There’s no way to sugarcoat how bad 2020 was for many REITs.
But, with 2021 more than half over, things are starting to look very different, in a good way.

While REITs (real estate investment trusts) are not fully out of the woods just yet, they are clearly making a comeback. Here’s what you need to know.

The Mall Is Not Dead

With over 200 enclosed malls and outlet centers in its portfolio, Simon Property Group is one of the largest mall REITs you can own. This has been a tough space for a few years as leveraged retailers that failed to keep up with shopping trends have been closing stores and going bankrupt. (This has been called the retail apocalypse and largely attributed to the growth of online shopping, but it’s really much bigger than that.)

The pandemic basically sped up the retail shakeout that was already underway but came with a lengthy period in which malls were forcibly shut by the government. Collecting rent was a problem at the worst point in 2020 and Simon cut its dividend 40% to preserve cash.

However, now that malls have been allowed to reopen, things are looking much brighter. Collecting rent is less of a fight, and occupancy has remained surprisingly resilient, sitting at 91.8% at the end of the second quarter. Simon still needs to fill empty space with vibrant new tenants, an effort that will take some time yet, but the worst appears to be over. In fact, the REIT upped its full-year 2021 guidance in both the first and second quarters. More important for dividend investors, the mall landlord has also increased its dividend twice, rewarding investors for the improvement in its underlying business.

The bigger takeaway here is that as weaker malls shut, the remaining, better malls get more attractive for consumers and retailers. All in, Simon looks like it is going to have a lot of winning malls when the dust finally settles. And that fact is already starting to shine through in its early comeback.

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