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.
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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We have a collapsing mall here in Nanaimo, BC Canada.
It used to have two anchors: a Zellers at one end and a Sears at the other.
I liked Zellers, it was cheap and sometimes had good stuff and was rarely crowded.
It was taken out by Target. You know how that ended.
Or if you are US maybe not. It was a disaster and they’ve left Canada.
At the other end was Sears, now gone and vacant. (Sear’s Can is gone)
At the other end, vacated by Target is, of all things, a Lowe’s (building supply)
Now, there is zero chance of me being consulted as a retail consultant but I suspect someone going to Lowe’s is not likely to browse the rest of the mall. It is a terrible fit as an anchor and was no doubt attracted by the deal the mall offered. It has its own entrance and can ignore the mall.
Re: the Sears. There is talk of it being torn down and condos built.
(Although with three outdoor entrances maybe cut up into 3 big retail is a poss?)
As retail collapses, condos or res rentals are the last game in town.
But with those being built everywhere, they look about to follow retail into oversupply.
(Isn’t that odd: spell check is fine with ‘oversupply’ but doesn’t like ‘undersupply’ .
Guess it’s more familiar with the former.
Agreed. Most Lowe’s shoppers aren’t interested in browsing the mall. I rarely go there to pick up a few bags of mulch and think it would be nice if they had a cosmetics section so that I could pick up some cologne. Although “Lowe’s Man”, a subtle blend of sawdust, lime dust and body sweat might catch on.
I don’t know if there is one catch-all solution for mall spaces, or if each one will have to develop a unique one, if possible. I suspect the latter, with the caveat if possible. It is hard to see how most malls are going to make it as multiple retail spaces unless they can come up with a hook to bring people in. Like ice skating rinks or some other draw. Even if they can get a draw to increase foot traffic and maintain multiple retailers, I believe they would still have to lower rents to a level that might not be sustainable for the big outfits. That brings you back to whether the bare land is worth more to the owners than a reduced rent revenue retail mall or a repurposed space of some other kind.
“… a subtle blend of sawdust, lime dust and body sweat might catch on.”
OK, that made me do a spit take…THANKS – needed that this morning!
You are welcome. Most of my mornings are like that too
Up in Campbell River we have a mall with a few stores on severe life support. About 10 years ago it was re-branded as “Indoor Storgae Solutions” and that part has boomed with additions, etc. It stores boats and RVs. The lonely mall front hallway still has a few stores and is so depressing no one enters. The Dollar Store on the end is booming, though. (Great throw-away paint brush source.)
One of my nephews is in the mortgage business in Bellingham WA. 15+ years ago he mentioned how many hwy malls were full of empty stores. At the time he said it was WalMart and Costco doing it to the industry. How anyone could think a REIT might be a good investment opportunity in an Amazon world is beyond my imagination. Even seniors don’t wander around them, anymore.
Gold, land, tools, skills, now that I can understand.
Also, silver and timber …
In the land of sport shopping the USA who cares. They are folding because retailing is transformed. They took a risk and lost these REITs did. Affects me how? Zero. Redevelop or sell. 2 options. Best of luck
Yes, because all those unemployed people never need social welfare benefits, or get sick at higher rates, or beat their wives and children because society has declared them redundant, or commit crimes they might not have if they had viable work.
No impact whatsoever.
Oh my an industry died. News to you I suppose. Capitalism is a work in progress. More of this to follow again and again and again. I have zero REIT sympathy. Poor business decision in the face of the glaring change that was apparent.
Retail is failing not just because of Amazon and Internet shopping but also of “asset stripping” being committed on a grand scale by PE firms. Browse some of Wolf’s other articles to learn about that.
Here in UK shopping centres (malls) are not owned so,publicly as yours. The principal landlords are Hammerson and Intu – currently planning a merger that is concerning some Hammerson shareholders because H centres are ostensibly better than Intu’s. The others are institutional owners such as pension funds, and private investors.
