A Tale of Three Midwestern REITs
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Glimcher Realty Trust (NYSE: GRT) owns 21 malls and shopping centers outright and six through joint ventures, with eight in Ohio and the remainder spread across 14 other states on both coasts. Its diverse holdings include tourist destinations such as the Jersey Gardens outlet mall in Elizabeth, N.J. and luxury malls such as Westshore Mall in Tampa, Fla., but primarily consist of regional malls that cater to Middle America. Accordingly, the company’s largest tenants, each accounting for roughly 2% of annual rents, are Gap, Inc., Limited Brands, Inc. (parent of Victoria’s Secret and Bath and Body Works), and Foot Locker, Inc.
The main attractions of Glimcher stock are an outsized 3.9% dividend yield and a relatively discounted forward valuation. Based on the trailing 12 months, GRT trades at five times sales, less than best-in-class competitors Simon Property Group (NYSE: SPG) and Taubman Centers (NYSE: TCO), which trade at 10.7x and 6.66x sales respectively. Unfortunately, GRT is priced at a whopping 44.1 times earnings, as opposed to 32.3 for Simon and 24.7 for Taubman, and it has a heavier debt load relative to market capitalization. Glimcher’s forward P/E ratio of 14.0 is more reasonable, especially compared to Simon’s forward P/E of 19.8 and Taubman’s forward P/E of 22.3, but as with most stocks, numbers do not tell the whole story. Other than having headquarters in the Midwest and founders’ sons as CEOs, these REITs share very little.
Like Glimcher, Simon has a wide range of properties, the result of multiple acquisitions that made it the largest mall REIT in America and the largest publicly traded real estate company by market capitalization in the world. There is no typical Simon mall. Some Simon properties are open-air luxury malls, such as the Stanford Shopping Center in Palo Alto, Calif. (a leasehold property by the way), whereas others are enclosed outlet malls operating under the Mills brand. Some are suburban; others are in the city. Most are located in the U.S., but Simon does hold interests in 51 international properties located in Korea, Malaysia, Mexico, and Western Europe. Finally, while the Simon portfolio includes plenty of marquee names (e.g. the Houston Galleria and Copley Place in Boston), it is not restricted to the A-list; Simon does have lesser known properties in secondary markets. These malls may lack glamour, but they help sustain Simon’s 2.6% dividend.
Taubman Centers (NYSE: TCO) is unlike Glimcher and Simon. With a 23-mall portfolio that includes an enviable collection of trophy properties (the Beverly Center just outside Beverly Hills, Calif. and the Mall at Short Hills in ritzy Short Hills, N.J. are but two of them) and only three outlet malls, it is close to a pure play on the strength of luxury retail. Anchor tenants in its properties often include Saks Fifth Avenue and Nordstrom, which are drawn to Taubman’s stylish, modern malls located near affluent consumers in metropolitan areas. This business model requires sizable investment in each property, keeping Taubman’s dividend yield low (2.3% as of 8-3-2012). It does, however, generate incredibly high sales per square foot ($641 versus $404 for GRT and $554 for SPG), and it creates assets that offer superior liquidity in the face of adverse events and that may offer substantial capital appreciation in the future. Furthermore, Taubman will join Simon in having international exposure. Taubman is managing the fully leased IFC Center under construction in Seoul, South Korea, and has hinted at an upcoming mall project in a yet-to-be-named Chinese second-tier city.
Since their IPOs in the early '90s, these three mall REITs have moved in tandem, but Simon and Taubman have consistently outperformed Glimcher. Over the last five years, the market capitalization of SPG has doubled and that of TCO has increased 50%. Glimcher has continued to lag behind, shedding half of its value over the same time period. In short, Glimcher’s discounted valuation today reflects that the company lacks Simon’s reach, Taubman’s focus, and both rivals’ deal-making prowess. (As always, past performance does not guarantee future results.) Glimcher is noticeably absent from some of the strongest retail markets, including Washington, D.C., San Francisco, Dallas, and Houston. It has limited exposure to markets with high barriers to entry, such as New York City and Los Angeles, yet is present in resilient secondary cities such as Columbus, Ohio and Morgantown, W.V. Income investors bullish on consumer confidence and in search of dividend income may wish to consider Glimcher, but they should understand why it continues to trade at a discount to Simon and Taubman.
Fool blogger Jonathan Lim has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
