Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)
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in tandem at many malls, he says. Just as they were visible in the aggregate, these positive trends were reflected in the improved bottom lines of individual REITs as well. Simon Property Group reported a 15.8 percent year-on-year increase in funds from operations last year, to $2.9 billion. General Growth Properties posted a 13.7 percent FFO increase, to $994 million, for the same period. "The mall REITs in general are very good operators, and you continue to see that in their performance," Lachance said. "What is interesting is that they now have the ability to push rents at their better malls." Consider some of the 2012 trends at Macerich. The firm's tenants posted a 5.7 percent average sales increase, to $517 per square foot for the year. Occupancy portfoliowide was 93.8 percent, up from 92.7 percent a year before. Given these trends, Green Street Advisors is predicting that annual net operating income growth for malls will be 3.8 percent, on average, from 2013 to 2017. If 170 SCT / m a y 2 0 1 3 this proves true, the mall sector would outpace the firm's projected 2.8 percent average for the rest of commercial real estate over that period, yet another sign of the health of American malls. But of course, not all real estate is created equal. Over the past few years, mall owners have worked hard to ditch underperforming assets even as they have invested lots of money in redeveloping their best properties. Making generalizations about the entire mall sector can therefore be tricky. "If you think about the mall industry by value instead of by mall count, the value in the mall industry is mostly at the high end of the sector," Lachance said. But this does not necessarily mean that only urban, four-anchor malls have a chance of making money, he says. "Some malls in secondary and tertiary markets have decent competitive profiles," Lachance said. "We like to call them 'onlygame-in-town' properties. Some of these, while they will not experience dramatic NOI growth over time, are nonetheless likely to have a lot of stability in their operating results. Some of them are in a good position to be able to attract retailers, because they are the only mall within a pretty large radius." As Lachance notes in a March report, the number of new malls being built is at a generational low and is likely to stay that way for years to come. Meanwhile, REITs continue to develop and otherwise improve their better properties, which will add value to the mall sector. And while financing may be more difficult for lower-end malls to obtain, the commercial mortgage-backed securities market for high-end malls is wide open, Lachance says. Indeed, the value of today's malls is up about 75 percent from the nadir in 2009, he says. So while the mainstream press reporting on malls tends to emphasize the negative, the reality appears, for now at least, to be far more sanguine. "The emphasis should be placed on how healthy the higher-end malls in particular are," said Lachance, "and on how reasonably healthy the industry is." SCT