Blue Lights Are Flashing In The Mall REIT Sector


Brad Thomas wrote this article and it has appeared previously on Forbes.
I remember that when I was growing up, I would enjoy shopping at K-Mart with my mother. It was exciting for me to walk all over the store and I could not wait to hear the words being screamed across the speakers,

Alogo of US retailer K-Mart is seen in New York, June 18, 2013. AFP PHOTO/Emmanuel Dunand (Photo credit should read EMMANUEL DUNAND/AFP/Getty Images)

Attention, Kmart shoppers, there is a blue light special in Aisle 17.
What a rush, I would run over to the flashing blue light to see what incredible bargains were being uncovered...

As viewed below, these eight Mall REITs have returned an average of -22.1% since January 1st.

Source: FAST Graphs
Sound ironic?
Kmart became known for its "Blue Light Specials” and now the attention is on the real estate owned by Sears, JC Penney (JCP), and Macy’s. Specifically, the struggling department store chains that are being forced to close stores and adapt to the disruption related to e-commerce and the $1,000 per share gorilla named Amazon (AMZN).
I just finished up my newsletter (Forbes Real Estate Investor) where I have an entire section dedicated to Retail REITs and my introduction is called “Sleeping With The Enemy”. You’ll have to read the newsletter to find out what Amazon is up to.
What Should a REIT Investor do?
As a value investor, I am trained to seek out the blue light specials, but I must also pay close attention to quality, and more specifically the fundamentals that are driving earnings and dividend growth.
While the blue lights are flashing the brightest at some of the lower quality Mall REITs like Washington Prime (WPG) and CBL Properties (CBL), I must remain focused on the overall safety of the dividend.
Although the dividend yield itself is not the sole reason to invest in a REIT, it is a pretty good proxy for investment risk, and investors should always question the underlying strength of it (the dividend).
For that reason, I am staying away from the riskier Mall REITs that have outsized exposure to Sears. I prefer to maintain exposure in the higher-quality Mall REITs like Simon Property Group (SPG), General Growth (GGP), and Tanger Factory Outlets (SKTS). See my recent article on Tanger HERE.
No one doubts the fact that e-commerce serves a valuable place setting in a retailer’s business model, however, brick & mortar remains a critical channel and when the blue lights are flashing, investors should maintain a tactical strategy that includes focusing on fundamentals.

Source: FAST Graphs
I own shares in SPG, TCO, SKT, and PEI.
I'm editor of [Forbes Real Estate Investor, ](*coauthor of The Intelligent REIT Investor* (Wiley/Forbes) and author of [The Trump Factor: Unlocking the Secrets Behind the Trump Empire ](*.*