If you follow the constant flux of new retailer slogans, it’s apparent how much the industry is changing.

From Staples, Inc. to Target Corp., retailers are grasping at anything to reinvigorate their image and revitalize their sales.

#-ad_banner-#​But while individual companies like J. C. Penney Co., Inc.  and Sears Holdings Corp. may be falling on hard times, the retail industry itself is not in such bad shape. The SPDR S&P Retail ETF (NYSE: XRT), which tracks a broad swath of the retail industry, jumped 6.5% in August as retailers reported second quarter earnings that were not as bad as feared.

But there is one industry that depends on sales at retail establishments, especially the big-box stores like J. C. Penney, for its profitability. This industry is plagued by overcapacity and a dangerous trend toward low-quality assets.

Worse yet, some of the weakest in the industry pay yields of up to 5% and income-hungry investors may be tempted to rush in before they know what they are buying.

I am talking about the neighborhood shopping mall and the real estate investment trusts, or REITs, that control them.

Remembering The Shopping Mall

Despite the current optimism for retail, serious long-term challenges persist for shopping mall REITs.

Online retail, known as e-commerce, sales rose 15.7% in Q2 2014 compared with Q2 2013, according to an e-commerce sales report released by the Census Bureau. Contrast that to the dismal increase of just 3.4% for brick-and-mortar sales over the same period and a vivid picture of a fading industry begins to form.

Many traditional retailers are finding it impossible to make a profit on such low growth in sales. The net profit margin at J. C. Penney was -8.0% in the most recent quarter and even profitable stores like Best Buy Co., Inc. booked a razor-thin margin of 2.3% last quarter.

Malls need large anchor-tenants, like J. C. Penney and Best Buy, in order to occupy the mall’s available space and spend marketing dollars to draw customers. With such weakness for big-box tenants, smaller retailers are suffering as well.

A major problem for mall REITs is that these huge centers do not see the same cycle of creative destruction as do other real estate property classes.

Other property classes are often easily redeveloped or demolished, but these square footage behemoths seem to die a slow death. Older, under-performing malls are sold off to investors or allowed to fall into bankruptcy.

Whether neighborhood demographics change or newer establishments draw shoppers away, less-profitable malls can easily become ghost-towns within a community.

The trend for mall REITs over the last several years has been to sell off less profitable locations and focus on stronger assets. Problems arise when a REIT keeps a property for too long or has too many in transition.

Knowing some of the key metrics for the industry and how your REITs stack up is an absolute must in this threatened industry.

Most REITs publish important metrics like sales per square foot and their reliance on specific companies as anchor tenants. On top of this, investors may want to research how much leasable area competes for shopping dollars in each REIT’s market, a term called gross leasable area, or GLA. Too much competition in a market and lower sales per square foot may point to low-quality assets in a portfolio.

CBL & Associates Properties, Inc. (NYSE: CBL) operates 150 properties with 80 regional malls and 29 associated centers in the Southeast and Midwest. The company books $351 in sales per square foot, the lowest of five U.S. REITs with a market cap over $3 billion. This amounts to just 63% of the group average  of $554 per square foot.

One of the company’s major malls, Citadel Mall, recently went through foreclosure and management has identified four others in the process or that will likely go into foreclosure soon. CBL & Associates has significant exposure to weaker anchor tenants with 67 JC Penney stores and 60 Sears locations.

Taubman Centers (NYSE: TCO) operates 24 properties with a more diversified national exposure. It books $707 in sales per square foot, the highest among the group. The REIT also has four properties in fast-growing China making — one of the few U.S. REITs to offer exposure to the market.

Taubman is located in high-end markets with 69% of anchor locations occupied by Macy’s, Bloomingdales, Nordstrom and Saks Fifth Avenue. Taubman has been aggressive in selling its lower-quality assets with an agreement to sell seven shopping malls to Starwood Capital Group for $1.4 billion, expected to close the deal in Q4 2014.

CBL properties compete against an average of 20.5 square feet per household in their markets, according to data from SNL Financial, a real estate research firm. That is well above the industry average 16.1 square feet of GLA and 59% higher than the average 12.9 square feet of GLA in Taubman’s markets.

Risks to Consider: Even REITs with quality assets can fall on hard times due to demographic shifts in their markets. Watch sales metrics and competition closely to protect high yields in this threatened industry.

Action to Take–> The shift from brick-and-mortar stores and weakness for anchor-tenants is driving a wedge between the REITs that operate shopping malls. Buying higher quality REITs like Taubman Centers is a must and investors may want to consider shorting at-risk names like CBL to hedge their exposure to this threatened industry.

If you’re looking for a high-yielding alternative to REIT’s, I invite you to watch my colleague Nathan Slaughter’s new report on a “secret wealth investment.” Like REIT’s, these investments  are require to pay 90% of profits to shareholders… and some are offering yields over 12%. To learn more about these unique investments, click here.