2011 Halftime Review: 6 Mall REITs

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 |  Includes: CBL, MAC, PEI, SPG, TCO, WPG
by: Zvi Bar

This is the halftime review of the 2011 performance of 6 previously identified mall REITs. Retail REITs are sensitive to economic cycles and the strength of the American consumer because the value of mall space is directly connected to the level of public consumption. A continued economic downturn will undoubtedly weaken the demand for mall property space. Conversely, improving economics should benefit the business.

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These REITs were selected for having higher yields and/or dividend growth among mall operators.

CBL & Associates Properties Inc. (NYSE:CBL)
  1. Current Dividend Yield: 4.6%
  2. Market Capitalization: $2.7 Billion
  3. First Half Return: 4.69%
Glimcher Realty Trust (GRT)
  1. Current Dividend Yield: 4.1%
  2. Market Capitalization: $969 Million
  3. First Half Return: 15.48%
Macerich Co. (NYSE:MAC)
  1. Current Dividend Yield: 3.7%
  2. Market Capitalization: $7.09 Billion
  3. First Half Return: 14.38%
Pennsylvania Real Estate Investment Trust (NYSE:PEI)
  1. Current Dividend Yield: 3.8%
  2. Market Capitalization: $878 Million
  3. First Half Return: 8.67%
Simon Property Group Inc. (NYSE:SPG)
  1. Current Dividend Yield: 2.70%
  2. Market Capitalization: $34.7 Billion
  3. First Half Return: 19.17%
Taubman Centers Inc. (NYSE:TCO)
  1. Current Dividend Yield: 2.9%
  2. Market Capitalization: $3.4 Billion
  3. First Half Return: 20.25%

Investor sentiment continues to vary towards most real estate and also commercial space, and many now believe that the end to QE2 may cause interest rate spikes or a difficult lending environment. Nonetheless, most of these REITs appreciated double digits over the last six months while providing above average yield. The chart also indicates increased volatility in May and June.

By law, REITs must distribute at least 90% of their taxable income in order to eliminate the need to pay income tax at the corporate level. Under the current tax laws, REIT dividends are taxed as ordinary income, not at the lower corporate dividend rate. Because these REITs must give away so much income, it is often more difficult to grow through retained earnings than a corporate model. Competitors often grow through acquiring other smaller REITs and/or distressed commercial property opportunities.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.