TrafficCourt

It’s been a whirlwind couple of days. Altogether, I sat in on 18 retail REIT presentations at NAREIT’s REIT Week. (During a few of the time blocks multiple retail REITs were reporting, so there were some I could not get to.)

The major themes were similar to those coming out of ICSC’s RECon a couple of weeks ago.

When it comes to leasing, retailers of all types are much more aggressive than they have been since before Lehman Brothers imploded. Occupancy rates tend to be higher for both regional mall REITS and shopping center REITs at their large spaces. There are still gaps to fill when it comes to inline tenants. In part, that is stemming from the fact that mom & pop type retailers are still having a hard time lining up financing. Smaller banks remain troubled. So while Wall Street is lending–which is helping the largest retailers, who have ample lines of credit to fund expansion–the traditional sources of financing for small businesses are still not available.

However, many retailers are also rethinking store sizes and shrinking concepts. In many cases retail REITs seem to be welcoming this development. If they can recapture all or part of a big box that’s paying below market rents, it gives them a chance to improve cash flows by finding a replacement or subdividing the space.

On the investment sales side, I heard a few different references to there being an “ocean of capital” that’s now chasing retail assets. The competition is most fierce for class-A product. But with a limited supply of that on the market, investors are slowly moving their way down the value chain. The fact that banks, insurance companies and CMBS lenders are also increasing their tolerance for risk will help to fund deals for class-B and class-C product. The competition is such that many retail REITs don’t think they’ll be able to acquire that much. Many will end up being net sellers since they’re finding it’s an ideal time to sell non-core assets. Only a few of the REITs that reported seem to be aggressively looking to expand through acquisitions.

When it comes to development, just about the only ground-up development anyone seems excited about is the outlet center space. The figure going around the show was that there is room to build 100 outlet centers in the U.S. So a lot of firms–even those with no track record in outlets–are taking a hard look at how to get in on the business. Much more prevalent was talk of redevelopment and expansion. REIT managers by-and-large agreed that redeveloping or expanding existing properties was the best way to increase NOI and organic growth, given current market conditions.

I’ll expand on these thoughts in an analysis piece that I’ll post tomorrow morning.

In the meantime, here are links to all the live blogs we posted from REIT Week.

• Kimco Realty Corp.
• Tanger Outlet Centers
• Developers Diversified Realty
• National Retail Properties
• Glimcher Realty Trust
• Macerich
• Simon Property Group
• Pennsylvania REIT
• Excel Trust
• Weingarten Realty Investors
• Taubman Centers
• Federal Realty Investment Trust
• Inland Real Estate Corp.
• Regency Centers
• General Growth Properties
• Vornado Realty Trust
• Acadia Realty Trust
• Westfield Group

Kenneth Bernstein, president & CEO, and Jon Grisham, senior vice president and chief accounting officer, are presenting for Acadia Realty Trust at NAREIT’s REIT Week.

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Below are notes from the session.

3:48: Bernstein: From a product perspective, we tend to own retail and urban mixed-use in higher barrier to entry metropolitan markets—Washington, D.C. through Boston corridor and assets in Chicago. About one-third are urban mixed-use. One-third are supermarket-anchored. And one-third are discount or value. As we think about, “how are we going to grow,” there are a host of challenges—the issues of technology, the issues of multichannel retailing—the goal is to own the best retail real estate in the markets in which we operate. … The way we fuel this growth is … both from the lease-up and re-anchoring of our existing assets. … We will recapture underutilized anchor space and re-tenant it. We have done that over the past 12 years at very attractive leasing spreads.

3:50: Bernstein: Adding core assets to our wholly-owned portfolio. Selling assets that are not consistent with our strategy. … More importantly, adding assets to our core portfolio. … Our goal is to add $100 million in assets to our core. That’s not a game-changer. But it will provide increased stability and enable us to take our portfolio to the next level.

