Tuesday, July 18, 2017

Using DeadMalls.com to assess the state of US retail REITs

Retail REITs are an interesting bunch. Besides analyzing the REIT's financial statements, unitholders and potential unitholders could also consider heading down to the properties to observe first-hand how the REIT is faring.

Is the mall thriving? How is the traffic like? How is the ambiance?

For the Singaporean investor interested in some of the retail S-REITs, getting answers to such questions is fairly straightforward:

Vested in CapitaLand Mall Trust? You could visit Plaza Singapura (and many others).

What about Frasers Centrepoint Trust? Head down to Causeway Point (and many others).

Starhill Global? Go to Wisma Atria and Ngee Ann City lah!

SPH REIT? Your pick. Either Paragon or Clementi Mall (or both, if you are that keen).

Things, however, are not that straightforward if you are considering retail REITs whose properties are situated on foreign grounds. Though you may have access to their financial statements and annual reports, one glaring disadvantage is that you are not able to get a feel on the ground. It is possible to analyze the REIT on quantitative grounds, but their qualitative aspects are that which elude you.

This uncertainty is further exacerbated by the current narrative of the "death of retail." According to the financial talking heads, the rise of Amazon is the death knell of the retail sector (and their landlords). US retail stocks and retail REITs have been bashed badly, with some firms about to belly up.

So, where can you get your hands on the qualitative data? 

At that website, you can find commentaries by people who visit these "dead malls" in the US. If you manage to find some REIT-owned properties reflected there, you might wanna consider incorporating the findings to your analysis.

Let's use Simon Property Group as an example. Simon Property Group is a blue-chip, high-end retail REIT with properties that are not geographically limited to the US. Even in this trying economic times, Simon Property Group still managed to increase their dividend payout (see here). In addition, in the Q&A section of their Q1 2017 earnings call, the CEO seemed pretty confident about the business.

Meanwhile, over at the DeadMalls site, there were a few entries that made mention of Simon Property Group. As the majority of these entries made a passing remark on Simon Property Group (e.g. somewhere in the history of the mall, Simon Property Group owned the mall), I disregarded them. Almost all of the remaining entries concerned mall divestment. The only noteworthy finding is that Simon Property Group defaulted on the loan of its St. Louis Centre property, which was then bought at bargain price by another individual.

Hope this helps. Have fun juxtaposing the quantitative and the qualitative data together.

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