividend yield is a juicy 18%. But expect further dividend cuts.

Moody’s pointed out last July that 22% of CBL’s square footage was exposed to “distressed retailers,” the highest among of the mall REITs. The other mall REIT up there in this rarefied air of max exposure to “distressed retailers” is Washington Prime Group.

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Washington Prime Group (WPG). At $6.26, shares are down 13% year-to-date, 25% from a year ago, 55% from August 2016, and 71% from the peak of $21.49 in May 2014, just after its spin-off from Simon Property Group – a mall REIT (more in a moment) that apparently knew what it was getting rid of. With a quarterly dividend of $0.25 a share, for a dividend yield of 16%, a dividend cut is lining up.

Pennsylvania REIT (PEI): At $9.48, shares are down 36% from a year ago and 63% from end of July 2016. At the current stock price, its quarterly dividend of $0.21 generates a yield of 8.9%.

Tanger Factory Outlets (SKT): At $21.49, shares are down 34% from a year ago and 48% from the end of July 2016. Quarterly dividend: $0.34 a share for a yield of 6.4%.

Kimco Realty (KIM): At $14.25, shares are down 37% from a year ago and 56% since the end of July 2016. Quarterly dividend: $.50, for a yield of 7.8%.

Macerich (MAC): At $57.85, shares are down 10% from a year ago and 35% since the end of July 2016. Quarterly dividend: $0.74 for a dividend yield of 5.1%.

Simon Property Group (SPG), which had spun off the misbegotten Washington Prime Group mentioned above: Shares, at $155.43, are down 7.5% from a year ago and 32% since the end of July 2016. Its quarterly dividend of $1.95 generates a yield of 5.0%.

Taubman Centers (TCO): At $56.91, shares are down 13% from a year ago and 29% from the end of July 2016. Quarterly dividend: $0.66 for a yield of 4.6%.

GGP (formerly General Growth Properties): At $21.52, shares are down 7.2% from a year ago and 33% since the end of July 2016. Quarterly dividend: $0.22 for a yield of 4.1%.

Federal Realty Investment Trust (FRT): Shares, at $116.49, are down 13% from a year ago and 31% since the end of July 2016. Quarterly dividend: $1 for a yield of 3.4%.

Regency Centers Corp (REG): At 56.32, shares are down 14% from a year ago and 32% since the end of July 2016. Dividend: $0.56 for a yield of 3.9%.


Seritage Growth Properties Class A (SRG): Shares, at $34.97, are down 20% from a year ago and 38% from their peak in April 2016. With a quarterly dividend of $0.25, the dividend yield is 2.9%.

The REIT was spun off from Sears Holdings in July 2015 via a rights offering. Shares started trading at $36.02 on July 6. The offering raised $1.6 billion, which was used to fund in part the $2.72-billion purchase of 235 of the most valuable properties and 31 joint-venture interests from Sears Holdings. Seritage initially leased back most of the stores to Sears Holdings. But many stores have since been closed, and Seritage is trying to lease those spaces to other tenants at higher rates. Sears Holdings CEO and largest investor Eddy Lampert is also chairman and major shareholder of Seritage. The transaction didn’t pass the smell test.

In theory, Seritage would make a killing since it had acquired many of the best properties in a sweetheart deal. But the decline in value of retail properties since then might have x-ed out that theory.

This lineup of REITs shows the bifurcation: Some REITs, whose malls are more exposed to “distressed retailers,” have gotten totally crushed, with shares down over 70% or 80% from their peaks, and have been or will be forced to cut their dividends to preserve capital. The REITs with the strongest malls have only gotten crumpled, instead of totally crushed, with shares down “only” around 30%.

The big-fat dividend yields are very tempting, but a drop in the share price on a bad day can easily wipe out the value of the dividend of several years. In addition, if the dividend yield is too high, the company will slash the dividend, and the market slashes the shares. This isn’t going to happen tomorrow, knock on wood, but the brick-and-mortar meltdown will continue for years, and mall owners will have to figure out how to deal with it.

Why is Sears’ CEO still touting “progress” and “improvement” even in SEC filings? Why not tell investors the truth, for once? Read…  Sears is Dead Meat Walking, after Horrid Holiday Quarter


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