Recent Performance Review Of 7 Mall REITs

by: Zvi Bar

Mall REITs hold and/or manage retail mall properties. Mall and other retail REITs are generally sensitive to economic cycles and the strength of the American consumer, as the value of mall space is directly connected to the level of public consumption. A continued economic downturn should weaken the demand for mall property space, and lower the amount of commerce completed within each square foot. Conversely, improving economics should benefit the business.

Most malls once had a Sharper Image in them, and their bankruptcy, like Borders', lessened the demand for retail space. Similarly, rent collection rates may go down when consumption goes down, and landlords may need to be lenient about back rent for fear of losing an irreplaceable tenant. Conversely, a strong American consumer should result in lower vacancies, improved rent collection rates and new stores.

Below are seven REITs within the mall business. I have included their current yields as well as their 1-month, 3-month and 2011-to-date performance rates.

1. CBL & Associates Properties Inc. (CBL)

  • Yield: 6.1%
  • 1-month: 1.01%
  • 3-month: -2.37%
  • 2011-to-date: -29.28%

2. General Growth Properties (GGP)

  • Yield: 2.9%
  • 1-month: 5.79%
  • 3-month: 4.33%
  • 2011-to-date: -11.50%

3. Glimcher Realty Trust (GRT)

  • Yield: 4.7%
  • 1-month: 9.38%
  • 3-month: 12.90%
  • 2011-to-date: 4.16%

4. Macerich Co. (MAC)

  • Yield: 4.6%
  • 1-month: 10.65%
  • 3-month: 8.30%
  • 2011-to-date: 3.52%

5. Pennsylvania Real Estate Investment Trust (PEI)

  • Yield: 6.6%
  • 1-month: 17.26%
  • 3-month: -2.87%
  • 2011-to-date: -35.03%

6. Simon Property Group Inc. (SPG)

  • Yield: 2.9%
  • 1-month: 6.62%
  • 3-month: 11.74%
  • 2011-to-date: 23.83%

7. Taubman Centers Inc. (TCO)

  • Yield: 2.9%
  • 1-month: 13.66%
  • 3-month: 15.15%
  • 2011-to-date: 21.80%

Below is a chart of the group's 2011-to-date performance - (click to enlarge):

Retail REIT dividend growth depends upon presumptions about a REIT's adjusted funds from operations (AFFO). AFFO can best be described as cash available for distribution. AFFO is most commonly derived by adjusting funds from operations (FFO) for the straight-lining of rents (averaging rent, including scheduled increases, over the lifetime of the lease), and maintaining a reserve for costs that cannot be directly recovered from tenants, such as general maintenance.

These numbers can change dramatically over time, as some expenses can be significant to a REIT. For example, imagine your local mall needed to buy a new air conditioning unit for the common areas. The cost of such a unit would be significant, let alone its installation. Additionally, some tenants might not be capable of satisfying their lease obligations going forward, especially as rent increases. Therefore, this analysis is always subject to change based upon future events and actions by the REITs and their tenants.

Many of these REITs saw dramatic reductions in their collected rents since 2007, while their costs have only increased (that air conditioner also costs more to run). As a result, many of the mall REITs severely reduced their distributions in the past years. Should tenancy pick up, along with lease prices per square foot, their AFFO should also pick up.

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

Disclaimer: This article is intended to be informative and should not be construed as personalized advice as it does not take into account your specific situation or objectives.