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Mall reports may shed light on consumer health
By Ilaina Jonas
NEW YORK (Reuters) - The two largest U.S. shopping mall operators are set to report quarterly results this week, and investors are looking for them to shed some light on the struggling U.S. consumer's ability to keep retailers going.
Simon Property Group Inc <SPG.N>, the largest U.S. owner of malls and shopping centers, and second-ranked General Growth Properties Inc <GGP.N>, are set to report first-quarter results on Tuesday.
Simon owns, has an interest, or manages 380 malls, outlet centers, and shopping centers totaling 258 million square feet of property in North American, Europe and Asia.
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Chicago-based General Growth owns, has an interest or manages more than 200 malls in 45 U.S. states, as well as shopping centers in Brazil and Turkey. The company's portfolio includes more than 24,000 retail stores.
"Because they're so broad nationally, people are going to be listening about prospective store closings throughout 2008," said Robert Gadsden, portfolio manager with Alpine Realty Income Growth Fund, which has $300 million in assets under management and has stock in both companies.
Faced with soaring gasoline and food prices, and concerns about losing their homes or their jobs, the U.S. consumer may be in no hurry for trips to the mall.
U.S. consumer confidence fell for a third straight month in April to its weakest in 26 years, according to a Reuters/University of Michigan survey released on Friday.
Taubman Centers Inc <TCO.N>, which owns luxury malls, said last week that tenant bankruptcies reached their highest first-quarter level in four years but said that was well within normal levels of its history as a publicly traded entity.
Malls are a favorite among investors because the long-term leases -- usually seven to 10 years -- offer a steady source of cash, which is relatively insulated from economic stress.
"Obviously consumer confidence is down, but that affects the retailers a lot more than it affects the landlord," said Jeung Hyun, portfolio manager with Adelante Capital Management, which has $3 billion under management and stock in both companies. "Unless a tenant goes bankrupt, they have to pay rent."
Joseph Betlej, portfolio manager of real estate securities for Advantus Capital Management is optimistic that the downturn won't turn into blood for retailers.
"Unless we go really go into a deep recession, the regional mall companies will fare better in this environment because the retailers are in much better shape than they have been in some of the recent economic downturns," said Betlej.
Analysts polled by Reuters Estimates on average see Simon posting funds from operations of $1.44 per share versus $1.37 a year ago, and General Growth reporting 74 cents per share against 65 cents a year earlier.
CAPITAL CONCERNS
General Growth investors will also be looking for information concerning possible sales or joint-ventures as part of its overall plan to raise capital.
"People are incredibly concerned about the balance sheet," Hyun said.
Last month, General Growth refinanced several properties and cleared $821.9 million from a 22.8 million share offering. The fund-raising helped ease investor fears and quash short-seller chatter about the company's financial health.
In 2004, General Growth bought upscale mall operated Rouse for $12 billion and faces $18.7 billion in debt coming due over the next four years including $2.6 billion this year.
That would not be a problem had the credit crisis not all but shut down the commercial mortgage-backed securities market, the source of large real estate lending.
In contrast, Simon's corporate debt commands the highest rating among real estate investment trusts.
Investors will be looking for an update on the malls Simon bought more than a year ago from the now defunct Mills Corp.
"Last year, at this time it was too close to the closing of the transaction to talk about it," Gadsden said. "Now they have had the portfolio in hand for a year-plus. They've had it a long enough time."
(Editing by Tim Dobbyn)
