No. of Recommendations: 8
Are there other REITS and real estate companies that you like?
In the spring of 2020, when pandemic-inspired shutdowns rolled through the economy, enclosed shopping malls were among the hardest-hit economic sectors. Most were forced to close, representing an unprecedented cessation of business. The market values of mall owners collapsed. Lower-quality mall REITs went belly-up.
I bought shares in the three highest-quality publicly-traded mall owners at the time as a contrarian play -- Simon Property (SPG), the old GGP (BPY), and Macerich (MAC). The fourth, Taubman, was in the process of being acquired by Simon.
Manic Mr. Market did turn out to be overly distraught about the fate of these strong companies based on an extreme but temporary circumstance. BPY and MAC made good returns from their lows and I later exited those names.
I continue to hold and like SPG. Macro trends and magazine cover stories have not been kind to the sector. First came the 'retail apocalypse,' in which most shopping would go online and physical stores would be devastated. Then came the pandemic. Now come rising interest rates and fears of a recession.
Simon has navigated successfully through all this, taking advantage of dislocations to absorb Taubman and bring a number of retail brands out of bankruptcy at fire sale prices that make good outcomes likely. It continues to trade at FFO multiples below its historical average. Humans have proved again to be social animals and the high-quality gathering spaces -- now featuring an expanding array of experiential offerings to complement the retail foundation -- are thriving again.
The dividend, slashed in 2020, has been slowly coming back. At $1.80 per quarter, it is more than halfway back to its pre-pandemic high of $2.10. It currently represents a yield over 6%, which suggests the share price is too low.
There's no predicting how the market will treat it in 2023 if a recession comes, but I like it as a long-term value play and I am happy to be paid to wait for its market value to return eventually.
