Mall Short Sellers Feel Some Pain

Short sellers of mall operators have gotten pounded over the past week as expectations of corporate takeouts and heightened activist investor interest in landlords of class-A malls drives up share prices.

Short sellers of the seven U.S. mall real-estate investment trusts suffered declines in their positions of $280 million from Nov. 4 to Nov. 13, according to data from financial analytics firm S3 Partners. Through Nov. 3 of this year, they had been sitting on profits of $981 million.

On Nov. 3, Santa Monica, Calif.-based mall REIT Macerich Co. announced changes to severance pay for senior executives in the event of a change in control of the company.

In the past week, speculation that Brookfield Property Partners could make an offer for Chicago-based mall REIT GGP Inc. and news that activist investor Daniel Loeb's hedge fund Third Point had acquired a 1.2% stake in Macerich fueled gains in the shares of A-mall REITs, which generally own the most productive malls in the country.

Another hedge fund, Elliott Management, also has taken a stake in Bloomingfield, Mich-based luxury mall REIT Taubman Centers Inc. and has spoken with the company executives, according to a person familiar with the matter.

On Monday, Brookfield Property confirmed it is making an offer to pay $23 a share for the remaining 66% of GGP it doesn't already own, driving up GGP shares further. The stock closed at $24.05 Monday and $23.95 on Tuesday.

Since Nov. 3, shares of Macerich have risen 19%, while GGP is up 25% and Taubman Centers has jumped 22%. Shares of Simon Property Group, the world's largest REIT, have climbed 4%.

The short sellers "are licking their wounds now," said Ihor Dusaniwsky, managing director and head of research at S3 Partners.

Short sellers borrow shares of a company and sell them, in hopes of buying the shares later at a lower price, repaying the loan and pocketing the difference. Some short sellers have been targeting retail-focused landlords, betting they would struggle with higher vacancies and higher costs of replacing tenants following an increase in retailer bankruptcies and store closures this year.

Write to Esther Fung at esther.fung@wsj.com

(END) Dow Jones Newswires

November 14, 2017 17:24 ET (22:24 GMT)