The Death Spiral, And How It Won’t Stop The Country's Top Retail REITs
It is called a death spiral. The woes plaguing the retail industry are caused by a domino effect of negative factors that, if allowed to persist, could lead to shuttered malls.
Something as simple as a struggling anchor shutting its doors at a Class-B center could lead to diminished mall traffic, which could mean falling sales for other retailers there. In the worst cases, this vicious cycle could lead to a mall going dark.
In an effort to defy the spiral, the world’s largest mall owners have become innovative in their attempts to create an experience for shoppers to drive traffic. Roughly 80% of malls in the U.S. are owned by publicly traded REITs, with Simon Property Group, General Growth, Macerich and Westfield Corp. taking the lead as the largest mall owners in the country, according to data from Green Street Advisors. Check out how these retail owners are faring as they struggle to quash the perception that problems plaguing some retailers automatically spell trouble for the entire industry.
Simon Property Group
Stock Price (as of 3/14/17): $167.23
The largest of the retail REITs, Simon Property Group owned or had a partial stake in 204 properties as of Sept. 30. That includes 108 malls, 74 premium outlets and an array of retail centers that fall within various retail categories all over the country, with the majority of its properties based in Texas (12%) and Florida (11%). The REIT reported Q4 FFO (Funds For Operations) earnings per share of $2.91, beating analyst estimates by $0.34. According to its earnings report, occupancy within its malls and premium outlet properties rose to 96.8% from 96.1% in the year-ago quarter. Despite the struggles plaguing retailers, the REIT reported strong leasing activity for the year ending Dec. 31, with leasing per square foot up to $7.62/SF, an increase of 7.2%.
General Growth Properties
Stock Price (as of 3/14/17): $23
General Growth boasts 127 properties, or 121M SF, throughout the country, a good deal of which falls within the Class-A category. The retail REIT reported FFO earnings of $0.43 per share, up 0.8% compared to the year prior. CEO Sandeep Mathrani boasted strong occupancy and mall traffic during the company’s earnings call, claiming GGP traffic is so strong it's causing parking concerns at some centers. In an effort to offset any future lull in traffic, the mall owner has been concentrating on its entertainment offerings. At present, the REIT has 50 movie theaters and 12 entertainment venues, such as Dave & Buster's, within its mall portfolio, and expects to bring aboard 17 additional entertainment hubs within the next two years. Mathrani also said traffic counters have been set up at most properties to measure mall traffic going forward.
Stock Price (as of 3/14/17): $63.07
Macerich focuses strictly on high-end Class-A retail centers, and owns 48 properties, according to Green Street, which amount to 54M SF of retail real estate throughout the country. In its Q4 earnings report, the company boasted $1.17 earnings per share, up from $1.12 EPS in the year-ago quarter. Some of its key properties include the 1.4M SF Flat Iron Crossing in Broomfield, Colo., developed to reflect the outdoors lifestyle in Colorado, and the 1.1M SF Cross Country Shopping center in Yonkers, N.Y. In 2015 the REIT was approached by Simon Property Group with a takeover offer of $95.50 a share, valuing Macerich at roughly $23B, but the REIT declined, putting measures in place to make a future takeover from Simon difficult.
Stock Price (as of 3/14/17): A$8.45
This international mall owner has developed some of the most affluent locations in the country, with its mall anchoring the new and improved World Trade Center, the 365K SF Oculus. Though the Australian-based REIT owns 52 retail properties, nine of those generate annual retail sales in excess of $1B — or on average $1K/SF, including its premium centers in Century City, London and Valley Fair. The REIT reported FFO earnings of $0.34/share, up 3.8%, company officials said during an earnings call.
To hear more about the state of the industry from retail experts including several of the above-mentioned REITs, check out Bisnow's National Retail East Coast Series event.