3:53: Bernstein: The other way we drive growth is through our series of funds, which is the vehicle we use to invest opportunistically, either value-add, new development or acquisitions. … We did not see as many distressed sellers as we thought we would. … But we seeing opportunities at the … street retail redevelopment area. We’ve made four investments and street retail has been the largest component of that. … We are vacating buildings and retenanting. For example we have 2 million square feet of urban developments in New York City. … Another interesting play out there is buying well-located properties that are anchored by troubled supermarkets. … The supermarket industry is going through its fair share of challenges. … That doesn’t mean that the location isn’t high quality. … We’ve done two of those transactions.

3:59: Bernstein: (In response to question about RECon.) First of all, Las Vegas and the ICSC and the dialogue that occurs with the tenants has changed. It’s less about specific negotiations—although we spend time trying to get them focused on the projects we’re thinking about. It’s really more about where is there business going and where is our business going? … They are not talking about the latest jobs reports. They are thinking one, two, three, five years out. … We should not be in denial about the Internet as well. There are going to be factors how books are sold. But it’s also going to impact how a bunch of other retailers are selling their merchandise. … For the most part, our tenants have completed the distressed negotiating cycle. There was that lovely period of time and you’d see your telephone list and it was your tenants and they wanted rent reductions, reliefs and a whole bunch of things we preferred not to face. I don’t think our leasing people had any of those types of meetings. … It doesn’t feel nearly as adversarial or distressed as it was.

4:09: Bernstein: (In response to question about downsizing of larger tenants.) It is across the board. You’re hearing it from the department stores. You’re reading about it and how they’re using technology to improve distribution and improve the point-of-sale. … So whether we think of retailers immediately exposed to e-commerce or those that feel more e-commerce resistance, what retailers are saying is that they are thinking about their existing stores—in terms of size and location. … There’s something about the brand that gets better by having the bricks and mortar. … Retail as a brand. Retail a flagship. Retail as fulfillment—pick-up, drop-off, showroom, warehouse. … In terms of shrinking footprints, it’s going to vary. … The big-box power centers are now going to have to rationalize. … The truth is we don’t know what it’s going to look like five years ago.

4:11: Bernstein: As our occupancy gets better along with housing, jobs and GDP, counter to that will be a rationalization of real estate. … But in spite of that, there are spaces with record high rents. Good luck finding distressed real estate on Madison Avenue. … There will be haves and there will be have-nots. Our job as a landlord is to keep moving into the haves.

4:15: Bernstein: In the good old days, we’d make open bids to take back space. … Crisis hits and we announce two major reanchorings and we announced they were all pre-leased. … It was a riskier time. The list of retailers will a lot shorter. … Now in the last earnings call we announced we bought back one of our A&Ps. … Now we probably have to take that lease-up risk, but we’ll do it when we are more confident.

Session ends.

Michael Fascitelli, president & CEO, Wendy Silverstein, executive vice president & co-head of acquisitions and capital markets, and Joseph Macnow, executive vice president finance and administration & CFO, are presenting for Vornado Realty Trust at NAREIT’s REIT Week.

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Below are notes from the session.

3:07: Fascitelli: (In response to a question about the firm’s balance sheet and its positioning for acquisitions.) The idea was to have the liquidity for attractive deals. … The problem is that the acquisitions market is not giving good deals at killer distressed pricing in Washington, D.C. and New York. … If you own $30 billion in those markets, that’s good. … Through the entire crisis our cashflow didn’t go down. We took losses on development and mezz positions. … The stock price was gyrating all over the place, but the cashflow was stable. … We’re looking for returns well above our cost of capital with reasonable underwriting assumptions. … New York has recovered ahead of the underwriting assumptions, quite frankly. And Washington never slowed down. … We continue look for deals we can get in through the back door or some complexity or some seat at the table. We haven’t seen that yet.

3:09: Fascitelli: We’ve identified three other areas we’d go – Boston (in spite of negative press around stopping the Filene’s project) . We are in San Francisco. We’d go to Los Angeles. We aren’t going to go anywhere else for office. … Retail might be slightly more flexible. … But again, we have a very fine screen for where we will invest capital and we don’t intend to change that screen.

