GGP Inc.'s leadership on a Jan. 31 conference call acknowledged the intense pressure on retailers and their landlords today while touting the company's success in the face of store closures and bankruptcies.
"One rarely realizes what we have experienced in the last 3 years," CEO Sandeep Mathrani said on the earnings call, citing more than 40 retailer bankruptcies since 2014, affecting 950 leases. "We've more than overcome the $180 million of aggregate rent loss and 6% of occupancy loss from these bankruptcies. The investors didn't even feel a blip."
Analysts during the Q&A segment of the call focused almost exclusively on drawing out more detail about what trouble may be coming in 2017 after another tough year in retail, punctuated by Macy's announcement of significant downsizing. Mathrani at several points in the call repeated a theme of his prepared remarks: The country's highest quality retail real estate will not only survive, but thrive, in the ongoing consolidation in the industry, he said. Most of retailers' sales productivity increases occur in their best-located, highest-quality locations.
"The faster they rationalize their portfolio," Mathrani said of struggling retailers, "the faster we will actually start to see a flight to quality. And we think it's actually quite sustainable because sales growth in the best centers [is] pretty attractive."
Mathrani's tone on the call at times betrayed a level of exasperation at the line of questioning. One rarely, if ever, sees retailers who have solid foot traffic and perform well in the headlines; only the struggling ones' voices are heard, he said.
Successful retailers, moreover, have become "channel agnostic" to a degree, Mathrani said. They care less about the precise shape of the property, or channel, so long as it is of the highest quality: upmarket, convenient, and with access and reach to the right demographic.
The CEO later added: "The sheer amount of leasing that we've done with the bankruptcies that have occurred since 2014 should speak volumes as to the demand that's available in the portfolio that continues to be 96% leased."
Analysts nevertheless plied management for detail, particularly about the department stores, a weak spot in the retail landscape where the REITs have been reclaiming vacant space and reconfiguring it, often adding dining and entertainment elements.
Mathrani said the company is "comfortable" with a pace of 15 to 20 department store recaptures each year. GGP has a little less than 400 department stores at present, and has an "immediate need" for roughly 50 anchor spaces, he added.