Conference Call Highlights: Update on Retail and Mall REITs

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 |  Includes: AKR, ARO, BBBY, BKRS, BPO, BXP, CBL, CLE, DDR, GAP, GGP, ICF, IYR, KIM, LULU, MAC, PSS, SPG, VNO, WSM
by: Judy Weil

Mall and retail REITs have sunk so drastically in value that some question whether now is the time to buy in to them-- the proverbial bottom of the market. Certainly the outlook is extremely gloomy. Retail sales fell 2.7% in December, the sixth straight quarter of declines and more than double the anticipated amount.

It is tempting to take cues from Pershing Square's Bill Ackman, who is doubling down on his investment in mall REIT General Growth Properties (NYSE:GGP). GGP shares are at $1.31, from a 52-week high in the $40s. The company announced Wednesday it has put another one of its flagship malls on the market. The Providence Place mall in R.I. follows three Las Vegas malls and three shopping complexes in Boston, New York and Baltimore that GGP has offered for sale to shore up its balance sheet.

However, Ackman actually may not be interested in the rise or fall of his GGP shares. Seeking Alpha's Trader Mark says the money manager wants bankruptcy:

Bankruptcy usually leaves stock investors with plenty of nothing, but General Growth is an unusual case. It has almost $30 billion of assets on its books, and just about $27 billion of debt. But most of the company's real estate assets are recorded on its books at their historical value, and many were bought years ago, meaning their value now is likely substantially higher. The company's problems are not with its assets, but with refinancing maturing debt in frozen markets.

So what's the outlook for mall REITs such as Simon Property Group (NYSE:SPG), Macerich (NYSE:MAC) and CBL & Associates (NYSE:CBL), or retail REITs such as Acadia Realty Trust (NYSE:AKR), Kimco Realty (NYSE:KIM) and Developers Diversified Realty (NYSE:DDR). A quick review of current conditions based on recent retailer conference calls:

Retailer Claire's Stores (CLE) reported on its FQ308 conference call (Dec. 4) that

The decline in the number of transactions reflects weaker mall traffic as well as reduced reliance on low margin, low dollar value promotional transactions.

Williams-Sonoma on its FQ308 conference call (Dec. 30): (NYSE:WSM)

While the William-Sonoma brand continued to be more resilient than our other home furnishing brands, it too was negatively impacted by the progressive declines in mall traffic and the weakening retail environment in the third quarter.

Lululemon Athletica's Dec. 11 FQ308 conference call: (NASDAQ:LULU)

It's definitely been traffic down, particularly in the mall environment stores.

Collective Brands' Dec. 3 FQ308 conference call: (NYSE:PSS)

I want to thank our team but also thank our landlords for being appropriate, because the last thing we want is another empty slot in a mall and there’s a lot out there, having been in malls a lot the last week-and-a-half.

Bakers Footwear Group's Dec. 9 FQ208 conference call: (OTC:BKRS)

Q: What traffic trends are you seeing in the mall and what gives you confidence in the strong spring?

A: We are seeing single digit declines in traffic which doesn’t really ever tie exactly to sales. So I sort of am somewhat quizzical on that. Our business is always tied to fashion more than the economy or traffic or anything like that.

Aeropostale's Dec. 4 FQ308 conference call: (NYSE:ARO)

Transactions, which is obviously mall traffic driven, it's really where we've seen the drop off.

Upscale Neiman Marcus said it was doing fine on its Dec. 10 FQ109 conference call:

We have no worries whatsoever. We are not closing any stores. We don’t know the general condition of the malls. As you said we are in, we consider them AA and AAA malls, working with only the top four or five developers. And we don’t know what the malls themselves are doing, other than what we read in the paper. You know the General Growth dilemma and we have been in touch with them and we are in four or five of their centers and they have no impact on us.

Great Atlantic & Pacific Tea Company’s Jan. 8 FQ308 conference call: (GAP)

A comment now on our closed or dark store rent liabilities. Given the economic climate and real estate markets particularly in the Michigan area during the quarter we increased our liability for dark stores by a $5.7 million charge to discontinued operations. The liability currently totals approximately $180 million and reflects our best estimate on remaining costs given the current market factors.

Bed, Bath & Beyond’s Jan. 7 FQ308 conference call: (NASDAQ:BBBY)

For all of fiscal 2008 including stores already opened, we expect to open approximately 49 new Bed Bath & Beyond stores throughout the United States and in Canada. This reflects our conservative approach to our expansion program as well as the difficulties in the commercial real estate market.

We believe the real estate market continues to adjust in this evolving economic climate and we remain flexible to take advantage of additional real estate opportunities that may occur.

As a result of the 5.6% decline in comp store sales this quarter, we experienced relative increases in fixed costs such as occupancy costs including rent, real estate taxes and depreciation.

Big retailers such as Waldenbooks and Old Navy keep closing everywhere from Bradenton, Fla. to Pennsylvania. Some malls such as this one in Michigan are struggling under rumors of closure.

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