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Landlords See Profits Rise at U.S. Shopping Centers

Malls gain despite shifting a retail landscape, according to the ICSC and the National Council of Real Estate Investment Fiduciaries.

Despite the weak holiday season, a rash of retail profit warnings and the continued rise of e-commerce, 2013 was a banner year for landlords.

Total fourth-quarter net operating income for all U.S. shopping centers rose 7.7 percent per square foot versus a year earlier, according to the International Council of Shopping Centers and the National Council of Real Estate Investment Fiduciaries.

That performance pushed full-year net operating income to a gain of 7 percent — the sector’s strongest performance since 2008. Late Monday, General Growth Properties Inc. said its operating income rose 9.6 percent last year to $832.2 million.

But the shopping centers are not immune to the economy, and Michael Niemira, ICSC’s chief economist, said profit growth rates “will likely moderate in 2014.”

Shopping centers are also not immune to a host of changes sweeping across the retail landscape.

Mall skeptics point to the relative lack of new openings and new concepts, as well as the ascendancy of e-commerce. But David Simon, chairman and chief executive officer of Simon Property Group, is waving the retail real estate flag high.

“The pundits: I’ve heard this stuff about malls and the Internet,” Simon said on a conference call Friday, after his company reported that 2013 operating income rose 8.8 percent to $2.42 billion. “Obviously, having the right retailers, the right customer service, the right look and feel of the properties, we’ll continue to hold our own in that space without question.”

While omni-minded retailers are increasingly looking to fulfill online orders from their stores, Simon stressed that the store remains important.

The ceo said that over time “store location will become more valuable because, instead of building a bunch of distribution centers or trying to figure out how to get various online purchases to the consumer, the most effective and perhaps cost-effective way for them to do it is by using their existing store. Now, that means that they’re going to have to have a better handle on store and create algorithms in terms of what can be distributed out of store or not.”

Apparel is expected to remain an important part of the mix at malls, but Richard Sokolov, Simon’s president and chief operating officer, said the players might change.

“The tenants that make up that apparel percentage could change dramatically,” Sokolov said. “We have some tenants that are reducing the size of their stores, and we have entrants coming in like Zara, H&M, Uniqlo that are in slightly bigger formats.”