3:11: Silverstein: The most significant difference in the last 60 days are that large loans and CMBS are now available. …That coupled with the insurance company market and the bank market makes me feel that the (improvement in the investment sales market) will continue.

3:20: Macnow: One reason why our development may not seem as apparent is because much of our development pipeline is income-producing property today. Crystal City is almost 8 millions square feet of income-producing property. Hotel Pennsylvania is income-producing property. … Much of our development pipeline doesn’t cost us while we wait for it to ripen up.

3:25: Fascitelli: People say that some of our retail investments were off the fairway. We disagree with that. It is a core competency starting back with Alexander’s. Retailers tend to be the target because their real estate is well located. It can be used for other users. … We’ve routinely tracked stocks where the real estate value is above the stock value. … The frustration is that it doesn’t always lead to the real estate. … We’re happy not to liquidate. In general the idea is to identify mispriced real estate and to redirect that to highest and best use. … We think that’s one of our core competencies. I can’t think of deal we’ve made in retail space that didn’t make money. … The activity is focused on where there is great real estate that is undervalued.

Had some connectivity issues this session so missed some comments.

Session ends.

Sandeep Mathrani, CEO, and Steve Douglas, vice president & CFO are presenting for General Growth Properties at NAREIT’s REIT Week.

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Below are notes from the session.

2:17: Mathrani: We’ve been very active. There have been refinancing—over $2.5 billion this year alone. We said we would do $4 billion to $5 billion. We’ll get there… We’re on contract to sell $800 million in assets. We should achieve $1 billion. … No one can fault us for not being active.

2:20: Mathrani: We’ve just returned from ICSC in Vegas. … I’ve been going to those things since 1989 and it was probably my best ICSC ever. … The pleasure was to see my own people very active on the deal side. Even more pleasurable was that the retailers wanted to make deals. … The other thing that was impressive to me was the types of tenants making deals were everything from the Armanis, and YSLs and Tiffany’s to the Children’s Places. It was not just the A malls, but the B malls as well. The quality of tenants is spreading across all types of malls.

2:21: Mathrani: Our organization is complete. Our senior management team is fully staffed now. The reorganization is done. We are a strong, operating company.

2:22: Douglas: We’re continuing to see a robust large loan market. The depth of field on the 10-year market is encouraging. … We’ve also smoothed our maturity ladder by (balancing future maturities so they’re not hitting at the same time).

2:25: Mathrani: We have 125 of the top 600 malls and 25 of the top 100 malls and 90 percent of our income is from that. Most of the income is from A and B+ malls. We’re seeing across all—even B & C malls—sales inching upwards. Sales have almost reached peaked levels of 2007. Is this sustainable with unemployment at 9 percent? I think time will tell. … So far the sales across the portfolio have come back. We are lagging on occupancy at GGP and lagging at occupancy because our brethren were leasing with good balance sheets and giving tenant allowances (which GGP not do). … In 2011 we have healthy liquidity, so we are making up for lost time at a very rapid pace.

2:28: Mathrani: (In response to question about potential float of B malls.) Westfield has a bunch of assets in the market and they’ll come to the market earlier than ours. So it will be indicative, if nothing else, of our portfolio. … I’m anxiously awaiting to see the results of the Westfield offer.

2:32: Mathrani: (How much redevelopment or intensification is GGP looking at?) I’m not a big believer of putting condominiums on top of shopping centers. … We’re in the process today of figuring out how much we have. We have indicated several times and in meetings that we think it will be $1.5 billion in three-to-five year period.

2:33: Mathrani: The real question, are we increasing total occupancy? Is the total occupancy more permanent than short-term? The answer to that is, “Yes.” We think there will be a 150 basis point increase in occupancy. There may not be an increase in term just yet.

