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Mall REIT Cashes in on GameStop’s Wild Week on Wall Street

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The financial world has been scratching its head as hedge funds sweat bullets over the atmospheric stock price rise of declining video game retailer GameStop. Driven by a community on the popular social media platform Reddit that calls its WallStreetBets, retail investors have been pumping stocks to short squeeze ‘meme worthy’ companies like GameStop, Blackberry, Nokia and AMC. A few days ago Redditors began discussing another stock, Macerich (MAC), which Redditors began referring to as ‘GameStop’s landlord.’ After a surge in the REIT’s stock price over four trading sessions, the REITs biggest stakeholder, Ontario Teachers’ Pension Plan sold 24.56 million shares on Wednesday at an average price of $20.25 a share, cashing out to the tune of nearly $500 million. 

Lockdown and empty malls had Macerich’s stock as low as $6.82 a share last November, having lost more than 80 percent of its value since 2015, when Simon Property Group’s offer to purchase the REIT for $95.50 a share was rejected. During the holiday season, the price ticked up at a steady clip, but it wasn’t until late this month, when Reddit’s retail investors started to play, that the stock took off, culminating in Ontario Teachers’ Pension Plan cashing out at a nearly 300 percent margin just two months after record lows. Like GameStop, Macerich was heavily shorted, with a short interest representing 57 percent of the total shares of the company (called the ‘float’), according to data compiled by Bloomberg, which first reported the news. Like GameStop, the price gains left short sellers ‘holding the bag.’ 

The most perplexing thing about the massive volatility around these stocks is the lack of successful business prospects. Redditors pouring all their money into GameStop, BlackBerry and Nokia know these companies have poor prospects. Nothing has fundamentally changed about the trajectory of any of the businesses being pumped. They operate declining or even unprofitable businesses and offer little downside protection if and when the bubble bursts. Macerich was different. Backed by its real estate and rent rolls, MAC offered retail investors better downside protection, Redditors claimed. Macerich currently owns 50 million square feet of real estate consisting primarily of interests in 47 regional shopping centers, according to the company’s latest release. Throughout the pandemic and despite its share price, Macerich has remained profitable and kept paying dividends to shareholders. Shortly after the Ontario Teachers’ Pension Plan sell-off, which represented 15.4 percent of the company, Macerich declared a quarterly cash dividend of 15 cents per share of common stock. 

Short sellers believe the highly leveraged mall REIT grappling with a pandemic may be on the bring of Chapter 11, but that may not be the case. Early in the pandemic short sellers targeted REITs with large retail holdings, particularly in malls, expecting major issues with traffic and rent collection. It’s been rough going, but MAC has mostly avoided massive convent breaches and the long-term prospect for its high-quality malls looks good, especially considering vaccines are being rolled out nationwide and mall traffic is beginning to recover. Macerich’s prospects on paper may not have been dire, but no information the REIT put out could have produced the kind of stock rally the company’s largest shareholder cashed out on. 

“We’ve been a long-term investor with Macerich and throughout this relationship they have been a valued partner,” Ontario Teachers’ Pension Plan Spokesman Dan Madge said in a written statement to Bloomberg. “Moving forward, we are focused on scaling and diversifying our global real estate platform, and growing our existing Canadian real estate business.

Several retail stocks have risen with GameStop’s tide. Tanger Factory Outlet Centers and The Washington Prime Group are also seeing 20 plus percent surges in their stock price despite a lack of new information on the fundamental prospect of each REIT. Debt remains a huge issue for nearly every retail REIT, especially mall owners. But the financial headwinds these companies face doesn’t seem to matter. Retail investors and Wall Street as a whole are in a feeding frenzy, as trade volumes spike and brokers race to keep up with the bets. 

What’s happening with GameStop and the ripple effects of its volatility is the biggest financial story since the 2008 crisis. Powered by mobile apps, amatuer investors’ collective actions are exposing aubsurdites at the heart of America’s financial system. Detached from the reality of any substantive business prospects, billions are on line in a battle of wills between billionaire hedge funds and amatuer day-traders. For years retail investors have been hosed by major funds who use their sizable accounts to move markets. Without the same infrastructure, information and market access as professional funds, amatuer day traders never stood a chance. Until they found a place to organize. 

For years the WallStreetsBets subreddit was merely a place to commiserate on losses with other self-described ‘degenerates’ and ‘autists.’ A series of escalating bets against the biggest players on Wall Street has put the oddball community in the world’s spotlight. Originally conceived as a plan to beat the GameStop short sellers at their own game by pushing the stock from $4 to $8, pushback from Wall Street and vocal criticism of WallStreetBets’ antics created a rallying cry for fellow retail investors to follow. The small guy was tired of being pushed around. GameStop’s heavily shorted position gave amateur investors the perfect financial vehicle to inflict maximum damage on the funds that mocked them. This squeeze is even threatening brokerages like TD Ameritrade, Etrade, and the now infamous Robinhood since they need higher cash reserves to make the trades. While the goal of investors is to make money many seem intent on ‘holding the line’ to cause as much damage to the financial system as possible.

What’s played out over the past few weeks has been an epic tug-of-war over one of the market’s most ridiculous stocks. Last summer GameStop was trading at just $4 a share, now it’s trading at over $300 a share. All the volatility surrounding the stock means you should probably check the price yourself right now, who knows how it’s changed in the last five minutes. 

Amateur investors are showing financial markets their muscles. GameStop, AMC, and Macerich have become a populist banner to organize under. What started out as a crazy idea, was morphed by memes and boosted by banter, ended up as an all-out financial war with very real implications. Billions are on the line and the saga is far from over. The Ontario Teachers’ Pension Plan decided they’d had enough and cashed out before the house of cards came crashing down. At least someone is making money off this mess.

Associate Editor
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