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Malls: Secular Decline Or Cycle?

May 04, 2018 11:50 PM ETSKT, SPG, TCO, MAC, WPGGQ, CBL25 Comments


  • Mall REITs have taken a beating since mid-2016.
  • Total retail sales slumped in 2015 and 2016, it is not a surprise that weaker companies are being washed out.
  • Increasing sales in 2017 and 2018 will be a catalyst that strengthens the survivors and newcomers.
  • Prices are low and fundamentals are improving.

Mall REITs have been crushed over the last year. Tenant bankruptcies and substantial store closures have disrupted operations. Much of the price action appears to be driven more by fears of what might happen than actual reported results.

Simon Property Group (SPG) reported 4.7% year/year FFO growth, raised their dividend over 11% year/year and raised guidance. Taubman Centers (TCO) reported 3.5% year/year FFO growth, 13% AFFO growth and raised their dividend 4.8%. Despite positive performance, shares remain under pressure.

Source: Tradingview.com

Meanwhile, even a whiff of bad news sends mall REITs crashing. Most recently, Tanger Factory Outlet Centers (SKT) revised their guidance down slightly due to higher than expected vacancies. A downward revision of 1% of FFO caused an almost 10% drop in share price.

Bears will tell you that malls are a failing business model. That e-commerce is going to crush traditional retail and anyone investing in malls today is going to end up holding buildings that will eventually make their way to deadmalls.com.

Clearly, the market as a whole has a dim view of the future of brick and mortar retail and especially of malls. Are mall REITs a bargain or are they falling knives which should be avoided?


Source: Data from Census.gov, Chart Authors

One of the nice things about retail is that sales information is widely available and is released on a regular basis. Above is a chart of year over year growth rates for retail sales. The blue line is brick & mortar sales and the grey line is all sales.

As you can see, the two run almost perfectly together in 2000, but by 2017 there is a gap of almost 1%. This is due to the growing amount of e-commerce sales.

If you believe that e-commerce is taking sales from B&M

This article was written by

Beyond Saving profile picture
The #1 Service for Income Investors and Retirees, +9% dividend yield.
As a professional in commercial real estate, my investment focus is on REITs. My goal is to provide detailed research on the properties being acquired and sold by REITs, as the quality and value of the real estate purchased by a REIT has an impact on the long term health of a REIT.

Beyond Saving is a contributing author for High Dividend Opportunities Seeking Alpha's #1 Service for Income Investors and Retirees


Analyst’s Disclosure: I am/we are long MAC, SPG, WPG, SKT, AMZN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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