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Shopping Centers Today -> June 2007
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Will snowy quarter shake faith in fixed CAM?
Despite a snowy first quarter, CBL & Associates says it does not regret the decision to institute fixed common-area expense fees at most of its properties in 2005. The REIT says maintenance and repair expenses were about $15.4 million for the quarter ended March 31, up from $12.6 million for the same quarter in 2006. Snow-removal expenses at some of the firm’s properties in cooler climates drove the increase. “We’d like it to snow a lot less, but, luckily, we don’t expect it to snow in the second and third quarters,” quipped John Foy, CBL’s vice chairman, CFO and treasurer, on a conference call. “But our partner Cafaro, in Youngstown, Ohio, has used fixed CAM for years, and they have assured us it’s the way to go,” Foy said. The annual 3-to-5 percent increases offset any seasonal variations that could occur, he said. As landlords adopt fixed-CAM, he said, investors are likely to see some “lumpiness” in quarterly results.
Public-private progress
“No deal is too big,” wrote one respondent to DLA Piper’s “State of the Market” survey of 274 industry executives, conducted in April. The public-to-private mergers-and-acquisitions trend was the No. 1 issue on their minds. Private equity funds willing to pay a premium for real estate assets are changing the landscape, respondents said, in part by keeping private property values in the stratosphere.
Nine out of 10 respondents expect the public-to-private mergers-and-acquisitions trend to continue next year, a conclusion shared by public and private companies alike, at a proportion of 88 percent and 92 percent, respectively. “Any public company is now fair game to go private,” wrote one respondent. “Look for more firms to consider going public in the coming years to capitalize on the shortage of good public REITs,” another one wrote. Nearly half said ongoing public-to-private buyouts will benefit the smaller players as well as the bigger ones. “More single-asset and small portfolio sales will occur as private entities prune portfolios,” wrote one.
Despite intense cap-rate compression in recent years, 10 percent of the respondents said cap rates will dip further, to historic lows. Some 72 percent expect no changes.
know when to hold ’em
Redevelopments are paying off for mall owners that are holding onto their assets. PREIT, for one, says the eight properties it renovated and redeveloped last year posted an aggregate, year-on-year increase in net operating income of 8 percent for the first quarter. As a whole, the company’s portfolio suffered a 2.5 percent decrease in net operating income over the period. Nonanchor occupancy at the eight properties rose by 350 basis points from the previous year’s first quarter, according to Joseph Coradino, president of PREIT Services and PREIT-Rubin. The company has 11 redevelopment projects under way at malls that include North Hanover (Pa.) Mall and Jacksonville (N.C.) Mall.
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