Shares of mall-focused real estate investment trust Simon Property Group (NYSE:SPG) rose as much as 12% in the first half hour of the trading day on May 18. Following closely behind was Macerich (NYSE:MAC), which was up 11%, and factory outlet specialist Tanger Factory Outlet Centers (NYSE:SKT). Trailing a little behind this trio was Pennsylvania REIT (NYSE:PEI), which was up in the high single digits.
Although the entire market was higher during early trading, and that was a clear help to this group, the big market-moving news that came out before the day's trading began was extra beneficial for mall owners.
Malls ended up shuttered because of the government's efforts to slow the spread of COVID-19. Non-essential business closures and social distancing pretty much dictated this outcome. Malls are built specifically to get large numbers of people into one central area to shop for things they may or may not really need. That doesn't combine well with an illness to which nobody has any immunity, and that happens to spread easily in group settings.
Malls have started to reopen again, with Simon leading the way for the broader group. It is taking a number of steps to assure consumers that its malls are safe. That includes making an extra effort to keep its facilities clean, handing out face masks, and limiting the number of customers that can enter a mall at a given time. These steps make complete sense given the nature of COVID-19, but they will add costs and reduce shopping at Simon's malls. All of the mall REITs are taking similar steps as they, too, look to reopen for business.
Tanger stands out from the pack here because the vast majority of its malls are outdoor facilities. It doesn't need to do quite as much to reassure customers as indoor mall operators like Simon, Macerich, and Penn REIT.
Reopening is great news in general, but the overhang from COVID-19 remains a very big issue. Medical professionals, the Federal Reserve, and government officials have all said that it could be impossible to return to a pre-coronavirus "normal" until there's a vaccine. That means that owning a mall will remain a difficult business for the foreseeable future, since there is no vaccine just yet. It's a notable headwind for mall owners like Penn REIT and Macerich, which have elevated debt levels.
But all of this could change at some point, and the market jumped on an early indication that there's progress being made. Biotechnology company Moderna announced on May 18 that it has seen early success with a vaccine that it has in phase 1 trials. However, it's important not to get too caught up in the news. Phase 1 trials, as the name implies, are still early in the approval process. The pharmaceutical industry is littered with candidates that passed phase 1 and never became a viable drug. Moreover, the numbers involved with this early study are quite small, with only 45 people in the trial. There's a lot more work to be done before Moderna brings a vaccine to market.
Malls reopening is good news. A vaccine that would make consumers feel safe in a mall (and eliminate or at least reduce social distancing requirements and safety protocols) would be even better. Thus, it's not surprising that Wall Street got super excited about Moderna's news and pushed the mall REITs sharply higher. Only it's too soon to really know if there's anything worthwhile that will come from this. Mall REITs remain a highly volatile sector and news like this only highlights that volatility, which will often be driven by nothing more than investors' emotional swings.