Recent data from the Commerce Department indicates that consumers are spending more of their cash in retail stores, with retail spending up 1.1% for March for the largest gain since September 2012. It seems that after months of disappointing economic data, Americans are buying once again, and when the shopping bug bites, many people head to malls. Many of the nation's largest malls are owned by publicly traded real estate investment trusts that offer investors a way to share in the rewards of property management, such as Simon Property Group (SPG -0.26%), General Growth Properties (GGP), and Macerich Company (MAC 1.89%). Are these mall-owners worthy of a spot in your portfolio?
Recharging at the mall
With ownership interests in more than 325 retail real estate properties worldwide, Simon Property Group is the largest American REIT. Sometimes, being the largest can be a negative, but this hasn't been true for Simon recently. Recently, Zacks Investment Research released a note to investors which declared that Simon is on a "winning streak" and it has a price target of $179 set. Shares of Simon closed last week at $173.07. The optimistic sentiment stems from positive first-quarter results, good revenue, increasing occupancy gains, and a hike to Simon's quarterly dividend, which currently stands at a 3% yield. Indeed, with revenue of $5.18 billion and a healthy dividend, this stock is attractive, but Simon is shining in other ways as well.
Simon has teamed up with NRG eVgo -- a subsidiary of NRG Energy -- to install Electric Vehicle charging stations at several of its properties. These charging stations enable drivers to recharge their electric cars while shopping at 40 of Simon's properties around the country, and plans call for the addition of more charging stations throughout the year. The charging stations should draw some new traffic to Simon's malls as more and more electric cars are out on the road.
Electronic savings at the mall
Analysts aren't without concerns for Simon's growth potential though. Zacks points to concerns over the rise of online retailers. There's no denying that this is an ongoing concern for all brick-and-mortar retailers, but General Growth Properties -- the nation's second-largest mall owner -- has taken steps to stay in pace with technology. GGP recently announced a partnership with coupon-app maker and website operator RetailMeNot which makes RetailMeNot the preferred digital coupon provider for all of GGP's malls.
The mall at your doorstep
Discounts may get some people into malls, but with online retailers constantly lowering prices and shortening home delivery times, mall operators could struggle to get customers into their malls at all. With this in mind, late last year, Simon, GGP, and the Macerich Company found a way to bring the mall to you. All three have partnered with Deliv, a Silicon Valley start-up that offers same-day delivery services. Through the partnership, tenants of Simon, GGP, and Mecerich can offer home delivery for a wide variety of products from their malls, often within hours of the placement of an order.
The bottom line
Simon seems to be stable and strong at present, and its partnership with NRG eVgo may attract EV owners. However, it is too soon to know how many EVs will ultimately hit the roads or how many drivers will take advantage of Simon's charging stations. While a potential fee on the charging stations could provide an extra source of revenue for Simon, whether or not EV drivers will be willing to pay the fee, or shop in Simon malls while recharging, remains to be seen.
GGP looks strong as well, with $681.40 million in revenue and a FFO per share increase of 21.4% for its quarter ending March 31, 2014. It also seems that GGP is positioned to get higher rents from its tenants. According to GGP's first-quarter report, rents on 2014 leases are 10.8% higher than those on leases due to expire. Net operating income at properties owned for at least a year also rose 4.8% year-over-year, beating even the results from Simon Property Group.
Macerich, on the other hand, has struggled a little. For its quarter ending Mar 31, 2014, Macerich's FFO missed the consensus estimate by $0.04, but its total revenue increased by 0.7% year-over-year to $264.5 million.
Still, all of this seems encouraging, especially for an industry tied to consumer spending. All indications are that these REITs have managed to perform well even with tough competition from online retailers and bad weather across much of the nation during the all-important holiday shopping season. All three of these companies are also taking steps to compete with the fast home delivery offered by online retailers. There seems to be a promising road ahead for these companies, and they may well deserve some more attention from you.
