#81: Julian Lin | The opportunity in mall REITs | Macerich (MAC)

Show Notes 

In this episode, Eric sits down with Julian Lin to discuss the
mall real estate industry.


Julian is a contributor on Seeking Alpha with over 13,000
followers. Julian runs a stock investment newsletter named Best
of Breed which invests in high-quality companies with “moaty”
business models, conservative balance sheets, and best in class
management teams. You can find out more about the newsletter here
- there is a 2 week free trial available.


Stocks of mall real estate investment trusts (‘Mall REITs’) have
been crushed over the past several years, with some names having
dividend yields up to 30%. While retail bankruptcies and store
closures have indeed pressured the sector, there are many
misconceptions.


For one, vacant Sears and JCPenney stores do not signal the
“death of malls” but instead present opportunity. Mall landlords
are replacing these stores with restaurants, fitness centers,
movie theaters, all while earning an 8% cash return on
investment.


Further, not all malls are created equal. Many low-quality malls
may eventually need to be completely repurposed away, but
high-quality malls, known as “Class A malls,” continue to thrive
and should have relevance for decades to come. Class A malls
continue to raise rents and grow cash flows.


The elevated amount of store closures and retail bankruptcies has
depressed occupancy rates and cash flows in the near term, but
Class A malls should be able to backfill vacancies and return to
strong cash flow growth in short order.


Julian reveals the two names that he is most optimistic about in
the sector, one with an A credit balance sheet and another with a
nearly 13% dividend yield.


You can find more high-quality growth and value picks from his
newsletter Best of Breed here - there is a 2 week free trial
available.


 
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