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Retail bears stalk mall REIT management at REITWeek

If regional mall landlords had hoped this week to clear the air of the stench of negative sentiment around their asset class, they had their work cut out for them.

Investors and analysts barraged management teams of mall real estate investment trusts throughout REITWeek in New York, probing for clarity on the future of the business. CBL & Associates Inc.'s President and CEO Stephen Lebovitz notably called into question the assertion, made by one attendee, that the bulk of the retailer bankruptcies and store closures this year have been a result of secular changes, or fundamental shifts in customer behavior.

Many of the casualties, Lebovitz countered, are "cyclical" ones this year's victims in the ebb and flow of the retail cycle.

"While there definitely are some secular changes ... we see this as a cleansing of some retailers that just haven't been able to compete and be effective in this market," he said, calling the negative media reports around the mall space "incredibly sensational" and "relentless."

According to Lebovitz, CBL ended 2016 with its portfolio roughly 95% leased. The company expects to close 2017 with a slightly softer performance, with its assets 92% to 93% leased.

Attendees grilled management about more than tenant demand and the redevelopment and re-leasing of vacant space. One participant questioned CBL's management about why it has not aggressively pursued share buybacks. Roughly a year ago, when the value of CBL shares was more than double what it is now, the company had a buyback plan in place but did not act on it, the man noted.

"It doesn't add up. I don't understand that," he said. "I would have expected you to have a buyback and be acting on it aggressively at this price."

Company executives said the long-term returns on redevelopments have proven more attractive over time.

"We're looking at this environment as one where every dollar is precious, from a liquidity point of view," Lebovitz said. "That's our top priority."

In an interview, Macerich Co. COO Bobby Perlmutter said investor sentiment in private meetings was not entirely negative. There is now value to be mined in the regional mall space; the question is how entrenched the negative sentiment is and how long it will linger.

"They understand the difference between the As and the Bs," he said of investor sentiment about so-called "A malls" and "B malls." "It clearly has not been as negative as I thought, going in."

GGP Inc. CEO Sandeep Mathrani pinned much of the softness in the apparel segment on retailer "cannibalization," abetted by poor tenant curation. A more skillfully chosen and diverse tenant mix would prevent struggling apparel retailers from competing for the same consumer dollar. Skilled real estate management is the solution, he said.

"The biggest issue in our industry is obsolescence," Mathrani said. "If you asked me, what do I worry about everyday? It's that someone is building a better, newer mousetrap down the road — a new outlet center, a new lifestyle center, a new mall. Obsolescence is my biggest fear factor, more than anything else."

Mathrani also called into question the notion that Fifth Avenue storefronts in New York City have lost their shine. He cited the case of Swedish apparel retailer H&M, which had been unable to successfully connect with the American consumer before opening a store at 640 Fifth Avenue some 15 years ago.

"If you're priced right, the space is going to be leased. If you're priced incorrectly, it's not going to be leased," the executive concluded. "It's purely, in my opinion, a pricing issue, not a demand issue from a retailer."