Bill Ackman Bullish on Mall REIT: Simon Property Group, General Growth Properties, The Macerich Company, CBL & Associates Properties, Developers Diversified Realty

(GuruFocus, December 9, 2009) Investment Guru Bill Ackman gave a speech in International Counsel of Shopping Centers (ICSC) on the current state of mall REITs. He built a bullish case for sector.


Here we highlight a few slides:


Slide 48: At the Beginning of 2009, The World was a Very Different Place for Mall REITs

• The U.S. economy was on the verge of a depression
• The U.S. consumer had hit the wall
• Credit markets were closed
• Mall REIT balance sheets were dangerously leveraged
• Cap rates increased and transactions stopped as bidask spreads widened
• Bankruptcy risk and tenant “right-sizing” initiatives were expected to result in massive store closures
• Rent relief was a serious concern
• Tenant sales were expected to fall off a cliff

Slide 49: Since then, The World has Improved Dramatically

• The U.S. economy has recovered
• The U.S. consumer is beginning to bounce back
• The credit markets have improved
• Mall REIT balance sheets have strengthened
• Cap rates have declined substantially
• Store closure fears were overblown
• Tenants are much better capitalized
• Rent relief has been minimal
• Tenant sales are down, but inventories are down even more while retailer cash flows have improved materially

Slide 67: In conclusion:

• During one of the worst recessions in over 50 years, mall REITs and their tenants have proven to be highly resilient
• Consumer spending does not need to return to 2007 levels for mall REITs and their tenants to outperform
• Store closures of underperforming tenants is a long-term positive for the mall industry
• Tenant cash flows and balance sheets have massively improved over the last twelve months
• Many opportunistic retailers have substantial growth plans.
• Retailers on the sidelines are just like those investors who didn’t buy stocks in the spring

Slide 66: What are the Characteristics of the Ideal Mall REIT Best Positioned to Perform in the Current Environment?


Assets:

• Established national platform provides leverage when dealing with tenants who are looking to expand or reposition stores
• High-quality malls, B+ to A+
• Established tenant relationships
• Low in-place occupancy costs
• Diverse footprint
• Lease-up / redevelopment Opportunities

Liabilities

• Secured, non-recourse debt a portfolio of options is more valuable than an option on a portfolio
• Fixed-rate debt provides a hedge against inflation
• Low interest rates
• Long-dated maturities
• A healthy amount of leverage provides upside for return on equity
• Good liabilities are an asset

Read the complete presentation:


ICSC Mall REIT Presentation 12-7-2009


Here is a survey of some of the major Mall REITs:

Simon Property Group Inc. (SPG, Financial)

Simon Property Group, Inc. is a self-administered and self-managed real estate investment trust. Simon Property Group Inc. has a market cap of $20.99 billion; its shares were traded at around $74.68 with a P/E ratio of 12 and P/S ratio of 5.6. Simon Property Group Inc. had an annual average earning growth of 5.3% over the past 10 years.

General Growth Properties Inc (GGPQ)

General Growth Properties, Inc. (GGP) is a self-administered and self-managed real estate investment trust (REIT). GGP is the owner or manager of over 200 regional shopping malls in 44 states and the owner of five master planned communities.

In April 2009, the Company filed for filed for Chapter 11 bankruptcy protection from its creditors. Bill Ackman invested in both equity and debt before and after the filing and profited handsomely from the investment.

The Macerich Company (MAC, Financial)

MACERICH CO. is a self-administered, self-managed real estate investment trust which is engaged in the acquisition, ownership, redevelopment, management and leasing of regional shopping centers located throughout the United States. The Macerich Company has a market cap of $2.81 billion; its shares were traded at around $29.66 with a P/E ratio of 5.7 and P/S ratio of 3.1. The dividend yield of The Macerich Company stocks is 2.7%. The Macerich Company had an annual average earning growth of 1.8% over the past 10 years.

CBL & Associates Properties Inc. (CBL, Financial)

CBL & ASSOCIATES PROPERTIES is a self-managed and self-administered REIT. Cbl & Associates Properties Inc. has a market cap of $1.37 billion; its shares were traded at around $9.96 with a P/E ratio of 3.1 and P/S ratio of 1.2. The dividend yield of Cbl & Associates Properties Inc. stocks is 2%. Cbl & Associates Properties Inc. had an annual average earning growth of 15.1% over the past 10 years.

Developers Diversified Realty Corp. (DDR, Financial)

Developers Diversified Realty Corp. is a self administered and self managed real estate investment trust. Developers Diversified Realty Corp. has a market cap of $1.77 billion; its shares were traded at around $8.99 with a P/E ratio of 3.3 and P/S ratio of 1.9. The dividend yield of Developers Diversified Realty Corp. stocks is 0.9%. Developers Diversified Realty Corp. had an annual average earning growth of 6.3% over the past 10 years.


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