Malls undergo 'lifestyle' changes
By Elizabeth Hayes
Bloomberg News Service
Ala Moana Center owner General Growth Properties Inc., the second-largest U.S. shopping mall owner, plans to spend about $1.5 billion to add outdoor shops and restaurants at many of its 162 malls in a bid to attract shoppers.
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The Chicago-based real estate investment trust has allocated $575 million to redevelop properties during the past three years, most of which went to add what Chief Executive John Bucksbaum calls a "lifestyle component." Another $1 billion is in the pipeline.
General Growth Properties, owner of Ala Moana Center (pictured), is looking to add more open areas to its malls across the country. The company has spent $575 million on such improvements and will spend $1 billion more.
"You're trying to create an environment for leisure along with the retail environment," Bucksbaum said. "It improves the sales per square foot in the mall."
General Growth, which started building malls in the 1950s, expects such renovations to boost earnings, which have risen 15 percent a year since 1994, compared with 7 percent for its peers, according to Deutsche Bank Securities.
The company owns properties in 40 states, including Ala Moana, one of the best-performing malls in the nation based on sales.
Shares of General Growth have gained 26 percent this year, the highest return of eight companies on the Bloomberg Regional Mall Index, which is up 20 percent.
Lifestyle centers, which number at least 30 in the United States, are defined as open-air malls with specialty retail shops, sit-down restaurants and a Main Street ambiance. They generate annual sales per square foot of $408, compared with $335 for traditional enclosed malls, said Michael Baker, director of research at the International Council of Shopping Centers.
"There's an evolution in mall development," Baker said. "Five years from now, the regional mall as an enclosed space is going to be a dated concept."
By themselves, open-air additions aren't profitable because of extra costs to install items such as fountains and landscaping, said Matthew Ostrower, an analyst at Morgan Stanley in New York, who has an "overweight/in-line" rating on General Growth. They serve instead as a way to attract shoppers, he said.
Tenant sales per square foot declined almost 2 percent in the first quarter at malls owned by REITs, Ostrower said.
The increase in open-air additions has been fueled by the consolidation of department stores and the demise of such mall anchor tenants as Montgomery Ward, Baker said.
"You have options about what to do with the empty space," Baker said. "One thing mall companies have gotten good at is weaning themselves off a total reliance on department stores."
General Growth has added outside shops and restaurants at five malls, including in Tucson, Ariz., and Lansing, Mich. About eight other projects are under way.
