RVI - Mall REIT trading at significant discount to pre covid valuation
+85% upside to NAV with liquidation catalyst
I have been in US mall reits as a return to normalcy trade. It turned out to be the most profitable single theme for me. I was long SKT, MAC & WPG in different times. All of them have rerated higher. In my search for new mall reits I found RVI.
RVI is a mall reit in liquidation. The company originally owned 50 assets, comprised of 38 properties in the continental US and 12 in Puerto Rico. It has sold 33 assets (whole or part) over the past few years at 20% discount to 2019 (pre covid) appraisal values. All but one asset sold in the past are in the US.
It’s now left with 11 assets in US and 11 in PR (details below), which they continue to market to sell. RVI tenant list looks safe with the largest being Walmart.
RVI managed to sell assets even in 2020 despite COVID (details below). RVI sold its first PR asset recently at 29% discount to 2019 appraisal value. 2020 US asset sales happened at an average of 13% discount to 2019 appraisal value.
What should the discounts be going forward in a more normal world?
My view is
US – 20% discount inline with historical sales level. This is a reasonable assumption given average 2020 (COVID year) discount was only 13%.
PR – 30% discount inline with the only & recent asset sale. This is reasonable as well given sale was during COVID.
Morgan Stanley research worked out the below NAVs with different discounts.
Their base case assumes 25% and 50% discount for US and PR assets respectively. This base case NAV works to $17.5 at 15% discount rate. That’s about a 10% upside. In my view these assumptions are very conservative. Even in 2020 COVID year the discounts were better than the base case.
Their bull case assumes 20% and 25% discount for US and PR. That’s more inline with my assumptions and realistic. NAV works to $26 with 60% upside.
Morgan Stanley also hiked its discount rate to 15% from earlier 8% due to higher risk. In my opinion, 15% is too high given normalcy is only months away & RVI debt is low.
I have NAV at more like $30. +85% from current price.
RVI consistently trading over $35 in H2 2019 pre COVID is a good sanity check for my NAV. RVI is one of the few mall REIT still trading at significant discount to pre covid prices with capital structure intact.
RVI has not participated in the recent mall rally and looks attractive here technically. Future asset sales are catalyst for rerating.