REITs Go Shopping, But What About Consumers?
Dec 17, 2003 12:00 PM
Mall REITs finished up their holiday shopping this week. Vornado Realty Trust purchased Paramus, N.J.'s 900,000-square-foot Bergen Mall from Simon Property Group for $145 million and an estimated cap rate of 6 percent to 7 percent. "That's top dollar for a decidedly mediocre mall," says Citigroup Smith Barney analyst Jonathon Litt. Vornado plans a major redevelopment and may de-mall the property, which is currently anchored by Macy's, Value City, Marshalls and a Saks Off Fifth outlet, into a power center.
The Rouse Co. and an as-yet-unnamed partner bought the landmark mixed-use project Mizner Park for $136.9 million from TIAA-CREF, according to an ICSC report. Located in Boca Raton, Fla., the project features 240,000 square feet of retail, including Robb & Stucky, AnnTaylor Loft and Chico's. Rouse's share of the purchase price is $52.1 million.
And General Growth Properties announced plans to acquire more than 1.9 million square feet of middle-market regional malls, including Foothills Mall in Fort Collins, Colo., Chico Mall in Chico, Calif., and Rogue Valley in Medford, Ore. Anchors at the malls range from JCPenney to Sears and Mervyn's and average mall store sales range between $290 and $331 per square foot for the three malls. General Growth reported a total consideration of $221 million for the purchase, with expected first-year net operating income of $19.7 million (an 8.9 percent cap rate). Chico Mall and Rogue Valley were purchased from Lend Lease Real Estate Investments, and Foothills Mall was purchased from Wetscor, a division of The Macerich Co., and local developer Everitt.
Now, it's consumers' turn to shop. According to Wachovia Securities research, mall-based apparel retailers have seen sluggish sales in the first half of the holiday season. These chains will probably have to resort to serious markdowns to generate traffic, according to analyst Joseph Teklits. Anthropologie and Hot Topic are two exceptions, and have generated traffic with off-the-beaten-path products, he says.
Wal-Mart reported that comparable store sales through the second week of December were at the low end of the planned 3 to 5 percent range. At Target, sales through the second week of the month were below the 5 to 7 percent plan at Target stores and below the 4 to 6 percent plan at the total corporation, including Marshall Fields and Mervyn's stores.
But last year, the week before Christmas accounted for 41 percent of total holiday sales, so there is still cause for optimism, says Merrill Lynch First Vice President Mark Friedman. "There has been little positive news flow with mostly negative news about light sales, weather and traffic getting significant exposure. Our store visits and conversations suggest that many companies are holding in well heading into the critical final week." AnnTaylor, Coach, Tiffany, Gap and Pacific Sunwear are Friedman's specialty retailer picks this season.
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