INVESTMENT IDEAS
Does the ecommerce revolution spell the end of the shopping mall? Investors sure think so. Most of the nation's malls are concentrated in a few publicly traded real estate investment trusts, aka REITs, and last year an ecommerce-obsessed Wall Street sent the share prices of these companies sliding an average of 13.9 percent.
The logic goes like this: Since we can now browse online for books at Amazon.com, clothes at the Gap's Web site, and toothpaste at drugstore.com, who needs the offline mall? Because malls make their money not only by renting space but also by taking a slice of tenants' sales, in theory online shopping will cut into that revenue, too. And most retailers allow ecommerce returns to local outlets, which could further depress overall shopping mall sales. Does that mean malls are destined to be shuttered?
If only. Fact is, the majority of Americans still love to get into their cars and go shopping. For a few years yet, many will prefer to try on clothing or flip through a few pages of a novel before buying. Despite the eshopping boomlet, the REITs' funds from operations (FFO) actually grew last year by a healthy 29.6 percent. And the mallcos aren't too worried about online returns: They know from experience that once people are physically in their malls, they often drop extra cash. Besides, smart mall owners are already demanding that retailers handle ecommerce returns separately, as they do catalog sales.
Have no doubt: The Amazon crowd owns a large hunk of the retail future, but those greasy Food Courts and cheesy fountains aren't going away yet. And with their share prices depressed, the top REITs – General Growth Properties, Macerich, Simon Property Group, and Westfield America – might be worth a look.
| Company (ticker)| 52-week stock performance| FFO growth
| Gen. Growth Properties (GGP) | – 10.8% | 30.2%
| Macerich (MAC) | – 23.7 | 30.2
| Simon Property Group (SPG) | – 19.9 | 31.2
| Westfield America (WEA) | – 1.1 | 26.6
General Growth Properties: www.generalgrowth.com Macerich: www.macerich.com Simon Property Group: www.simon.com Westfield America: www.westfieldamerica.com
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