The underlying concern is not the threat of the internet but that many of the traditional anchor store tenants are in trouble. For example, Debenhams, House of Fraser, Marks and Spencer. Anchor tenants are given favourable leases so that their presence in the mall attracts demand from other multiple retailers. Another worrying trend is that many of the fashion clothing multiple retailers are also struggling: womens clothing retailers used to be relied upon to pay top rents and often take several stores in the same mall are busily rethinking.
In UK the retailer market is polarising between thise that have what it takes and the rest. Unfortunately for mall owner those that have what it takes are in the minority, whereas mall prosperity relies upon the rest.
Imagine what happens in H2 of this year as the economy slows and interest rates rise. REITs with savvy cfos should have most of their LT debt refinanced but what are the covenants? With residuals on autos dropping leasing consumers a greater portion of disposable income and many have bought cars w 84 mo loans and have over $5knegative equity rolled into the new car they “need” to purchase. Claire,s just filed ch11 and they sell junk to teens at an outrageous markup and even they can’t make money. I think Gundlach’s magic dart said 3.5% by end of the year which exacerbates everything and this whole tariff thing mat take on a life of its own. W stocks potentially dropping more, the price ncentice for buybacks and dividends as a primary use for capital only increases. I don’t think it crashes in one shot but the water temp will heat up much quicker than anticipated. Garlic w frog legs anyone?
I do wonder at the prospect of any of these going to zero – because there is some inherent value to the land there is always the prospect of getting some alternate use out of the space whilst maintaining one’s status as a REIT.
You also have the persistent headline risk of “oooh! Amazon wants to turn all of KIM’s properties into giant Dickensian sweatshops -errrr, fulfillment centers.” And boom – AH gap up of 30% that crushes the 8 million people shorting it.
The land price won’t go to zero. But the shares of REITs can go to zero. REITs have a lot of debt, and when REITs cannot service that debt anymore because their income from store leases has dropped too far, then they go bankrupt. Once, in bankruptcy, creditors take over the assets and the company, and the old shares get canceled and become worthless.
That said, a REIT can bulldoze a shopping center and build housing on it, for example. But this requires a LOT of capital, and if the REIT is already shaky, that’s going to be hard to get. However, zombie shopping centers in good areas will always be redeveloped into housing, office, or other – even if the REIT shares go to zero. Someone will buy the property out of bankruptcy and redevelop it.
Yep – seen I don’t know how many plans floated about for zombie malls. Even going back 15 years or so before it seemed widely apparent that the indoor mall was Dead Concept Walking
I wouldn’t touch one of these REIT stocks with a proverbial 10′ pole of shorting. Would wonder if they’d possibly get acquired by some other, healthier yield vehicle entity which would then continue to exist and mess up the play (maybe even whacking one’s short position hard in that process as well.)
The indoor mall is not a dead concept. The older indoor malls with stores nobody wants or shop at anymore are a dead concept. Malls are a great destination for people with kids IF they cater to families and kids. Play areas, indoor playgrounds, indoor water parks…….etc. These would be HUGE attractions in many states and throw in the idea that parents can drop their little ones off for a few hours while they go browse and shop…….
The anchor restaurants at most malls are archaic and nobody eats there anymore. Malls can bring in business with foodie type places that focus on what younger people want i.e. handcrafted cocktails, local food and ingredients, etc. There is nothing wrong with the “concept” of indoor malls……..they just have no adapted AT ALL to the trendy changing tastes of American consumers and younger people, especially families.
Some of this decline is likely in response to increasing interest rates, which will increase borrowing costs for this highly leveraged asset class and reduces the appeal of the large dividends.
But the decline in malls is real. The last time I was in a mall, I noticed more alternative uses for space (dentist and a church) than I had previously noticed. I don’t know how long they had been there. In addition, there are more restaurants in malls, but like Lowe’s mentioned above, this isn’t a good replacement for the traditional anchors, as people dining out aren’t likely to visit the food court and other eating establishments that constitute a significant portion of every mall that I’ve been to.
