As U.S. retailers grapple with slumping sales, short sellers are turning their attention to the struggling chains' landlords.
Shares of retail-focused real-estate investment trusts, which own malls and shopping centers, have slumped since August last year, when Macy's Inc. announced it would close 100 stores. Sears Holdings and J.C. Penney Co. later said they would close more than 100 stores each.Recently:
A regional-mall REIT index plunged about 22% from late July until March 6, according to data from the National Association of Real Estate Investment Trusts.
Short sellers have been especially active. The amount of so-called short interest, a measure of short-selling activity, on retail-focused REITs increased to $6.9 billion as of March 3 from $5.6 billion as of the end December, according to S3 Partners, a financial analytics firm.
Short sales are bearish bets in which investors borrow shares and quickly sell them, with the intention of buying shares later at lower prices to repay the loan, pocketing the difference.
Short sellers are betting landlords will face higher costs to spruce up their centers or struggle to replace stores that close, especially in weaker locations.
So far, short trades against REITs with more class B and C malls, such as CBL & Associates Properties Inc., Pennsylvania Real Estate Investment Trust and Washington Prime Group, have been more profitable, according to data from S3 Partners.
But even shares of Class A mall REITs, which own the most productive malls in the country, have faced pressure. Short interest on mall giant Simon Property Group jumped to $1.3 billion on March 3 from $916 million at the end of 2016, near its record high. Over the same period, short interest trades in GGP Inc. increased to a record $689 million from $430 million.
"There has been a steady drumbeat of negative reports from anchor retailers in the mall," said James Sullivan, managing director at BTIG LLC, a financial services firm. "As a result, when we keep hearing bad news it adds to the impression that there is a problem in the malls."
Other short sellers are focusing on mall debt. Losses by securitized mortgages tied to retail property rose to $1.7 billion last year from $1.3 billion in 2015, the only property segment that showed an increase in losses, according to Moody's Investors Service....MORE
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