2:35: Mathrani: On the outlet business, I’m of the belief that if you were to do it on a development basis, it takes a long time to build a credible business. Will we venture into it, yes. … But it will not be the driving force of our growth. I’d be more likely to do it on a joint venture basis than to do it on my own.

2:37: Mathrani: (In response to a question about its recent swap with Macerich.) I’m a firm believer that we need to control our anchors. It gives us the most amount of flexibility. A competitor doesn’t have as much incentive to manage or develop that in a way to benefit your asset. … Of the five Mervyn’s boxes, two are vacant. … I needed to take one of them and redevelop the mall. And there was no way I could do that without owning that asset. … We can now demolish and reconfigure. … We’re not only doing that with them, but if there are anchors across our portfolio owned by department stores, we’re aggressively going to buy them.

2:43: Douglas: (In response to question about appropriate a level of unencumbered asset pool.) Philosophically we believe putting assets on a shelf for a rainy day costs equity. It leaves horsepower sitting there. … The sins of the past (cross collateralization, recourse to the parent, etc.) … ruin the benefits of having an asset-level strategy as opposed to a corporate-level strategy. … If we’re doing our debt stack properly, I think inherently we will be in a 40 to 50 percent range. … You have amortization, cap rate compression and increases in inherent NOI. … Simply keeping an unencumbered pool is something we won’t do.

2:45: Mathrani: All debt is not the same. If you put investment grade debt on an asset that is amortizing and you have a 10, 12 or 15 year maturity. Do you evaluate the LTV today or the LTV when it is due? … That qualitative analysis is something that … the industry doesn’t do.

Session ends.

Martin Stein Jr., chairman & CEO, Brian Smith, president & COO and Diane Ortolano, director of investor relations, are presenting for Regency Centers Corp. at NAREIT’s REIT Week.

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Below are notes from the session.

11:47: Stein: From my perspective, the positive leasing activity that we’ve experienced in the last several quarters continued and was highlighted even more so at ICSC. The key thing for ICSC is how much of that leasing activity—which included small shop spaces and bigger spaces—is going to be converted into signed leases? … Our move-outs are moving to more historically norms. If leasing activity converts to signed leases, then I think ICSC will have been a success and take a step for us getting to our objective of 93 percent leased.

11:48: Smith: We had 35 percent more meetings. … And they were less “meet and greets.” There were no talks of rent reductions. There were a few relationship meetings. … We had many meetings to figure out how we could do multiple deals. We had nine meetings like that with heads of real estate. … There was a lot of talk about development. All retailers with ambitious expansion plans are looking to development because there is none going on.

11:50: Smith: In the case of the properties we’ve developed, they’re all grocery-anchored centers in mature markets with low vacancies. … All of those have limited shop space. Going forward, that’s what you’ll see as well. … Our guidance is up to $75 million in new starts. They may not all happen this year. One may slip to next year. … The average shop leasing space is 11,000 square feet. We may have a bigger pipeline next year—up to $100 million.

11:53: Smith: (In response to competition in grocery market.) If you go back eight years ago, 90 percent of all food sales were done by the traditional grocers. It’s down to 70 percent now. … That’s gone to Walmart or Target. … It’s come from the grocers competing with Walmart on price. … Fortunately, our demographic is not one that competes with Walmart. … If anything, it’s come from the second-tier grocers and independent grocers.

11:55: Stein: (In response to question about investment sales climate.) Our investment strategy is tied to capital recycling. … We are trading properties where there is a risk of NOI going down and buying high-quality asset where prospects of NOI growth are strong. … The silver lining to the ocean of capital is that we’re seeing more shopping centers that meet our criteria in a long time. Pricing isn’t so good. … But some of capital that’s out there is making its way down to the centers we’re trying to sell.

11:57: Smith: There is a notion of capital chasing A-quality properties. But you are seeing more of it chasing the Bs. … So you’re seeing the cap rates go down on B properties as well. In Southern California, the As are trading in the low 5s.

