Study: Real estate assets are ‘surprisingly resilient’
Has the retail apocalypse cometh? Nay, says research company MSCI — at least not for investors with an eye for the right property.
“Despite the inexorable rise of e-commerce over the last 20 years, retail asset performance has been surprisingly resilient, providing stable returns and operating metrics during this time period,” said a new MSCI report titled “Retail Apocalypse: Should Mall Owners Be Worried?”.
Indeed, over the past five years, retail real estate assets have produced an annualized total return to investors of 10.4%, compared to 10% for non-retail assets, according to MSCI.
What’s more, when comparing regional malls, neighborhood centers, and power centers, MSCI found rates of return for these various formats to be in the same ball park.
Neither have investors been put off by the 2017 retail vacancy rate of 7.4%, which was in line with non-retail properties and was lower than the retail vacancy rate of the early 2000s.
Why are shopping centers performing better than the general public thinks they are? Here are some of the reasons proposed by report authors Amit Nihalani and Bryan Reid:
• Consumer spending is not a zero-sum game. Every additional dollar of online spending does not equate to a dollar less spent in stores.
• Bankruptcies and closures probably generate more press coverage than plans for expansion.
• Expanding retailers operate in thriving segments, while closures tend to be concentrated in segments with declining profitability.
• The growth of omnichannel strategies — where retailers adapt their online and offline strategies to complement each other.
Macy’s Q4 earnings, comp-sales top Street; to sell part of Chicago flagship
An upbeat Macy’s on Tuesday posted earnings and same-store sales for the fourth quarter that topped expectations as it reaped the benefits of a more disciplined promotional strategy, innovative investments in its updated loyalty program, digital momentum, and the ongoing sale of its real estate assets, whose 2017 sales totaled $411 million. It also issued an upbeat outlook.
The department store retailer announced that it had signed an agreement to sell seven “largely unused” floors of its State Street store in Chicago to Brookfield Asset Management, for a total of $30 million, with $27 million of consideration and a $3 million contribution for certain improvements. The floors will be converted into office space. Macy’s said the sale will enable it to make the State Street store a “more vibrant” shopping destination. (See end of article for more information on Macy’s real estate review.)
The department store retailer’s net income totaled $1.33 million, or $4.31 per share, in the quarter ended Feb. 1, up from $475.0 million, or $1.54 per share, in the year ago period. Adjusted EPS, excluding tax benefits and other items, was $2.82, beating analysts’ forecasts of $2.67.
Sales rose 1.8% to $8.66 billion, from $8.51 billion last year, in line with forecasts. Same-store sales on an owned basis were up a better-than-expected 1.3%, and up 1.4% on an owned plus licensed basis. (Total sales in the fourth quarter of 2017 reflect a 14th week of sales, whereas comparable sales are on the same 13-week basis as fiscal 2016.)
“We are committed to returning Macy’s, Inc. to comparable sales growth in 2018 and will build on the momentum we created in the fourth quarter of 2017,” said Jeff Gennette, Macy’s chairman and CEO. “We are encouraged to see a trend improvement in our brick & mortar business, and we had the 34th consecutive quarter of double-digit growth in our digital business.”
Gennette said that Macy’s was “disciplined” with its promotional cadence and maintained a good inventory position in the fourth quarter.
“We head into 2018 with an improved base business, healthy inventories, a focused and engaged organization and a clear path to return Macy’s to growth,” he said.
The company said in 2018 it will accelerate initiatives related to its stores, technology and merchandising. It also introducing an incentive plan for store employees.
Looking to fiscal 2018, Macy’s expects earnings for the year to fall within the range of $3.55 to $3.75 per share, while analysts had forecast the company earning $3.04 a share.
Real Estate Update: Over the last three fiscal years, Macy’s, has completed asset sale transactions, including stores, warehouses and parking garages, totaling approximately $1.3 billion in cash proceeds. The retailer said it will continue to “opportunistically evaluate” its real estate portfolio in 2018 to identify opportunities “where the redevelopment value of its real estate exceeds that of non-strategic operating locations.” The company also continues to focus on creating “additional value’ from its flagship locations.
Macy’s announced it is exploring opportunities to sell the approximately 240,000 gross-sq.-ft. I. Magnin portion of its main Union Square building in San Francisco. (Macy’s Union Square comprises multiple buildings, and the former I. Magnin building is a separate structure.)
As previously announced, Macy’s sold the Union Square Men’s building and is incorporating the men’s business into the main store. The company is also making additional enhancements to the Union Square main building through the conversion of street-level selling space into high-end retail shops that will be leased to third parties.
Macy’s will continue to work with Brookfield as part of its strategic alliance. The companies have agreed to certain terms on nine assets (of the approximately 50-asset portfolio), which Brookfield will redevelop once it has received the necessary approvals. Upon the completion of certain approvals, Macy’s will either sell its interests in the individual assets to Brookfield or contribute them to individual joint ventures. If sold, the cumulative value is estimated to be approximately $50 million.
To date, Macy’s has closed 83 stores as part of its previously announced plan to shutter 100 locations.
Tavistock to launch hotel brand at Lake Nona
The rapidly growing Lake Nona community outside of Orlando will be the launching pad for Tavistock Development’s new hotel business.
The first two properties to arrive under the Tavistock Hotel Collection brand will break ground this year in Lake Nona — home to the 650-acre Lake Nona Medical City, KPMG’s national training center, the National Campus of the Unites States Tennis Association, and Steiner + Associates mixed-use Lake Nona Town Center.
“This is a huge milestone for Lake Nona and for the Town Center. The hotel will serve as the soul of the Town Center because it will serve not only residents, but KPMG, the sports complex, and the medical center,” said Kit Pappas, VP of hotel management for Tavistock.
The larger of the two hotels with 335 rooms, the Tavistock Lake Nona Resort will be the first to open in 2020, according to plans. The 215-room Tavistock Town Center Hotel is also expected to be accepting guests before that end of that year.
Steiner executives welcomed Tavistock’s news as a boon for its retail tenants. “
Hospitality is a natural complement to retail. It provides captive guests staying in the community with free time,” said Steiner executive VP for retail real estate Anne Mastin.
Mastin also applauded the state-of-the-art designs for the hotels.
“These two hotels are pushing the envelope in the hospitality space, which will absolutely appeal to innovative, first-to-market retail seeking out their first-to-market location in the greater Orlando market,” Mastin said.