Regional mall REITs take on e-commerce

New York -- While online retail sales continue to rise, regional malls continue to generate profits, according to an SNL Financial LC analysis.

The U.S. Census Bureau has estimated that retail e-commerce sales for the second quarter of 2013 grew by 4.9% over the prior quarter to $64.8 billion, an 18.4% gain over the preceding 12 months. Still, e-commerce accounts for less than 6% of retail sales, according to SNL (

Speaking at Barclays Global Financial Services Conference in September REIT executives discussed how e-commerce is affecting retail sales.

The executives noted that the application of sales tax to online retail is helping to equalize online and brick and mortar pricing.

Acknowledging that e-commerce will adversely affect some retail real estate, Simon Property Group Inc. CEO David Simon told the group that “the bigger and better assets are going to be more valuable.” He also noted that regional mall retailers could compete with same day delivery plans of online retailers.

Although total returns of regional mall REITs remain low compared to REITs overall, regional mall numbers support the optimism of REIT executives.

Macerich Co. saw its same-store NOI grow by 4.7% in the second quarter, continued SNL. General Growth Properties logged a 6.8% same-store NOI increase for the preceding 12 months, which pushed earnings $13 million ahead of expectations. General growth also reported a regional mall occupancy rate of 95.9% for the second quarter.

SNL also noted that Simon posted 5.9% in same-store NOI growth in the second quarter, thanks in part to a rise of nearly one percentage point rise in the REIT’s occupancy rate — to 95.1%. Other factors included a 14.1% surge in re-leasing spreads, a 3.6% increase in rent per sq. ft. and rising tenant sales.

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