Analyzing Real Estate Investment Trusts: Mall REITs

Includes: FRT, GGP, KIM, MAC, REG
by: Michael Tsangaris

Owning property in a broad portfolio diversifies it so it is not levered to a single asset class. A well-maintained, well-located property in addition to providing a consistent amount of cash flow can also provide the investor with capital gains and provides a hedge against inflation. The most common constraint is a limited amount of capital available for investment directly into real estate, which results in investors seeking exposure to the real estate asset class through real estate investment trusts. REITs provide investors with the diversification of real estate in a portfolio made up of various asset classes, whilst providing them with the stability of bonds and the liquidity of stocks.

Mall REITs Background

Taking stock performance as an indication of retail recovery, according to NAREIT, the FTSE NAREIT All Equity REITs has risen 17.40% YTD (dated 31 July 2012), with the Retail constituents rising the most: 23.57% YTD. Has this group gotten ahead of itself or does it still have room to run?

Although this is subject to many clauses, the lease duration range for retail REITs is in the top three of REIT sectors, ranging from 10 to 30 years.

Financial Analysis & Key Stats

Table 1

REIT Ticker Market Cap (Billions) Revenue (Millions) Occupancy Rate Price off 52-week High Price off 52-week Low Dividend Yield
Kimco Realty Corp (KIM) 8.29 934.89 93.10% -0.63% 50.33% 3.68%
Federal Realty Investment Trust (FRT) 7.00 572.98 93.40% -0.86% 40.40% 2.53%
General Growth Properties Inc (GGP) 19.68 2640.62 94% (2011) -1.29% 102.12% 1.91%
Regency Centers Corp (REG) 4.45 508.23 91.40% -0.89% 52.88% 3.75%
Macerich Co (MAC) 7.99 837.27 92.70% -4.73% 55.25% 3.58%

Table 2


Total Debt/T12M EBITDA(last 12m)

Debt/Market cap

Price/T12M FFO

ROC/WACC ratio


Kimco Realty Corp






Federal Realty Investment Trust






General Growth Properties Inc






Regency Centers Corp






Macerich Co






The Big Macro

Jim Cramer puts down the bears on how employment numbers and employment growth are not all that matter and instead it is stock prices and the value of Americans' homes due to the wealth effect. This feel good factor results in increased spending as a result of a perceived increase in wealth, which translates into sales for retailers. Stronger consumer purchasing power creates more security for mall REITs as their tenants experience better top line numbers and so the risk of lease cancellation and vacant rental space is reduced.


According to Bloomberg, mall REITs multiples are at all-time highs as the forward FFO multiples stand at 19.1x, which represents a 45% premium to the 10-year average of 13.2x. Similarly, shopping center REITs forward FFO multiples stand at a 5-year high of 17.2x (22.8% premium) to 10-year average of 14x.

Ralph L. Block, in his book, "Investing in REITs," uses the below principle to value a stock:

When REIT dividend yields are well above or substantially below the 10-year Treasury yield, suggesting cheap or expensive valuations, respectively

All the stocks in this group have yields above 10-year T-Bill, however they have run up quite a bit, as all are 5% off their 52-week highs.

Investing in the Group

General Growth Properties has the weakest fundamentals from the five key indicators outlined in this article and it ceased paying out a dividend in 2008 and 2009. In addition to this, given market uncertainty, investors favor low-levered REITs and GGP's debt is the highest relative to its market cap and to its EBITDA.

According to the Kimco Realty 10-Q filing for June 30, it has properties in 44 states, Puerto Rico, Canada, Mexico, Chile, Brazil, and Peru as well as in its 2011 Annual Report. It's five largest tenants were The Home Depot (NYSE:HD), TJX Companies (NYSE:TJX), Wal-Mart (NYSE:WMT), Sears Holdings (NASDAQ:SHLD) and Kohl's (NYSE:KSS), of which Home Depot and Wal-Mart have a strong and growing presence in South America. This diversifies their geographic exposure as well as their exposure to country-specific economic cycles. Risks of government regulation, currency exposure, however the rewards so far have paid off in doing so.

From these five REITs, Kimco Realty stands out the most as it leases to strong tenants who require the brick and mortar business model which, it has been feared, is a declining business model as online retailers avoid sales tax in most states, which gives them a cost advantage. Mall owners are waging a battle against this, but in spite of this argument, Kimco remains well diversified, backed up by a strong management team. Despite its dividend taking a hit in 2009, the stock is up 25% YTD and there is more to come with a recovering economic climate.

More conservative investors seeking exposure to REITs should go for Federal Realty Investment Trust due to the steadier dividend, which indicates a lot about the business leases and stability.

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