Retailers Differ with Mall REITs' Luxe Outlook

More bad news for mall REITs, as borne out by various retailers. Ominously, Mall REITs think high-end malls will save them. Retailers beg to differ:

GGP's troubles have been well documented in the media: From General Growth Properties’ Q308 conference call: (GGP)

In talking to our retail partners, we find their focus is on their existing stores… Based upon our internal forecasts, we have completed almost all of our 2009 renewals and approximately 75% of our overall 2009 leasing.

If there is a good news [it’s that] the well-anchored regional mall will continue to be the venue of choice for retailers to seek out their new locations and where they will plant their flag for the long term.

We are actively pursuing various types of capital infusions at the corporate level and asset level. Where we thought it was appropriate, we have put sales brochures out into the market, primarily for non-strategic and non-mall assets.

Obviously, we would prefer to sell non-core over the core, but we have a significant amount of loan maturities in the next year, and we're going to have to make tough choices.

Simon Property Group’s Q308 conference call: (SPG)

Occupancy in the mall portfolio was 92.5% as compared to 92.7% in the year earlier period despite the fact that square footage lost to bankruptcy for the first nine months of 2008 totaled 435,000 square feet as compared to 53,000 square feet during the first nine months of 2007.

We are more than a regional mall company with substantial income generated by our community center and premium outlet portfolios, both of which should offer benefits in a challenging economic environment as consumers continue to look for value.

Glimcher Realty Trust’s Q308 conference call: (GRT)

Exclusive of the Steve & Barry’s lost rent, we are anticipating core mall NOI growth to be negative approximately 1%. On a full year basis, we are still anticipating positive growth of approximately 1% overall… Third quarter core mall store occupancy was 90 basis points below the prior year.

We are fortunate that we are not issuing equity. To us, it is really more than anything else about liquidity. I think a lot of the more highly leveraged REITs, especially mall REITs have suffered disproportionately and I think we have been dragged down maybe by some of our peers.

Here’s what retailers are projecting:

Ross Stores' Q308 conference call: (ROST)

In real estate we are seeing rents starting to soften across the real estate market and as we move forward we will take advantage of those real estate opportunities that fit our strategy. We are starting to see it soften.

During the quarter what we did notice is that actually traffic was up, but that was offset by the customer basket actually decreasing as they put fewer goods in that basket. So those two elements offset each other to turn out a flat comp.

The Children’s Place Inc.'s Q308 conference call: (PLCE)

What we’ve seen is that the malls have definitely been weaker than the off-malls in terms of what’s been going on in traffic.

Gymboree Corp.’s Q308 conference call: (GYMB)

The high end malls [are] not seeing a lot of movement in the leases. In the medium to moderate there is a lot more negotiation taking place… It just depends on the mall. It depends on the location. It is all over the board.

The middle to middle upper end malls [is] where we are finding the most success. We have also talked about finding some success in some of the off-mall locations where the rents are much lower and there is not as much pressure on the sales to achieve great four-wall contributions.

Gap Inc. FQ308 conference call: (GPS)

Q: If you could talk briefly about the progress in negotiating with the mall developers on your store reduction plans?

A: A lot of people who were growing and adding square footage have now reconsidered that as a strategy… There have been some people that have vacated square footage already… I think there is a very large question mark in January and beyond… I think that puts us actually in a good position for the re-negotiation. We have the 40 million square feet... We have never defaulted on any of our leases.

That kind of goes hand in glove with this parallel strategy that came up about 3 months ago which is the ability to reduce 10-15% of that square footage. Somewhere between 50-75 stores to be touched in 2009. I look at it this way… landlords are really trying to hold onto people like us... We obviously have good, quality real estate. We pay on time and we have a strong balance sheet. Therefore we are dependable. I think people would rather keep us in their mall maybe in reducing 5,000 square feet and maybe us given an option that may not have existed three months ago to go across the street or somewhere else because of the supply and demand change that is currently going on in the marketplace.

Love this one:

The landlords certainly appreciate our clarity, because we have never been historically known to be clear on where we are going.

Comments

[Robert Nabloid:]

Gerald Celente has been forecasting this to happen for a while now.

2008 Nov 24 06:21 PM