Since 2007 we have known about the CRE over building and the growth of online shopping. How did those REITs EVER reach those valuations? Chase for yield?
Yes! And an overheated property market.
Wolf, what do you think about Retail Opportunity Investments Corp. – Common Stock? ROIC is a Motley Fool favorite. Interested in your view.
Thanks. I need to add it to my list. It has dropped 26% from the end of July 2016. So it’s among the cleanest dirty shirts out there for now.
Most Mall/Retail Reits have been dead men walking for some time as have many of the over-leveraged residential ones.
They all have the same issue. Grossly over valued Assets.
We are running out of canaries.
Nobody saw this coming? What kind of lunacy is it to keep building retail outlets as your customer is being steadily impoverished by declining real wages and saddled with ever increasing levels of debt in a futile attempt to maintain the lifestyle she/he can’t afford?
Combine that with internet sales and you’ve got the perfect storm for bricks and mortar retail. But it’s clearly income inequality come home to roost, as “Fortress Malls” catering to the top 5% of household incomes thrive while those catering to the vanished middle class trade down from the JC Penny anchor to Burlington, etc.
Greed. That will be the reason – “no one saw this coming” Simple.
We live in an ecology of nested closed loops. It is not in the interest of those inside these loops to open them up to unwanted information or opinions. My classic example is the GFC. What happened to the economists who predicted it coming, and what happened to those who said it either couldn’t happen or wasn’t happening? The “can’t/won’t” people still hold their lucrative endowed chairs in the top 12 economics departments. The people who were right are still banished to the margins and no one pays any attention to them. Being right was immaterial. Being in the loop, and policing the boundaries of that loop, that’s the whole game. You see this with “Russiagate”, you see this with the Washington Consensus on the American Imperial Project, you see this at the Federal Reserve, you see this in the business press, and you see it in the Pentagon. And it is terrifying.
Yes … terrifying indeed !
It seems as if the next human evolutionary bottleneck will be upon us in short order ..
Be prepared to leap through that event horizon …
hreits – homeless reality inverted trusts
I would add to your list of reasons that should be known are the Millennials who have chosen to move into the big cities, live in smaller homes or apartments, spend more time with family and friends and eat in small ethnic restaurants.. None of which has anything to do with malls. I know my kids are just some of those who grew up rural or in suburb setting that now live in a city and have much less room for stuff.. They spend their time differently than we did at their age. They go to Costco for bulk or just order what they need on line or walk to the local market.
Things change and the mall owners just kept leveraging and raising rents until the tenants no longer can survive. Pretty much the same story as with PE.. It was all about leverage and income for the few. All the while life changed.. and they became irrelevant.
Yes UNTIL they have kids and start their own family and need more stuff and more space but still cling to that “dining” out vibe and shopping experience you speak of. See my comment above..it’s not that an indoor or even mall is a dead concept. It’s that malls never get remodeled, money is never reinvested, nothing is ever reinvented. It’s been the same bleak boring interiors, dirty restrooms, old stores nobody wants or shop at anymore, tired old restaurants instead of young trend hip foodie places. Example……….
A great example of my point is Red Lobster. What a disgusting restaurant it’s become. These used to be considered “nice” when I was a kid in the 90’s. Same with Olive Garden. They aren’t THAT cheap anymore and the food is terrible, they are usually dirty and outdated. Terribly salty and otherwise unhealthy food. This is why malls are dying.
If I was to build a new mall……it would focus around families. Beautiful indoor playground for kids, water park maybe, total convenience where families and kids could spend a day. Maybe even in nicer climates have indoor outdoor concept.
Many nicer malls for example SouthCoast, Fashion Island in CA do quite well and are destination places all the time. They evolve and the owners, albeit quite wealthy, sink money and culture and trendy shops back into them.
Malls start to die, when greedy obnoxious, self obsessed, and overpaid deadbeats, who should never be allowed into any customer service positions, become the administrators, which they always do, then their attitude permeates to security, and rent reviews, from then, the mall is dying.
