Mall REITs are approaching 2019 with cautious optimism. Many of them anticipate that income growth will increase steadily, and they plan to reinvest in their top properties throughout the year.
Simon is projecting a same-center NOI growth rate of about 2 percent at its malls and outlet centers for this year, having posted 2.3 percent growth last year. “So far in the first quarter, bankruptcies are trending lower than they were in 2017 and 2018,” said CEO David Simon on an earnings call. “However, leveraged buyouts were not ultimately beneficial, by and large, to our business. That’s kind of working its way out of the system.” Those retailers that are investing in their product, in their store experience and in their branding are generating strong sales, he noted.
CBL Properties is refilling empty anchor stores and redeveloping properties to add tenants. “We are using these opportunities to diversify our properties’ offerings to include more food, entertainment, fitness, service and nonretail uses,” said CEO Stephen D. Lebovitz. But a wave of anchor store closings helped drive the company’s same-center NOI rate down by about 6 percent last year. CBL sees that metric declining by somewhere between 6.25 and 7.75 percent for this year. “We are still facing challenges primarily as a result of the more than 40 store closures between the Bon-Ton and Sears bankruptcies,” he said. The firm recently secured a nearly $1.2 billion credit facility to fund redevelopment and to cut debt.
Simon's Houston Galleria
Macerich anticipates that its same-center NOI will probably climb by between 0.5 and 1 percent, on average, across its 54 malls, having risen by 4.2 percent in the fourth quarter of 2018. “As we enter 2019, we have extensive development opportunities in front of us, with many well-situated projects already under way or recently announced,” said CEO Thomas E. O’Hern. “Although some headwinds remain, as we work through recent tenant bankruptcies that will impact 2019, generally, the leasing environment continues to improve.”
Macerich is increasingly seeking to make deals with retail and experiential brands and concepts to take space in its properties. The company recently announced one such deal with supermodel Tyra Banks, to open an experiential attraction called Modelland at its Santa Monica (Calif.) Place. “We are so pleased to welcome this exceptional, multilayered entertainment, retail and dining attraction to our world-class destination,” said Michael Guerin, senior vice president of leasing at Macerich. “Our top properties, including Santa Monica Place, are terrific platforms for retailers and brands of all kinds to connect with their audiences, who visit us for the best in experience-forward retail and everything else.”
Brookfield's Ala Moana, in Honolulu
At Brookfield Properties, leasing agents have already completed nearly 75 percent of their leasing goals of 10.3 million square feet for this year, according to Sandeep Mathrani, vice chairman and CEO of the company’s retail group. “Spreads are holding nice and steady,” said Mathrani. Department-store closures have actually helped the company’s properties draw investors who see the added-value opportunities, he says.
Joint-venture partners are eager to buy into more of the company’s top properties after seeing how the company has successfully filled empty boxes, Mathrani says. “As we go into 2019, we’re starting to see a pivot of interest from buyers of ‘A’ assets, and they now view ‘A’ assets [as having] a permanency of income,” said Mathrani. “Of the 22 Sears that are closing in our portfolio, we have 19 deals done. Of the nine Bon-Tons that closed, we have six deals done.”
By Brannon Boswell