Should You Be Investing in Mall REITs?


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Macy’s, J.C. Penney, and Wal-Mart are some of the retailers that are closing stores, prompting fears that now is not the time to invest in mall REITs. For example, Chris Versace, a writer for the Eagle Daily Investor, has stated that anchor store closings and the rising number of online sales are changing how retailers operate, meaning that people should not invest in mall REITs until the resulting wave of store closures have come to a conclusion.

Are These Concerns Warranted?

There are reasons to believe that fears about mall REITs are overblown. For starters, some stocks have been performing better than others, meaning that there is still hope in the form of REITs with high sales per square foot such as General Growth Properties, Macerich, and Simon Property Group. Also, REITs are still planning new malls, which they probably wouldn’t be if the prospects were really so bad. Mall vacancy rate has been trending downwards since the great recession.

In fact, these companies have been performing better than the average equity REIT. Their dividend yields have been lower, usually an indication that things are going in their favor. As another point of view, WP GLIMCHER and CBL & Associates Properties are offering higher-than-average dividend yields because they have suffered from tenant bankruptcies and store closures with corresponding consequences for their own financial states and share prices.

Also, Brookfield Asset Management bought mall REIT Rouse Properties last month, elevating Rouse’s share price by 25% in 2016. This transaction elevated mall profile, as well.

It is worth mentioning that the concerns over store closures have been exaggerated. For example, Macy’s opened 26 stores even as it closed 40 stores in 2015, suggesting that the problem wasn’t across the board but concentrated in particular locations. Similarly, both Macy’s and J.C. Penney have pointed out the positive correlation between brick-and-mortar stores and their online counterparts that exist because people are able to browse and return products that they buy online. In other words, the conclusion that the rising number of online sales is causing an industry-wide problem for mall REITs is suspect because the evidence shows that having both an online and offline store actually drives up sales rather than drive them down.

Further Considerations

Summed up, it is debatable that mall REITs should be avoided because of the rising number of online sales and stores closures. However, interested individuals should remember that successful investing is based on a lot of hard work, meaning that they should not take this as an endorsement to invest in mall REITs at random without putting in the necessary time and effort.

Source: CBL & Associates Properties In(NYSE:CBL), Rouse Properties, Inc.(NYSE:RSE), WP GLIMCHER Inc.(NYSE:WPG), Simon Property Group Inc.(NYSE:SPG), The Macerich Company(NYSE:MAC), General Growth Properties, Inc(NYSE:GGP)

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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