@Paul Whalen, you just did more in-depth thinking than the average real estate developer.
When a retailer is heading for liquidation, like Toys ‘R’ Us has been for some time, there are always rumors of some big, cash-laden group interested in buying a large chunk of the assets.
Amazon and other big, cash-laden groups, have absolutely zero need to go shopping for locations: their real estate arm, whatever the name, has a queue a mile long in front of it, a queue of hopefuls ranging from mayors wanting to “revive” the local economy (through minimum wage and/or temporary gigs apparently) to shady characters with a sweet land deal to offer.
Even if these groups are interested they have learned very well that they can afford to wait and be picky: local governments, creditors and landlords are too impatient and desperate to keep their wits about them during negotiations and will readily accept humiliating terms in return for a quick payoff.
Which leads me to the big question: do mall REIT’s realize it’s time to pause and regroup? I have no doubts the US are seriously overmalled in face of a serious change in retail sales but most of the world seems to be in the same boat, even so called “Emerging Markets”.
Metro Manila boasts a truly enormous (and growing) concentration of immense shopping malls. As large as the population is, as ingrained as “going to the mall” is as part of the local culture and as quickly growing wages are (but now playing catch with an overheated inflation the government cannot control), it’s beyond doubt most malls are struggling. And online sales are finally catching fire.
Iran has some of the world’s largest malls in cities such as Isfahan and Shiraz. There’s even a mall built around Ayatollah Khomeini’s (ghastly) mausoleum, a bizarre testament to the Imam’s respect and admiration for the bazaari who helped bring about his return from exile.
And REIT’s such as Value Retail and Unibail-Rodamco are planning even more megamalls in the most overmalled areas of Europe.
China… well, I’ll leave that alone for now.
The point is all these mall REIT’s have not only far outpaced economic and population growth, but have either underestimated or ignored the huge problem called competition, coming not merely from online sales and traditional retailers, but from having a few malls too many.
If Brand X, a big mall retailer, can set prices for all its shops in a given area, Brand Y, a direct competitor and another big mall tenant, can undercut them and start a price war which will eat profits and push mall tenants to the point they can ill afford to pay huge rents and will force the landlord to take a painful haircut just to avoid having an empty lot and to keep servicing its massive debt load… you know the drill.
MC01 – Excellent points!
Amazon is the new standard of success. From where they will put there next HQ to whose company they will buy next. Can world domination be far behind?
World as we know it destruction is possible, domination is not.
Hubris might cause the former and prevents the later.
The only reason Amazon is so successful is convenience. Pure and simple. Take that away and they are nothing. The prices on Amazon aren’t that great for quality, fashionable merchandise. Problem is you can find a lot of junk at good deals that ships fast. For example, I’m not going to find a pair of Olukai shoes any cheaper on Amazon than I would at REI or Olukai themselves. 1000s of other products are the same. Amazon is great for Americans that love their junk, gizmos, deals, etc. But for example quality apparel, shoes, tools etc. are no cheaper on Amazon sorry. And who the hell wants to support bozo Bezos! Talk about a clown of the Nth degree. Same goes with Musk.
I was shopping for Marvel toys for my kids a few weeks back and actually ended up finding exactly what I wanted at Walmart and Ebay. Ebay actually had the best selection and better pricing. Amazon is going start having some troubles in the future.
Hmmm…can’t be good for the privately held Segway Inc. Mall patrol was one of their largest customer segments.
Isn’t Segway now owned by a Chinese company (rumored to be a front for smartphone giant Xiaomi)?
If so I would not fear: plenty of empty malls in China to patrol for squatters, copper wire thiefs and similar shady characters.
The only place I still see them is here in San Francisco, carting around tourists in guided tours via Segway. The outfit was acquired by a Chinese company in 2015.
