Shares of mall REIT Pennsylvania Real Estate Investment Trust (NYSE: PEI) have lost nearly half of their value over the past year -- driving the stock's dividend yield to 15% -- due to investors' fears about the so-called retail apocalypse. There is certainly some truth to these fears. Funds from operations (FFO), an earnings-like metric used to evaluate a REIT's performance, has declined steadily over the past few years. Management currently expects adjusted FFO per share of just $1.20 to $1.30 in 2019, down from $1.96 in 2014.
However, the problems afflicting the U.S. retail industry aren't impacting all malls equally. The best malls continue to attract lots of traffic, enabling them to maintain high occupancy rates while charging high rents. Last weekend, I had the opportunity to visit PREIT's two best malls: Cherry Hill Mall and Willow Grove Park Mall. What I saw confirmed that these two properties remain extremely valuable and hold plenty of long-term potential for PREIT.
Cherry Hill Mall and Willow Grove Park Mall are still vibrant retail destinations. Image source: Author.