Malls’ future not that bleak: report

Talk of the demise of America’s shopping malls may be overstated, according to a rating agency report released last week.

Fitch Ratings took a neutral stance on retail REITs, or real estate investment trusts, the entities that own and manage malls and rent space to tenants.

Mall REITs are popular with investors for their attractive dividend yields. But the sector has come under pressure this year amid a wave of closure announcements from department store chains, sporting retailers and teen clothing retailers, among others.

The retail sector is going through a period of severe retrenchment as it responds to the challenge from Amazon as well as changing consumer behavior and spending habits.

But Fitch is upbeat that bricksand-mortar stores will continue to exist and attract shoppers. The ratings agency does not see a drastic change in the near term as it expects that about 70 percent of retail sales will still take place in a physical store in 2020, down from 80 percent today.

“Consumers by and large still enjoy shopping as a leisure activity, plus a significant portion of online sales are connected with a store visit,” Fitch managing director Steven Marks wrote in the first issue of the agency’s new Equity REIT Handbook.

Some mall REITs, particularly class B — which are malls typically just anchored with Sears and JC Penney — will struggle to grow rents as they lose tenants, he said. But Fitch is overall neutral on the sector, a position that is considerably less bearish than other rating agencies.

Separately, Taubman Centers, the class-A mall operator, emerged victorious from a proxy fight earlier this month, as shareholders voted in support of its board nominees, fending off opposing candidates from activist hedge fund Land and Buildings.