12:00: Smith: The As are being dominated by the pension funds. What you are seeing on the Cs … you are going to have individual buyers local to that market that can focus on that market and manage it better than the institutions. There are always going to be people that think they can do a better job and get more value out of it than others can.

12:05: Smith: (In response to question about tenant sales trends.) Overall, things are much more positive. … From grocers, sales are positive, especially from Whole Foods and the higher-end grocers. … A global comment that would be appropriate is that sales are improving.

12:08: Stein: (In response to question about Internet sales.) Obviously Blockbuster has been affected by Internet sales and we have gone from over 100 Blockbusters a year-and-a-half ago to … 28 today. We’ve been very successful at replacing them with better tenants and in many cases better rents. … We have one Borders and half-a-dozen Barnes & Noble. In most of those cases, bad news would be good news for the shopping center. … If you own great real estate and have great locations, that is going to address issues like Internet sales and competition from Walmart.

12:10: Smith: (In response to question about using technology.) We’re replacing all of our leasing signs and adding to them QR codes. … It will immediately send them to our Web site and give them property-level information and notify our leasing guys that someone is interested. … We’ve optimized our Web-site so it’s compatible with mobile devices.

12:12: Stein: (In response to question about office supply stores.) Where we own really good real estate, there is a risk there, those will be stores they want to keep. But if they go totally extinct, other retailers will want that space.

Session ends.

Mark Zalatoris, president & CEO, Brett Brown, CFO, and Scott Carr, president of Inland Commercial Property Management Inc., are presenting for Inland Real Estate Corp. at NAREIT’s REIT Week.

Refresh page for updates.

Below are notes from the session.

11:08: Carr: (In response to question about sentiment at RECon) The annual ICSC convention in Las Vegas is really our strategic with retailers where we are meeting with the heads of real estate and looking at the rest of this year and beyond. … Retailers … have learned to be profitable in a lower sales environment. Leasing demand is much stronger for existing development. Without new development, second generation space is the only place where these retailers can open stores. … Seeing demand for large box space (10,000 sq. ft. and above). … Seeing right-sizing of retailers with the likes of Best Buy, Old Navy and Staples. … And we’re seeing new entrants into markets. … We’re seeing more of that activity and the momentum build. We’re reaching an equilibrium point and the sentiment is beginning to shift in the favor of landlords.

11:11: Carr: The most encouraging thing we saw was in the 10,000-square-foot and below space. We’re seeing not a tremendous amount of activity, but to see them back in the playing field is encouraging. … While that’s a great source of leasing activity, it’s an area that has been quiet for the last two years. … It’s a broader indicator—especially when female apparel tenants are expanding—that Mom is shopping again and that we’re reaching some kind of recovery.

11:12: Zalatoris: Big-box occupancy is at 97 percent. Small-shop occupancy is 86 percent. We’re blended to 94.3 percent occupancy.

11:13: Carr: Haven’t seen a dramatic increase in what tenants expect in concessions. With big-box deals, you’re providing them their box. That runs in the range of $20 to $30 per foot. That’s about 20 percent of the rental revenue we would generate. That’s consistent. … The trend in small shop space is that abatements had run higher during the recession. Today we’re giving less abatement on those deals.

11:15: Carr: (In response to question of internet retail taxation.) It really puts retailers at a disadvantage when the e-retailers can sell without claiming the sales tax. We have joined with the retailers to make this case. The political climate is hindering us. Everyone acknowledges it, believes it and thinks it’s fair. … Unfortunately, the legislators view it as proposing a tax increase. … Nobody wants to introduce that. It is at the forefront of the minds of retailers and retail landlords. … That parity is critical.

11:18: Zalatoris: (On Inland’s non-traded REITs.) Those REITS have separate boards of directors and management teams. We don’t interact. We don’t share properties. We don’t share joint ventures. … The only think we have in common is that the Inland Real Estate Group of Cos. does provide services like IT, human resources. I would say that the only other benefit is that there are opportunities to forward deals on that we can’t use or vice versa. But we don’t operate anything jointly.

Session ends.