real estate

REITs gain 26% ditching failing shopping malls: mortgages

PBN FILE PHOTO/FRANK MULLIN
RETAIL REAL ESTATE INVESTMENT TRUSTS, such as Providence Place owner General Growth Properties, as shedding properties that are not performing well in secondary markets.
Posted 1/21/13

CHICAGO - Mall owners including Simon Property Group Inc. and General Growth Properties Inc., the biggest in the United States, are signaling they’re moving on from struggling retail centers as the economic rebound drives them to focus on the best-performing markets.

A $94 million loan on a South Dakota mall owned by Simon, the largest U.S. real estate investment trust, was transferred last month to a special servicer, which negotiates with landlords on behalf of bondholders. General Growth, owner and operator of Providence Place, had three malls with loan-workout firms in the third quarter, and Glimcher Realty Trust Realty Trust handed over a loan on a mall in its hometown of Columbus, Ohio, to a special servicer in October.

Mall landlords were the second-best-performing U.S. REIT group last year, gaining 26 percent, even as the delinquency rate for retail properties remains close to the April 2011 peak, according to data compiled by Bloomberg. The operators are focusing on the most lucrative markets, while turning to special servicers or even giving properties back to lenders in a sign that some shopping centers may never fully recover from the real estate crash.

“There are some tired malls out there that shouldn’t exist and won’t exist in a few years,” Ryan Severino, a senior economist at Reis Inc., a New York-based real estate data company. “It’s very difficult to bounce back. Very difficult.”

Troubled properties - which are often older and in less-populated areas - are being left out of a rebound spurred by improved store performance. Retail sales climbed 5.2 percent last year, the Commerce Department reported on Jan. 15.

Best REITs

Mall companies were the best-performing REIT industry group in 2012 after industrial and warehouse owners, whose shares gained 27 percent last year. An index of shopping mall operators was little changed last week in New York after gaining 0.4 percent this month.

General Growth gained 36 percent in 2012, making it the second-best performer in the nine-member index. The company’s funds from operations rose 8.8 percent in the third quarter from a year earlier to $231 million. The measure is a gauge of cash flow used by REITs.

The Chicago-based company is focusing on properties that generate the highest sales per square foot for tenants and deciding whether to sell lower-quality centers, CEO Sandeep Mathrani said on a Nov. 1 conference call with analysts.

“We want to own and operate high-quality regional malls in the best markets,” he said. “We’ve been very focused on identifying opportunities to acquire assets that fit within this strategy, and also to identify and ultimately dispose of those assets we consider non-core that do not fit our long-term plans.”

Three malls

General Growth had three malls in special servicing in the third quarter: West Oaks in Ocoee, Fla., Regency Square Mall in Jacksonville, Fla., and Southlake Mall in suburban Atlanta, according to a supplemental filing on the company’s website.

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