What happened

In the first few minutes of trading on June 9, mall real estate investment trust (REIT) giant Simon Property Group (NYSE:SPG) fell 12%, and it wasn't alone. Peers Macerich (NYSE:MAC), Washington Prime Group, CBL & Associates (NYSE:CBL), and Pennsylvania REIT (NYSE:PEI) all dropped more than 10%, as well. Tanger Factory Outlet Centers (NYSE:SKT) held up best, witnessing only a high-single-digit drop. 

A man looking at a line crashing through the floor beneath him

Image source: Getty Images.

All of these REITs have seen their shares rise in recent weeks, often in dramatic fashion. Penn REIT's stock has more than doubled over the past month. Macerich is up nearly 80%. CBL's shares have advanced a touch more than 70%. Simon and Tanger have posted gains of 50% and 38%, respectively. 

So what

Today's quick drop shows there's still a great deal of uncertainty in the mall space and that investors can easily get spooked. This type of volatility is likely to continue for some time, perhaps until there's a fuller understanding of COVID-19 or a successful vaccine. So far, neither of those things have come to pass, though there have been glimmers of hope on the vaccine front

Investor sentiment, however, is a powerful force and of late the mood has been upbeat. Although that changed at the open of trading today, with investors taking a risk-off stance, tomorrow could just as quickly see investor exuberance return. What's interesting here is that there are very large differences within the mall REIT space.

For example, CBL is in active discussions with restructuring experts. It looks very likely that it will end up in bankruptcy court in an attempt to deal with a heavily leveraged balance sheet. At the other end of the spectrum, Tanger has said that it currently has enough liquidity to go as much as 24 months without collecting rent, which seems unlikely given that its reopened centers have seen traffic recover to around 80% of pre-coronavirus levels. Still, it's using its financial strength to give lessees a two-month rent deferral, no questions asked, to help them get back on their feet. That's a very real benefit now that malls are again starting to reopen.   

Industry bellwether Simon Property Group led the way on that front, as it began by reopening 49 malls in early May. Others quickly followed, with Macerich announcing that it had 20 malls reopened on May 19. Penn REIT lagged behind on this front, with just 4 malls open or close to being open on May 22. The reopenings were a big piece of the investor enthusiasm over the past month or so. Notably, however, within this trio there are very material differences, with Simon's balance sheet in far stronger shape than the other two. In fact, only Tanger is remotely close to Simon when it comes to financial debt to equity.   

SKT Financial Debt to Equity (Quarterly) Chart

SKT Financial Debt to Equity (Quarterly) data by YCharts

And that doesn't even begin to consider the actual properties that each of these REITs owns. Macerich, for example, has one of the best-performing portfolios while CBL owns a terrible collection of malls, relatively speaking. The others are somewhere in between, though Simon's portfolio has an enviable combination of scale and operating performance and Tanger's outlet center focus makes it a bit of a tough comparison because the business model is inherently different from enclosed malls. 

Now what

Price volatility in the mall REIT space is going to continue, with more good and bad days to come in often dramatic fashion. That said, it's important for investors to dig beneath the surface here, because all mall REITs, despite the tendency to trade in rough unison, are not created equal. As business gets back to normal, the underlying differences will likely become increasingly important to know and understand. Risk-on and risk-off days aside, in this market you're probably better off sticking to the best names and avoiding the most troubled ones.