Regional Mall REITs: Minor Hiccup?

chart02.pngRegional mall REITs have suffered due to weak Q3 results and sales forecast from major mall-based retail stores. This has caused an underperformance in share prices for the month of November. The entire regional mall REIT sector returned negative results, with a median return of -8.1 percent. Leading the drop was General Growth Properties with a decrease of 12 percent.

chart01In general, the brick and mortar retail shopping industry has been negatively affected due to the change in consumers habits related to e-commerce. A perfect example is Best Buy. Oftentimes consumers will go to their stores to research physical products, and then end up purchasing them on Amazon. That being said, we should not expect that behavior to be the new norm.

A telling study from ATKearney shows that the majority of consumers continue to shop at brick and mortar stores, with only 5 percent of sales being pure play online. In addition, millennials, the largest U.S. population after baby boomers, still go to malls. Millennials tend to use online tools as well. In this ever-changing environment, the most successful retailers will combine physical and online stores, feeding off one another.

Through the years, we have witnessed many large retailers moving to e-commerce platforms. Macy’s is a good example. On the other hand, online retailers, such as Apple and Microsoft, have opened brick and mortar stores. In addition, there are companies that employ strategies of crossing channels. For example, consumers make the purchase online, and then pick up the items at the store. This presents retailers with the ability to sell them additional products while physically at the location.

Regional mall REITs continue to grow on par with other average REITs. Since there have no recent indications of a major change in trends, the share drop appears to be a minor hiccup. Besides, the drop was not large enough to make the fastest growing REITs less valuable.

See additional thoughts on this Seeking Alpha article.

Source: General Growth Properties (NYSE:GGP), Yahoo Finance, ATKearney

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

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