What happened

Shares of mall-focused real estate investment trust (REIT) Macerich (NYSE:MAC) took off out of the gate today, rising as much as 18% in morning trading. Following along for the ride was peer Pennsylvania REIT (NYSE:PEI), which jumped an incredible 29%. Tanger Factory Outlet Centers (NYSE:SKT), which is uniquely focused on the outlet center niche, also got in on the act, rallying almost 16%. And Seritage Growth Properties (NYSE:SRG), which is redeveloping old Sears and Kmart stores, saw a spike of 13.5%. Although not as robust, shares of mall REIT giant Simon Property Group (NYSE:SPG) also rose, with its stock up around 5% at noon EST.

This is a notable daily upturn for an industry that has been struggling to deal with coronavirus pandemic headwinds. It's worth taking a closer look at what's going on, which really isn't one item so much as a collection of things that may be shifting investor sentiment.

Three women with bags shopping in an outdoor retail area.

Image source: Getty Images.

So what

As 2020 got under way, mall REITs like Macerich, Simon, Penn REIT, and Tanger were dealing with the so-called retail apocalypse. That was the -- in hindsight, hyperbolic -- name given to the slow-moving problem of retailers shutting stores and, in some cases, going bankrupt. The cause investors focused on was the broad shift toward online shopping, but there was much more going on. The retailers getting into trouble were the ones that weren't living up to customer expectations. That included weak online shopping options, but also retailers that were falling behind fashion trends and offering poor store experiences. The companies going bankrupt, meanwhile, were mostly the ones that had leveraged up their balance sheets

When the coronavirus pandemic hit in early 2020, however, the retail apocalypse sped up, truly earning its frightening name. The problem was the government shutdown of non-essential businesses being used to slow the spread of the virus. With stores shuttered, the most vulnerable retailers had little choice but to circle the wagons. Many stopped paying rent and others simply threw in the towel and declared bankruptcy.

As of early November, Simon Property Group had only collected 85% of its third-quarter rents. Macerich's rate for the quarter stood at 80%, and Tanger a relatively impressive 89%. Those aren't great numbers, but they are much better than the collection rates seen early in the pandemic. Seritage, meanwhile, collected 86% of its rents, but there's a complication. It has long been working to find new tenants to occupy stores vacated by Sears and Kmart (following often expensive redevelopment efforts), something that only got more complicated because of the pandemic headwinds. So that number is actually not quite as positive as it might seem, since nearly 40% of its square footage is classified as signed but not occupied. Penn REIT didn't provide a comparable number, but noted that collections were improving. That said, Penn REIT's leverage pushed it into bankruptcy court, along with peer CBL & Associates, in late 2020. Although Penn REIT was able to quickly emerge from bankruptcy, it's an indication of just how bad things are in the industry.   

As 2021 has gotten under way, however, news out of the sector has actually started to improve. For example, Simon was able to raise $1.5 billion from a bond issuance, allowing it to repay a sizable bond coming due later in 2021. The key fact here, however, is that rates on the new bonds being issued are lower than the rate on the one being repaid. Penn REIT, meanwhile, announced that it is adding a grocery store to one of its malls, suggesting that there's still demand for the empty space in its properties. Meanwhile, at another mall, it is moving forward with plans to add apartments as it looks to evolve its malls to better meet current market needs.   

That said, the biggest news has probably come from outlet-focused Tanger. First, it announced that fourth-quarter rent collections were over 90%, with customer traffic in the quarter at roughly 90% of the previous year's level (which suggests that physical shopping has not been replaced by online shopping). And, then, just a couple of days later, on Jan. 14, it reinstated its quarterly dividend at $0.1775 per share. It suspended its dividend to preserve cash in early 2020 after decades of annual dividend increases. To be fair, the new dividend is just half the previous dividend, but that Tanger has started to pay a dividend again is a big statement about the future.   

SPG Chart

SPG data by YCharts

That's the key takeaway as coronavirus vaccinations start to be distributed. Even before the vaccines were available mall REITs were starting to stabilize. And now, with the vaccines, the future looks increasingly bright. Tanger's move to reinstate its payment put an exclamation point on the notion that the worst may be over for mall REITs. Investors reacted by bidding up the shares of companies in this beleaguered industry today.

Now what 

There is, indeed, good news coming out of the mall REIT space. However, it is too soon to suggest that things have turned notably better. These are still early days in the mall recovery. It takes time to retenant malls, which are ecosystems that require careful planning and monitoring. That said, the increasing flow of positive news might finally be drawing investor money back into the sector.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.