The U.S. shopping center industry appears to be back in growth mode, based on comments from the two largest mall REITs, which reported their year-end results this week. And omnichannel retailing is in large part driving the expansion, said the CEOs of Simon Property Group and General Growth Properties in their respective fourth quarter analysts calls.
“I expect [omnichannel retailers] to drive traffic and distribute through their store, said Simon Chairman and CEO David E. Simon. “Over time, store location will become more valuable because, instead of building a bunch of distribution centers or trying to figure out how to get various online purchases to the consumer, the most effective and perhaps cost-effective way is to use their existing store.”
Simon Property Group reported that 2013 FFO on a per diluted share basis rose 10.9% over 2012. Occupancy for the year rose 80 basis points to 96.1%, and total sales per square foot was up 2.5% to $582.
E-commerce affects catalog and direct mail retailing more than the in-store experience, noted Sandeep Mithrani, GGP CEO, and the Internet actually has become an incubator for future brick-and-mortar tenants. General Growth's FFO per share rose 18.2% year-over year, with leased percentage up 100 basis points to 97.1 percent. Tenant sales rose 3.6% to $564 per square foot.
“About half of consumers have used a 'ship to store' option,” Mathrani notes, and e-tailers including Piperlime and Boston Proper are now opening brick-and-mortar stores. The company also is testing a delivery service at nine centers, with “promising” results, he said. “Brick and mortar is a critical part of the growth pattern.”
These results are pushing more development for both companies. Simon's outlet division continues to grow, after opening five new centers in 2013. Construction is under way on centers in Montreal, Vancouver, Minneapolis and Charlotte, with six more centers to begin construction this year or next. An additional 25 properties in the United States, Asia and Mexico are being redeveloped and/or expanded.
Plans still call for Simon to spin off its neighborhood centers and lesser malls. But don't call the new entity SpinCo, though David Simon admitted the hardest part of the spinoff is coming up with a new moniker.
“We have yet to name the name. SpinCo is not the name, okay?,” Simon said. “SpinCo is not the name.”
Mathrani noted that after opening $250 million in redevelopments, GGP has another $1.4 billion under construction and $800 million more in the pipeline. The new projects include an “upper-end” mall in Norwalk, CT, that should begin construction in 2015.
Perhaps most intriguingly, both CEOs declared their faith in troubled anchors JCPenney and Sears, or their ability to cope with the occasional closures.
“You're making the assumption that JCPenney will not be around. That is not true,” Mathrani told one analyst. “Ten years from now, JCPenney will be part of the retail landscape… And I'm not betting against [Sears Chairman and CEO] Eddie Lampert, who is incredibly bright.”
Simon COO Richard S. Sokolov noted the company is prepared for closures.
“We have one tenant already lined up to occupy one of the Penney closure at a positive economic impact on that property and a positive sales impact,” Sokolov said. “So we are as prepared as one can be to take advantage of any opportunities.”
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