“We’ve been happy to see the tick up in the Tier 2,” Marshall Loeb, the company’s president, said in an investor conference call this week. “Maybe with the lack of new supply coming online, there are tenants that a few years ago could have gone to a power center. We’ve done a lot with a fair amount with exporting goods, Ultra Cosmetics, (maurices, Justice, which are related entities), Rue 21, Children’s Place, Crazy 8. It’s been a nice mix, and I know even recently, a week ago, we met with Chico’s,” Loeb said. “Chico’s, White House, Black Market, Soma that group and they are setting their smaller market categories.”
“So many of the people we work with are public and they’re looking for opportunities,” he continued. “They’re looking at some of the smaller markets and how do they change the stores that may work in Tampa or Columbus and have it work in Parkersburg, WV. So we’re still seeing the opportunity there as well as in the larger markets. It’s been nice over the last year.”
Michael Glimcher, the REIT’s chairman and CEO, said that kind of activity has brought out more buyers “in the B mall space.”
“I think our market is starting to be there for these B assets. There are more buyers out there and I think we’re optimistic,” Glimcher said.
That also gives the company the opportunity to raise capital without having to issue new equity, Glimcher said.
“We’re going to be very measured as it relates to equity issue,” he said. “And so the notion that we could sell out of our bottom third quartile and add assets that would go into our top quartile even if there is a difference in cap rate from where we’re selling and where we’re buying. That’s absolutely how we’d like to see the year or the next 24 months played out.”
David Simon, chairman and CEO of Simon Property Group, said much the same thing to investors this week.
“I think the good news is that that market seems to be firming up,” Simon said. “Starwood hasn’t closed yet, but assuming it closes, you’ve got a couple other players out there that are looking to invest. I would expect us to continue to play in that game. We’re trying to understand what their strategy is going forward, and I am sure over time we’ll continue to cull the portfolios to some extent.”
Simon sold one mall at the beginning of this year — Gwinnett Mall in Atlanta. In addition, the company moved three malls into a category on its balance sheet identified as “other operating properties.”
“I think what you would read into that is that we’re probably not long-term owners of the three assets that are still owned by TMLP (The Mills LP),” Simon said. “One of those actually we’re evaluating that and that is we’re hopeful that overtime we can reposition that asset, but a couple of them were probably not long-term owners.”
The properties moved to the other properties category are:
Discover Mills, a 1.18 million-square-foot mall outside of Atlanta;
Franklin Mills, a 1.74 million-square-foot mall in Philadelphia; and
St. Louis Mills, a 1.74 million-square-foot mall outside of St. Louis, MO.
A REIT that is currently actively restructuring its portfolio is Ramco-Gershenson Properties Trust.
The REIT sold four properties last year, and in the first quarter of this year closed on the sale of a shopping center in Troy, MI, and a freestanding limited term net lease Office Max in Toledo, OH. It also sold an undeveloped parcel of land in Alpharetta, GA.
“In progress of our goal to dispose of non-core assets, we are in contract to sell two additional shopping centers, which we expect to close in the second quarter,” Dennis Gershenson, president and CEO of the REIT told investors this week.
Through its “capital recycling program”, Gershenson said the REIT is generating dollars and also eliminating assets that require an “inordinate” amount energy to lease and manage.
“Part of our approach for dispositions in 2012 was not to front load the year with those assets that were more challenging as far as leasing was concerned, and there are others that we have identified as non-core that are well leased, but just do not fit our definition of what we want to own going forward. And I think that you will see those dispositions occurring later in the year,” added Gregory Andrews, the REIT’s CFO.
Among assets Ramco-Gershenson has planned to dispose is at least 20% of its land holdings, the company said, but that percentage could go higher depending on how sales go during the year.
Retail REITs won’t just be sellers the rest of the year; they will be balancing out the sells with acquisitions, too, and in most cases doing growing their portfolios.
Last year, TIAA-CREF and CBL & Associates Properties Inc. formed a $1.09 billion real estate joint venture to invest in four market-dominant shopping malls.
“We continue to have meetings with them [TIAA-CREF], bring them up to-date on what’s going on in the markets and so on,” Stephen D. Lebovitz, president and CEO of CBL, told investors this week. “And we continue to explore various opportunities with them. There is nothing specific at this point in time, but they have a tremendous appetite, and they’ve got tremendous flexibility and tremendous financial capacity to do it, and the expertise, we’re seeing with the existing properties is basically, we think furthering their pursuit of these specific opportunities.”
“Teachers is very focused on the upper-end in higher productivity malls, there are certain malls in certain geographical areas that probably don’t fit their criteria, and but they would fit our criteria because we see great sales per square foot, we see also the opportunity to expand the project and add our management expertise to it,” Lebovitz said. “So, there are opportunities that we’ll do and that Teachers probably won’t be involved in, because of different criteria et cetera. But we also explore with other joint venture partners, lower productivity malls where we can add the managed, but expertise and leasing that we have been doing for since 1978. So it’s a great opportunity for us.”