The death of the American mall might just be overrated.
Sure, foot traffic at ancillary and small-town malls is dying thanks to online shopping at websites like Amazon (AMZN). But for those mall opportunities in high-net-worth and Class-A spaces, traffic continues to be robust this holiday season.
And for the REITs that own these malls, things continue to get better.
Low gas prices, dwindling unemployment, recent wage growth and higher home and stock market prices have all lit a bullish fire under the mall REITs with better-than-average locations. These trends will continue to drive rents and, ultimately, free cash flows at the REITs.
But you wouldn’t know it by looking at their share prices.
The REITs have gone through a bit of a roller coaster as investors have been abandoning everything with a high yield. The idea is that raising rates will kill the REITs. However, as we know — thanks to Morningstar data — that simply isn’t true longer term.
For investors looking for big dividends, the mall REITs are uniquely positioned to provide high yield and a touch of value as prospection, as rising rates and falling foot traffic have made them bargains.
Here’s three mall REITs you can bank on this Christmas and beyond.
Bankable Mall REITs: Simon Property Group (SPG)
Dividend Yield: 3.5%
There are mall REITs and then there are MALL REITs. Simon Property Group (SPG) certainly fits into the latter camp. Simon is one of the largest retail real estate property owners in the world.
As of the end of the third quarter, SPG held interests in about 230 malls, premium outlet centers and power/lifestyle centers. All in all, that’s over 190 million square feet of retailing space.
The real beauty for SPG and its shareholders is that the vast bulk of that is prime Class-A spaces.
Last year, SPG spun off all its stripmall and less-than-stellar mall assets as Washington Prime Group (WPG). That moved around 98 lower-performing properties off of Simon’s books and allowed the firm to solely focus on the higher-end markets.
That’s benefiting SPG in spades.
During the last quarter, SPG saw an increase in total sales per square foot at its Class-A malls and was able to realize an 18.4% increase in re-leasing and rent growth.
Retailers still want to be where Simon has its malls. But SPG isn’t taking any chances. The REIT has developed a venture capital arm designed to invest in the future of retailing — both digital and traditional — to keep the customers coming back to Simon’s properties.
At the end of the day, SPG is one of best mall REITs you can bank on.
Bankable Mall REITs: Taubman Centers (TCO)
Dividend Yield: 3.1%
When it comes to mall REITs, bigger isn’t always better. Sometimes small can be a pretty good size as well. Case in point, Taubman Centers (TCO).
TCO only owns around 20 malls. However, those malls are in prime locations — catering to higher-net-worth individuals and families. These include property ownership in locales like Beverly Hills, Miami and Connecticut. No dollar stores here. We’re talking about retailers like Nordstrom’s (JWN) and Macy’s (M).
To that end, according to TCO’s analysis, its portfolio of malls is the most productive in terms of sales in the entire country. For the last quarter, Taubman’s 12-month trailing sales-per-square-foot metric rose to $805. That’s an increase of 2.5% year to date. That sales growth at its retailers has translated into higher rent growth at its regional and super-regional power malls. Rent per square foot has increased by 2.3% year to date.
All of this equals strong FFO and dividend growth for TCO’s investors.
The better retailing trends had Taubman increasing its full-year FFO guidance to $3.38 to $3.46 per share, up from around $3.28.
More FFO simple means more in the way of dividends for investors. That 3.1% yield should grow over the next few quarters.
Bankable Mall REITs: Macerich (MAC)
Dividend Yield: 3.54%
Macerich’s (MAC) tagline says it all — “The premier, pure-play, high-end mall REIT.” And that’s what investors in this mall REIT get.
After dumping 16 “less-than-prime” properties, MAC owns nothing but trophy-style shopping malls and power centers in extremely high-barrier-to-entry locations. Those 50 remaining malls now churn out sector-high net operating income growth. Looking year to date, MAC managed to see same-center NOI growth of 6.5% as of the end of the last quarter. That compares to just 1.5% to 2.5% growth for Class-B malls and retail space.
But MAC isn’t resting on its laurels. The firm recently took on some new debt and refinanced some old mortgages at much lower rates. The additional capital and interest savings will go directly into new properties in high-end markets in Arizona, California, New York/Long Island and Washington, D.C. These “superior” zip codes produce the vast bulk of MAC’s NOI growth and free cash flows.
For investors, that means bigger dividends — not that MAC needs help on that front.
Given its shareholder-friendly management, more of these sorts of pay-outs could become the norm as MAC’s portfolio continues top fire on all-cylinders.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
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