Just when we thought the Reddit short squeeze saga was over, GameStop (GME 3.68%) and AMC Entertainment (AMC +0.00%) are at it again. Both stocks are spiking higher, and their prices are extremely volatile again.
However, it's important to emphasize to investors that while these stocks are grabbing the headlines, they aren't the only stocks in the market with extremely high levels of short interest. Here are three REITs in particular -- one of which has even higher short interest than GameStop -- that could potentially be short squeeze targets if the Reddit-fueled volatility continues.
Image source: Getty Images.
Investors are betting against these three REITs
Three retail-focused real estate investment trusts in particular have high levels of short interest. To be sure, some short-sellers seem to have thrown in the towel after the first round of short squeezes, but as you can see in the following table, short interest in these names is still pretty high.
As a reminder, short interest is the percentage of a company's shares available for trading that are sold short.
|
Company |
Short Interest on 2/12/2021 |
Short Interest on 12/31/2020 |
|---|---|---|
|
Macerich (MAC +0.32%) |
26% |
58% |
|
Tanger Factory Outlet Centers (SKT 0.76%) |
33% |
50% |
|
Seritage Growth Properties (SRG +0.00%) |
18% |
40% |
|
GameStop (GME 3.68%) (for reference) |
30% |
140% |
|
AMC Entertainment (AMC +0.00%) (for reference) |
17% |
53% |
Data source: TD Ameritrade.
As you can see, short interest in each of these names was higher before the initial Reddit-fueled short squeezes we saw in January. However, any double-digit level of short interest is still a good indicator that there are quite a few large outstanding bets against the stock.
One interesting observation is just how sharply the short interest in GameStop and AMC has declined. In fact, Tanger Factory Outlet Centers now has higher short interest than GameStop, and all three of these retail REITs have higher short interest than AMC.
Why are investors so negative on these retail REITs?
To be fair, there are some valid reasons hedge funds and other investors might have negative outlooks on these stocks and be willing to bet against them. Shopping malls (where many GameStop locations are) were struggling long before the COVID-19 pandemic hit. Just to name a few company-specific reasons why short-sellers might be so negative on these three in particular:
- Occupancy at Macerich malls has declined from 94% at the end of 2019 to 89.7% in 2020, and funds from operations (FFO, the REIT version of earnings) dropped by 54% year over year in the fourth quarter of 2020.
- Tanger Outlets' occupancy rate has declined from more than 97% at the end of 2019 to 91.9% at the end of 2020, thanks to the bankruptcies of several major tenants.
- Seritage Growth Properties is losing money, which is rare for a REIT, and needs to meet certain leasing targets in order to gain access to its credit line.
Buy, sell, or hold?
While there are certainly some valid reasons short-sellers might have negative opinions of these three companies, there is also quite a bit to like. For example, in Tanger's case, the company reported that customer traffic at its properties in January was virtually unchanged from comparable prepandemic levels. Seritage was able to end 2020 with more than $160 million in cash due to asset sales, which lets it fund its redevelopment projects for several more quarters. Macerich's average rent per square foot actually increased slightly in 2020. And Macerich and Tanger are quite profitable, even after the pandemic's disruption.
The bottom line is that if you're a long-term investor, there are some good reasons to own these stocks. A short squeeze is just a bunch of market noise that has little or no effect on the long-term health of a company. In fact, if a short squeeze were to happen, it could actually be good news for Tanger, as the company just approved a program to sell as much as $250 million in new stock on the open market. So while these three retail REITs aren't right for every investor's portfolio, it's important to be aware that they could potentially get caught in short squeeze activity. Long-term investors should keep their focus on the fundamentals, not any short-term volatility.
