REITs help potential investors judge opportunities - Real Estate Investment Trusts

Discount Store News,  March 7, 1994  by Noal S. Solomon

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The recent surge in Real Estate Investment Trusts (REITs) going public has created stock opportunities for investors and has allowed non-investors a unique opportunity to find out more about these companies. For years, retailers were told by shopping center leasing representatives sales per square foot and development plans, but without being able to verify the accuracy of such claims.

By reading a REIT prospectus, the developer discloses these and many others in the real estate community. While the past is certainly not a guarantee of future results, as least the statements made by public REITs are likely truthful since violations of federal security laws would occur if there was an international, material misstatement.

A recent sampling of some prospectus reveals insights into the developers, as well as the shopping center industry. Among other items included are: names and compensation of the highest paid executives, sales, profits, property valuation, debt service and other financial information.

Some of the data, such as mall sales, might be useful to those retailers looking to lease space at a particular shopping mall. For example, Simon Properties (Melvin Simon & Associates) shows that its most recent mall stores sales per lease square foot at Barton Creek Square (Austin, Tex.) are $251.90; Cielo Vista Mall (El Paso, Tex.), $267.60; Greenwood Park Mall (Greenwood, Ind.), $202.10. Its highest sales per square foot are at La Plaza (McAllen, Tex.) with $420.40. Information on Simon's 54 regional malls and 53 community centers are included. Its Forum Shops at Caesar's Palace (Las Vegas) did $800 and Fashion Center at Pentagon City, Va., did $492.50. Simon's prospectus also gave information on two of its malls under construction (Circle Center Mall in Indianapolis and Seminole Town Center in Sanford, Fla.), both planned to open in 1995.

Some of the developer's projects may be excluded from a REIT and, therefore, information about the excluded projects might be limited. For example, Simon excluded detailed information on Mall of America in Bloomington, Minn., along with information on more than a dozen other regional malls of which it owns 50% or less.

Simon's prospectus points out that in 1992 its regional malls with more than 800,000 sq. ft. gross leasing area (GLA) had average mall store sales of $246 per square foot, 41% higher than the industry average of $175 per square foot for malls of this size. Another REIT, Taubman Centers, stated that in 1991 its malls had tenant sales per square foot oif $302.20. Of the 19 Taubman regional malls listed, Taubman's highest sales per square foot are at Beverly Center (Los Angeles), $419.20, and the lowest come from Bellevue Center (Nashville), $1570.80.

A prospectus often highlights which shopping centers have expansion potential and, in many instances, they name planned anchors. The percent of mall GLA occupied and annualized rent are among other included facts. Taubman's Woodfield Mall, Schaumburg, Ill., for example, has annualized rent of about $26 million.

The prospectus frequently lists shopping center trade area information as well. For example, Taubman estimates that Woodfield Mall has an 80% trade are of 1.4 million people, while Lake Forest Mall's (Gaithersburg, Md.) 80% trade area population is 405,000. Like Taubman, DeBartolo Properties (Edward J. DeBartolo Corp.) also shows trade area population. For example, the Florida Mall, Orlando, Fla., shows a trade population in 1993 of 318,800 while Century III, Pittsburgh, has 335,400 people.

DeBartolo's REIT says its malls have a ratio of anchor GLA to mall GLA of 1.88 to one. They believe this ratio is one of the highest in the industry and that its influences its malls' ability to attract customers and increase market share. Some developers prefer to break out mall sales per square foot to show figures with and without large-space users. For example, DeBartolo's Century III Mall had 1992 mall sales of $260 (excluding large-space users) and sales of $256.40 (including large-space users, except theaters). Its Florida Mall did $515.10 and $469 per sq. ft.

The DeBartolo prospectus also shows that JCPenney and Sears were in 76% and 75%, respectively, of the DeBartolo malls, with the next highest department store anchor (Federated) in 39% of the DeBartolo malls.

Average rents of developers are generally included. For example, the average annualized base rent for stores in Taubman Centers opening in the 12 month period ending September 1992 was $37.93 per sq. ft., compared to $30.63 per sq. ft. for stores closing during the same period. Most other mall developers have lower average rents, however, the prospectuses may indicate upside potential in rents. For example, DeBartolo reports that over the next five years, leases for large space users occupying 625,000 sq. ft., paying an average of $2.89 per sq. ft., will expire and DeBartello will seek to replace them at higher rents.

The prospectus often provides a clue as to future developments. For example, DeBartolo shows a $14 million option for a regional mall in Bowie, Md., and a $6 million option for a regional mall in Strongsville, Ohio, among options on four other development sites.