Elsewhere: Shopping Mall Returns Soar

General Growth Properties Inc., the nation's second-largest mall owner in terms of market-cap and number of malls owned, Kimco Realty Corp., a big owner of strip malls, and Taubman Centers Inc. all said occupancy and rents were up.

While possible consolidation among retailers and weak department-store sales could end the mall owners' strong run, the demand for high-quality real estate, particularly malls, is likely to keep real-estate values high.

Mall owners have benefited from strong consumer spending and a wave of consolidation that has put 85% of the top 400 malls in the control of a handful of real-estate investment trusts, bolstering their leverage with retailers and helping temper the volatility of earnings growth.

The urge to shop has kept malls crowded, which has pushed up rents and occupancy rates for the malls. Shopping malls have been aided by the relative health of retailers, said Ian C. Weissman, an analyst with UBS. Malls have benefited from a 25% drop in retailer bankruptcies from last year.

The strip-mall sector is doing well, too, despite persistent fears on how Wal-Mart Stores Inc.'s move into the grocery business is hurting grocery stores, which serve as anchors in many strip malls.

Many REITs have been selling off properties in low-income, low-density areas to reduce their exposure to the Wal-Mart effect and have been buying in higher-income areas with more barriers to entry for the giant retailer.

Still, for many strip-mall operators, occupancies are near all-time highs and that is driving rent growth, said Paul Morgan, a senior analyst with Friedman, Billings, Ramsey & Co. of Arlington, Va.

General Growth, which completed the biggest REIT purchase with its $7.2 billion acquisition of Rouse Co. late last year, reported yesterday that it filled up some of its empty space last year and saw rents rise considerably. Its occupancy rate up moved to 92.1% in 2004 from 91.3% a year earlier, and rents went up 5.3%.

The company, which owns 206 regional malls, said its net income fell 11% to 41 cents a share from 46 cents a year ago.

Funds from operations, a key measure of real-estate investment trust performance, rose 20% to 90 cents a share from 75 cents a year ago. FFO is commonly used to measure value in the real-estate industry instead of net income.

For the year, General Growth's earnings per share declined to $1.21 in 2004 from $1.22 in 2003. FFO for 2004 hit $2.77 a share, up 20% from $2.31 in 2003.

Kimco of New Hyde Park, N.Y., primarily a holder of strip-mall properties said its occupancy rate rose as well to 93.6% in 2004 from 90.7% a year earlier.

The company said it earned 64 cents a share in the fourth quarter, down 11% from 72 cents a year earlier. FFO rose to 90 cents a share in the fourth quarter, up 5.9% from 85 cents a year ago.

For 2004, Kimco earned $2.51 a share, down 4.2% from the $2.62 a share it earned in 2003. FFO for 2004 reached $3.55 a share, up 9.9% from $3.23 a share in 2003.

Taubman Centers, the Bloomfield Hills, Mich., owner of high-end shopping malls, said rents in the fourth quarter were up 5% and occupancy rose to 89.6% from 87.4% in the fourth quarter of 2003.

The company, which owns and/or manages 22 malls lost four cents a share in the fourth quarter, compared with earnings of $1.02 a share a year ago.

FFO fell to 52 cents a share in the fourth quarter from 59 cents a year earlier, largely because of a one-time charge taken in the recent quarter.

For the year, Taubman lost 10 cents a share, compared with earnings of 41 cents a share in 2003. FFO was up 19% in 2004 to $1.99 a share from $1.67 a year earlier.

The gains among malls were driven by healthy retail sales. Same-store sales at shopping malls were up 3% last year, an above-average number, said Mr. Morgan.

But the department stores that typically serve as anchors at malls, attracting large numbers of shoppers who filter through to the smaller stores, have been struggling.

The Sears, Roebuck & Co. and Kmart Holding Co. deal, a potential deal between Federated Department Stores Inc. and May Department Stores Co. and Target Corp.'s sale of Mervyn's will likely mean a shakeout in the next year, causing malls to have to look for new anchors or draw up new plans.

Consolidation is continuing among mall companies.

In December, Macerich Co., which owns 62 malls primarily in California and Arizona, agreed to pay $1.45 billion to acquire Wilmorite Properties, which owns shopping centers along the east coast, including the well-known Tysons Corner Center in suburban Washington D.C. and Danbury Fair Mall in Danbury, Conn.