Reddit has always been a huge forum. People from different parts of the world with other interests can find thousands of like-minded circles. It lets you talk about your hobbies and beliefs and get advice from experts in many fields.
However, the site has never been as famous as this year. A single Google search for "Reddit" or "GameStop" immediately yields results related to the recent rally. Reddit users were responsible for GameStop's stock value increasing nearly ten times.
You probably already heard about it. Social media is filled with memes about the situation, but did you know that this phenomenon goes beyond laughs? For instance, there's a movie planned about the issue.
The move has also been quite beneficial for real estate investment trusts (REITs). Now, experts debate on whether or not these benefits will continue. Today, we'll look at these opinions to determine what REITs could expect in the near term.
What did the GameStop Craze Mean for Real Estate Companies?
CoStar offers an excellent breakdown of the rally and its implications. Most importantly, it goes into detail explaining why the event could be short-lived. The rally did generate noticeable profits for investors. The problem is that higher valuations might take longer to make profits than the hype.
The earnings needing weeks to roll out is also essential. The results from last year were unique, thanks to the pandemic. The challenge for REITs is to maintain this boost. Luckily, vaccination for COVID-19 promises stock bounces for retail REIT.
REIT Shares Receiving Boosts
While GameStop was the leader, other stocks also experienced price swings. We need to consider that hedge funds were massively shorting these stocks. The increase from $45 to $460 was a massive hit for investors.
The same drive has appeared to benefit several REITs, according to the article. Real estate stocks were the center of negative views from Wall Street. Retail real estate was the most pessimistic outlook, especially malls and other shopping centers. Most owners had to cut their dividends to save capital, and countless businesses closed.
The rally drove the REITs upwards, with even the most shorted ones experiencing over 40% increases. Some companies even enjoyed 100% swings. That means potential for moves to keep the momentum going. Companies should start to consider new approaches to commercial leases.
AMC and its Real Estate Implications
AMC was another considerable winner during the rally. The stock started that week, sitting at $2.85 per share and sat at $8 at the time of the CoStar report. Its peak went all the way to $24. After the pandemic's damage to the theater operator, this was surprising, to say the least.
The report mentions converting around $600 million in debt to over $800 million in gross proceeds from Silver Lake Group, an AMC lender. However, it also states that they were unable to contact AMC officials for comments.
Naturally, AMC benefitted from this sale. The stock boost also translated into over $300 million in additional capital.
What has this Meant for Malls?
Even if share prices start going back down, they might still level out over their previous stance. If that's the case, raising capital is possible. The main problem for malls is that share prices disabled the ability to gain capital.
There is Macerich, for instance, a mall REIT in the US. The company collected profits from the rise, which was beneficial for Ontario's Teachers' Pension Plan Board as well. The public fund managed to sell its Macerich stocks, a stake worth $500 million.
Interestingly, malls showed the best performance for REITs in January, with 18.5% returns against the overall 1.5% index. The main reason for the expected comeback is their cheap stocks. The vaccine rollouts also promise a promising outlook for this year.
However, things are still Looking tough for Malls
Despite the good pictures in the future, some experts state that the rally shed light on a dire future. For instance, Bloomberg recently reported that the huge push still isn't enough to save malls.
Curiously, the Teachers' Pension Plan case in Ontario provides plenty of evidence. Its shares sold to Reddit investors. This exit shook the ground for industry experts, especially considering it was the largest Macerich shareholder. Unfortunately, it's also an exit from one of the best-positioned mall REITs against the eCommerce trend.
Bloomberg's analyst, Lindsay Dutch, commented that Macerich faces challenges from both the pandemic and the overall outlook for mall space. Several factors come into play for the company's bearish expectations. It's not a secret that government restrictions decimated retail revenue. Now, there are two aspects to this.
Struggling Properties
These measures have driven major landlords to opt for bankruptcy. For instance, even the Pennsylvania REIT have been victims. The site's regional mall index saw a 41% fall last year, part of a five-year decline.
The same holds for individual properties. Spaces, like Prizm Outlets in Las Vegas, have gone through auctions. That particular case saw a $1.525 million sale, 95% below its previous appraisal.
Reddit groups have discussed struggling stocks extensively. Other names include the aforementioned AMC and Bed, Bath & Beyond. Bloomberg mentions that these names were the focus for the bidding frenzy from the Reddit rally that drove GameStop upward.
Premiums
On the other hand, boosts for companies like Macerich are a considerable premium against their assets' value. These companies' leverage is one of the reasons. Misplacing will likely correct as time goes on, particularly in the long-term.
An example is a previous relationship between Ontario Teachers and Macerich. The fund held 11% of the company's stakes, obtained in 2014. As the fund exited this position, they claimed that they'd focus on diversifying their real estate investment. Part of the strategy is to grow their Canadian business.
Did you know GameStop Stocks are Falling Quickly Again?
The eyes well over the news when GameStop's shares skyrocketed. Naturally, that meant REITs got a lot of breathing room. However, a lot of these people failed to notice that these numbers have started plummeting recently.
By February 4th, the retailer's shares fell 33%. This fall adds to an overall decrease of 81% for the week. One of the main reasons seems to be day traders moving to other stocks. The same has been true for AMC, with stocks falling over 45% this week.
The decline has resulted in considerable losses for the Reddit investors. Some of the cited reasons include manipulation from Wall Street.
However, we need to consider that this huge upsurge attracted countless investors merely focused on the profits. As the short-term returns come, these traders usually move to the next stock. Day traders speculate on short-term gains, and there's no reason to believe they didn't make up a large portion of the Reddit Rally.
The Rally Tries to Keep its Commitment
Reddit investors are still committed to maintaining the rally. The NY Post article linked mentions Meminem, a user was stating that a second wave is coming. The statement reports several strategies, such as moving to Etrade from Robinhood over gain freezes.
Dave Portnoy is another committed Reddit investor, apparently a major player in the rally. Starting February, he was reported to sell his GameStop and AMC shares for a loss of around $700k.
However, Reddit message boards still show optimism and distrust for Wall Street practices.
New Interest Drives Away Investors
The main reason for this downfall is the number of day traders moving to more interesting stocks. Interestingly, this new focus seems to be pharmaceutical companies. Another Reddit user mentioned investing in Cassava, a smaller drug manufacturer with promising Alzheimer's treatment research.
The company reported a 280% increase in shares, along with another company called Annovis Bio, with a 145% boost. Anavex Life Sciences experienced the same percentage. The three firms report similar progress with Alzheimer's treatment.
The Backlash Against Reddit and Similar Forums
Reddit has been the target for many critics accusing these forums of manipulating markets. The basis for these statements seems to be that this manipulation is unlawful, particularly around Section 230. This statute ties into social media's liability for its users' activity.
Some of the statute's carve-outs, for instance, point towards holding tech companies responsible for the content generated by their users. Similarly, some detractors also bring out the First Amendment. The thesis is that some precedents hold companies responsible for criminal communication via their platforms.
Reddit is largely self-moderated by the different communities. The WallStreetBets Reddit forbids insider information and other attempts to "game the market." Both WallStreetBets and even Discord have started to moderate their spaces against misinformation—but not stock market influence.
Final Thoughts
The most important takeaway from these reports is that the Reddit really seems to be a short-term event. As stock prices begin to fall again, REITs benefitting from this movement should make the most out of their gains before they disappear.
Considering a new strategy for screening tenants is mandatory. We've already reported how different industries have grown during the crisis. Capital gains from the Reddit rally should go into adapting methodologies to make the most out of this year's expectations.
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