Feb
11
Written by:
PXA Admin
2/11/2010 10:03 AM
NEW YORK (Dow Jones)Although high unemployment and penny pinching consumers will make 2010 a challenging year, mall landlords are expressing optimism that the worst of a brutal retail industry downturn is behind them.
Taubman Centers (TCO) was the latest mall operator to cite improving leasing trends, a stabilization in vacancy rates and improved retail sales as signs that a bottom has emerged.
"We're cautiously optimistic that retail sales have bottomed," said Taubman's Chief Executive Robert Taubman during an earnings call Wednesday. The Michigan-based company's fourth-quarter earning's beat expectations as Taubman swung to a profit following a $117.9 million write-down the same quarter in 2008.
Taubman said it executed the same number of leases in 2009 as 2008, while maintaining occupancy at nearly 90%. In addition, the company reported a 3.8% increase in mall tenant sales in the fourth quarter and predicted opening rents per square foot for tenants under 10,000 square feet will grow as much as 5% in 2010 compared with 2009.
Taubman's earnings followed similar results from Simon Property Group (SPG), Kimco Realty (KIM) and CBL Associates (CBL) this month which all beat expectations when excluding impairments.
"What we're hearing from mall landlords and the strip centers [operators] is that the worst is behind them and there are some glimmers...of optimism," said Jim Sullivan, an analyst at Green Street Advisors. "The landlords have held onto occupancy better than most had expected."
Sullivan noted, however, that landlords still face hurdles to fill vacant space and command favorable rents. "I would say the tone is still cautious," he said.
Simon Property, the nation's largest mall owner and real-estate investment trust, even strengthened its 2010 outlook. When it reported its fourth quarter earnings last week Simon revised its target for funds from operations, a key profitability metric, from $5.72 to $5.87 a share in 2010. That's above analysts expectations of $5.59.
"We are seeing some positive trends in retail conditions and believe that the environment should continue to experience a slow and gradual recovery," said Simon's Chief Executive David Simon in an earnings call last week.
"Holiday sales met or exceeded the expectations of most of our retailers and, coupled with good expense control and the inventory management, I would expect fourth-quarter earnings for the retailers to be quite good," he said.
Given last month's retail sales figures, landlords have grounds for optimism. Major retailers posted better-than-expected same-store sales in January, with long-suffering categories like department stores and apparel retailers finally showing signs that consumers are coming back. Same-store sales rose 3.3% in what was the strongest monthly gain since April 2008, and exceeded projections for a 2.5% advance.
Mall REITs had been grappling with a retail industry hammered by steep declines in consumer spending and woes in the broader commercial property market as values plummet and foreclosures rise amid a credit crunch and recession. Landlords have been under pressure to offer rent relief and other concessions to keep desired tenants, and signed leases with discount retailers.
Analysts say with the national unemployment rate at 9.7%, it's still too early to say the coast is clear. "Overall, 2010 will be another challenging year," said Benjamin Yang, an analyst at Keefe Bruyette & Woods. "Leasing will certainly be challenging for most of them."
-By A.D. Pruitt, Dow Jones Newswires; 212-416-2197; angela.pruitt@dowjones.com