• Alex Pettee, CFA

Mall REITs: Fears of Double Dip

  • Glimmers of hope were beginning to emerge for the battered mall REIT sector, which has soared 50% this year on signs of stabilizing in occupancy rates and normalizing rent collection.

  • Net Operating Income surged more than 40% in Q2 - albeit from easy comps - driven by a recovery in rent collection to 94%. Simon significantly boosted its full-year outlook.

  • Despite the rebound, full-year FFO will remain 20-50% below pre-pandemic levels across the sector. Downward pressure on re-leasing rental rates suggests that it's still too soon to call the bottom.

  • Hopes dashed? High-frequency activity data suggest that economic reopenings have stalled - and even reversed in some areas - amid a resurgence in COVID cases and hospitalizations across the globe.

  • Despite seemingly reasonable valuations, risks remain skewed to the downside. Outside of Simon, the balance of the mall sector - particularly the three recently-bankrupt REITs - cannot survive a "double-dip."

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Disclosure: A complete list of holdings and Real Estate and Housing Index definitions and holdings are available at HoyaCapital.com. Hoya Capital Real Estate advises an Exchange Traded Fund listed on the NYSE. Hoya Capital is long all components in the Hoya Capital Housing 100 Index.

Additional Disclosure: It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Data quoted represents past performance, which is no guarantee of future results. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy.

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