Own a mall REIT? Don’t count on nice stores to boost value

Investors who own mall REITs are hoping for steady or an increasing number of visits to the underlying shopping centres in their REITs’ portfolios.

One way to predict that is through measuring foot traffic trends. But many REITs do not count all people who visit every individual mall they own, explains Thasos Group, a artificial intelligence firm.

“Instead, such REITs use people counters for a sample of malls as an indication of performance for their malls nationwide,” the firm says in a release. “In at least one case, a REIT appeared to use a sample of one mall to answer questions about foot traffic trends across all properties.”

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Thasos has found high-profile stores and restaurants can actually hinder rather than help foot traffic. When it analyzed real-time location data from mobile phones, it found:

• high-tech stores such as Apple, Microsoft, and Tesla have no effect in preventing declining traffic;
• malls with destination restaurants such as Cheesecake Factory and P.F. Chang’s underperform by 3.5%;
• malls with high-end department store anchors such as Nordstrom and Macy’s underperform by 3%; and
• malls and strip centers with grocery stores and consumer staples outperform by 5%.

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Thasos says that during the Q1 2017 earnings season, many mall REITs reported or suggested that year-over-year growth in foot traffic across their mall properties was positive.

But Thasos says most REITs operating malls classified as high-quality Class A by Green Street Advisors actually have negative year-over-year foot traffic on a rolling quarterly basis through May 2017, including Simon Property Group at -5.4%, General Growth Partners at -5.7% and Taubman Centers at -6.2%.

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Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.