WP Glimcher (WPG), a $2 billion market cap mall REIT, has been the center of attention due to its activities over the last few weeks. First, there was some speculation that the firm was interested in merging with the shopping center REIT Kite Realty Group Trust. WPG denied that it had any interest in doing business with any third party. Another strange event took place when Michael Glimcher surprisingly stepped down from being the CEO of the company. His position has been temporarily filled by a board member.
To be frank, we’ve watched WPG’s activities with a jaundiced eye. Let’s look at why we are skeptical of WPG.
WPG has average sales per square foot of $374. This unimpressive figure puts WPG in the low productivity small group. It is also important to note that this group is often seen as more vulnerable to online retail activity.
WPG hasn’t been successful with its effort in managing its tier 2 malls (about a quarter of their portfolio). In Q1, tier 2 malls’ NOI growth headed to negative rates. This prompted us to place it in the same group as the Regional Malls REITs CBL & Associates Properties (which apparently just turned over a mall to the lenders) and Pennsylvania Real Estate Investment Trust.
Our due diligence uncovered that the stock is undervalued, and has yet to show its potential. Formerly known as Washington Prime Group, the stock has not performed well since its spin-off of Simon Property Group back in 2014 and merger with Glimcher Realty Trust in 2015. Underperforming by almost 50%, we haven’t had full confidence in the stock. As a consequence, it is one of the mall REITs that has high dividend yields. This separates it from its peers. Even with a dividend payout of 70%, the dividend yield has been a little more than 9%.
At this point, it is very difficult to pinpoint where the stock is going. To our surprise, the company has not provided full details about the abrupt change of leadership. The company proposed to change its name back to Washington Prime Group after the sudden departure of Michael Glimcher. This only added more drama to the confusion.
In short, we may miss a golden buying opportunity for a REIT, but recent events and weaker fundamentals are forcing us to keep our distance.
Source: WP Glimcher Inc. (NYSE: WPG), CBL & Associates Properties Inc. (NYSE:CBL), Pennsylvania Real Estate Investment Trust (NYSE:PEI), Simon Property Group Inc. (NYSE:SPG).
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Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.