Home Finder Network's Blog

Clean Bill of Health for Regional Mall REITs in Second Quarter

Aug 18, 2010 7:14 AM, By Elaine Misonzhnik

Fundamentals continued to improve for regional mall REITs during the second quarter of 2010, leading analysts to conclude that the sector had largely shaken off the aftereffects of the recession.

For the three months ended June 30, three regional mall REITs beat consensus analyst estimates on FFO per share and two were in line with expectations. Only Santa Monica, Calif.-based Macerich Co. (NYSE: MAC) missed estimates, by $0.04 per share. The miss was due primarily to higher than expected interest expense and lower than expected income from joint ventures, according to Rich Moore, REIT analyst with RBC Capital Markets.

Indianapolis-based Simon Property Group (NYSE: SPG), Chattanooga, Tenn.-based CBL & Associates Properties (NYSE: CBL) and Bloomfield Hills, Mich.-based Taubman Centers Inc. (NYSE: TCO) beat estimates by a range of $0.02 per share to $0.05 per share. Columbus, Ohio-based Glimcher Realty Trust (NYSE: GRT) and Philadelphia-based Pennsylvania Real Estate Investment Trust (PREIT) (NYSE: PEI) met analysts’ expectations.

Even more encouragingly, Simon, Macerich and Glimcher reported rising same-store NOIs in the second quarter, ranging from a 0.4 percent increase for Glimcher to a 2 percent increase for Macerich. Regional mall REIT executives reported seeing a strong resurgence in leasing interest from tenants, which has pushed up leasing velocity in the past few months.

“I think you have seen [leasing] volumes pick up. And I am not calling it robust, but the retailers are making money, they’re talking, they are clearly coming to the realization that the supply of rate centers is limited,” said Macerich chairman and CEO Art Coppola during the company’s conference call with analysts on Aug. 9.

In addition to retailers’ improved financial situation, the lack of new development on the horizon might be helping the sector recover faster than previously anticipated, according to Moore. Most retail REITs continue to focus on redeveloping existing centers, and are not expected to start new construction in 2010. Meanwhile, the supply of existing quality mall space is scarce enough that some retailers are having difficulty meeting their opening plans for 2011, Moore notes.

In the second quarter, portfolio occupancies for Simon, Macerich, Glimcher, Taubman, PREIT and General Growth Properties (NYSE: GGP) stood above 90 percent. CBL & Associates reported occupancy of 89.6 percent.

In spite of across-the-board increases in tenant sales, however, rents continued to decline. At Glimcher properties, for example, average rent per square foot slipped 0.7 percent to $26.82, from $27.01 in the second quarter of 2009. REIT executives have been trying to counteract this trend with shorter lease terms, according to Jason Lail, senior real estate analyst with SNL Financial, a Charlottesville, Va.-based research firm.

“With this, regional malls have positioned themselves as being able to increase rents in a shorter time period if employment and the economy continue to improve,” Lail says. “While tenants also have the ability to leave assets earlier than normal with these shortened lease lengths, overall they have been a good method for maintaining short-term upward movement in lease pricing.”

Lail cautions, however, that high unemployment continues to be a major concern for the regional mall sector, as job growth is tied to discretionary spending. In July, the national unemployment rate remained unchanged from the month prior, at 9.5 percent.

Global Commercial Real Estate Investment is Climbing

Jul 16, 2010 9:52 AM, By NREI Staff

Compared with last year’s anemic volume, global commercial real estate investment has increased dramatically through the second quarter of 2010, according to a new report by Chicago-based real estate services firm Jones Lang LaSalle.

For the first half of the year, direct commercial real estate investment volume totaled $130 billion. In the second quarter alone, direct commercial real estate investment reached $66 billion, the company says.

“For the full year we anticipate volumes globally of around $300 billion, which represents a healthy 40% to 50% increase on 2009. This is still less than half the pre-credit crisis levels of 2006 and 2007, but we must take into account the fact that those were heady years for commercial real estate investment, with unprecedented record trading volumes,” says Arthur de Haast, head of the international capital group at Jones Lang LaSalle.

“This is solid progress for commercial real estate investment markets,” adds de Haast, even though volumes are still well below pre-credit crisis levels.

Brazil shines
Some regions of the world have fared better than others, in terms of investment. The strongest growth occurred in Brazil, where quarterly volume tripled to a record $1.6 billion.

Canada also has seen strong quarterly improvement. Investment volume there doubled to $3.5 billion.

In the United States, investor demand continues to be strong for core assets, but the lack of product supply hinders direct investment volumes, says Steve Collins, head of the Americas capital group for Jones Lang LaSalle. As more product comes on line, investment is projected to increase.

“We expect total transaction volume in the Americas region for the full year 2010 to increase by at least 80% over 2009 and reach the $80 billion to $85 billion range,” says Collins.

Asia Pacific slips
Meanwhile, the Asia Pacific region experienced a 34% decline in investment volume in the second quarter to $15 billion. Significant declines occurred in Japan, China and Australia, while Hong Kong and Taiwan saw increases.

Still, compared with the same quarter last year, volume in the Asia Pacific region were up by 21% over 2009, when investment reached $13 billion.

“In Asia Pacific, the first half of 2010 has posted reasonably strong increases over the corresponding periods of 2009. If this trend continues, aggregate volumes could be around 30% higher this year to reach the mid-$80 billon range,” says Stuart Crow, head of the Asia capital markets group.

In Europe, the Middle East and Africa, commercial real estate investment volume rose a modest 15% in the second quarter compared with the first quarter, to €23 billion ($29 billion). That represents a healthy increase of 80% from a year ago. The United Kingdom accounts for more than 40% of the investment volume among the three regions

Global Commercial Real Estate Investment is Climbing