Earlier this month I posted my view on how to approach mall REIT valuations given the stresses engendered by online competition. (See https://shulmaven.blogspot.com/2017/05/a-new-look-at-mall-reit-valuations.html) Since then the mall REITs drifted lower rallied and then fell back a bit. Nevertheless I believe that the burden of proof is on the bulls with the mall REITs continuing to trade at substantial discounts to Street net asset values. (See below) If the Street is right then back up the truck, but my question with the world still awash in a sea of liquidity, where are the sovereign wealth funds and private equity? This is especially true for GGP whose CEO all but announced the company is for sale and where Brookfield already owns 29% of the company. The silence, up to now, is deafening. Thus if private equity or sovereign wealth funds don't come in soon to scoop up the apparent bargain, the Street, as I argued, is way off.
REIT Street Market Price Discount Mkt. Cap.
NAV (in $bil)
SPG 214 157 27% 50
GGP 32 23 28 20
MAC 79 59 25 8.5
TCO 95 62 35 4
In my view sophisticated buyers understand two things. One, there is a structural revolution going on in retail as result of online commerce and two, the retail bankruptcies that we have seen this year will look like child's play during the next recession. Remember we are witnessing an onslaught of retail bankruptcies when income, consumption and employment data are relatively benign, what will happen when the economy turns more hostile.
As a result the clock is ticking. In the absence of a major deal or a portfolio sale/jv (a one-off transaction won't really count) over the next few months, Street estimates of net asset value will have to come down. As they say, time will tell.
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