Yep, that was the technology that was supposed to have an impact on society comparable to the Internet. Ooops. Just wonder if 3D printing will indeed be that technology. It’s getting interesting, but that’s a whole different subject…
Here in Tucson, there was a Segway-based tour company, but I haven’t seen them this winter. Meanwhile, there’s Tucson Bike Tours, which seems to be very busy. At least during the snowbird season, which is about to end.
I’ve been waiting patiently for my 3D printer to arrive so that I can print out my own Segway…..
The Cops in Montevideo. Uruguay drive them around in the Old City.
The dead mall series by dan bell is interesting
I also recommend Retail Archaeology. Link:
Here is a modern REIT and as for repurposing dead malls, some do become datacenters.
I am tired of keeping saying how malls are relics of a “glorious” past that won’t ever come back, as it required cheap fuel, a lot of people wanting to take their car everywhere and stable income for a lot of the population… so…
You get a Leveraged Sink Out!
And you get a Leveraged Sink Out!!
You in the back, you get a Leveraged Sink Out too!
Because in this show everyone is a loser!
*Roars of applause
Anyway, malls have been a bad investment fo decades but still not as bad as opening a restaurant in New York.
Internet actually only helped them to sink faster but it was already happening since decades ago.
Wolf, if you ever cared to look how many Shopping malls have been closed in the last twenty years or so you will find is not a small number.
Worse, the way they are build makes hard to recycle the building to make it something rlse.
Mall REITs have been hailed as great bargains on seekingalpha website now for a few years.
Crazy idea but given Sears problems, you think Eddie Lampert might want to get a hold of SIG and run it through his value extraction machine? The company generates a lot of cash and is ripe for cost cutting.
If it was pleasant shopping at malls, I would do more of it. But most of the customers are a-holes, the PE firms stripped ’em so the stores are mess with no help in sight. The mall isn’t the problem, its the modern mall experience.
With few exceptions malls have become a dismal experience and none of the stores interest me.
Last time I went to the Glendale Galleria, a security guard barked at me for taking a cellphone picture of an atrium area that looked interesting. All photography is banned inside the mall. Really? In the age of ubiquitous cameras and selfies you’re going to snap at your customers for taking pics like it’s Area 51?
Despite having permission from my retailer client to take photos of the shop, that didn’t prevent the mall heavies from insisting I desist. My retort that their wages are paid via the service charge that my client pays cut no ice. Fortunately i was saved by a fire alarm. The heavies ran off to investigate. I continued about my business.
REITs were an accident waiting to happen given the excessive buildup of retail space pre-Lehman GFC, and massive restructuring of systemically
Too-BIG-to-Fail bank holding companies post-Lehman. All the superfluous Retail overinvestment was mark-to-unicorn accounting gone awry. The REIT implosion will continue on each quarter with greater losses accruing each quarter until the whole model eventually breaks.
REITs, in my opinion, are Ponzi investments not unlike Timeshares are. Their life cycle is extremely short.
” REITs, in my opinion, are Ponzi investments not unlike Timeshares are. Their life cycle is extremely short.””
This is probably true in the land of legalised corporate Fraud AKA the US.
In some parts of the world they are quiet stable and PROFITABLE.
Considering how many malls fail, and how it seems they are still being build, they should change the way the interior is designed so at least they are easy to recycle into something else if they fall.
I even have a name for it “Reusable Building” because it would be designed in a way that will allow it to be used for something else that being a mall without extensive rebuilding.
Sadly I am not an architecture teacher or I would give the project to my students.
I would not invest in REITs with shopping malls, strip malls, etc in their portfolio.
Since late 2016, I have been seeing a growing number of For Lease signs.
Around here, startup churches, and some businesses/Medical/Dental offices have picked up the cheaper rents but I don’t call this a recovery.
Amazon, Walmart and maybe Dollar Store, Kohls, and Target have picked up the customers.
Sadly, pawn shops and ready cash businesses have moved in.
I was at Goodwill yesterday in their newish building. The lines were long at the register.
I would invest in the cheap until wages grow.