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Shopping Centers Today -> September 2007
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IN MIXED-USE, WHO WANTS TO OWN THE HOUSING?
Even before the housing slump hit, Macerich had decided it did not want to own the residential units it is adding to some of its malls, executives said on a second-quarter earnings call. Macerich is currently adding hotel, office and residential space to its Biltmore Fashion Park, in Scottsdale, Ariz., and the Tysons Corner Center (right), in McLean, Va. “As we think about monetizing these opportunities, we’re deciding that we would own office densification and sell residential, working a floor and an earn-out into the price,” said CEO Arthur Coppola. “On hotels, we’re a seller and ground lessor.” Coppola said Macerich wants to retain control of the office space. “It lends itself well to the shopping center,” he said. “Office leases are such that they don’t go on forever in the context that if you wanted to change your mind about the use, you can recapture that space. We didn’t want to be in the business of buying and selling condos.”
ADIOS, OPERATING LEASE?
Operating leases as we know them could be gone in 10 years, if accounting-standards setters in the European Union and the U.S. have their say. “Both the FASB and IASB [the bodies governing accounting standards in the U.S. and EU, respectively] are considering requiring all leases to be treated similarly to the way capital leases are today,” said Chris Dubrowski, director of professional practice at Deloitte & Touche’s national real estate practice. “Given that there’s perhaps a trillion dollars’ worth of operating leases out there — and that’s a conservative estimate — it will be a major change.”
If the operating leasing concept dies, tenants will have to record the present value of remaining lease payments as a liability, Dubrowski says. “Tenants won’t like this, because if they lease thousands of locations, such as a major retail tenant might, they’ll have all kinds of debt on their books that they didn’t before.” He says the practical effect of losing operating leases could be that tenants push for shorter-term leases.
For landlords the change would be a little more complicated. They would no longer record rental income, but rather the payment of principle and interest from the “receivable” (that is, the lease). “That’s simple if you only have a few tenants, but not so simple if you have thousands,” said Dubrowski.
REITS WEIGH STOCK BUYBACKS
Some REITs are taking advantage of a lull in their own stock prices to pursue share buybacks, while others are saving their cash for new developments. Simon Property Group plans to launch a buyback soon, CEO David Simon said on a second-quarter earnings call. Taubman Centers completed a $50 million buyback program during the second quarter. In August Developers Diversified Realty Corp.’s board approved a program for the repurchase of up to $500 million of stock over the next two years. At CBL & Associates Properties, the board that same month authorized a $100 million common shares. Not all REITs are jumping on the bandwagon, though. Regency Centers has determined, for now, that the firm would rather spend its cash on new developments and management ventures. Similarly, Kimco Realty decided to forgo a buyback program and instead deploy its cash into developments.
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