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GGP INC (GGP)
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GGP : U.S. retail REITs cannot find upside despite strong numbers

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08/02/2017 | 11:40pm CET

For an industry under siege by e-commerce and searching for relief, mall owner GGP Inc's (>> GGP Inc) announcement earlier on Wednesday that it is shelving plans to explore asset sales hit the stock hard and underscored the struggles facing brick-and-mortar retailers.

For an industry under siege by e-commerce and searching for relief, mall owner GGP Inc's (>> GGP Inc) announcement earlier on Wednesday that it is shelving plans to explore asset sales hit the stock hard and underscored the struggles facing brick-and-mortar retailers.

GGP Chief Executive Sandeep Mathrani, while discussing the company's outlook with analysts on Wednesday, said despite a gap in the publicly traded and private market value of GGP, staying the course would produce the best long-term results for shareholders.

Analysts were surprised by Mathrani's remarks, which marked a reversal from May when he said GGP would explore "strategic alternatives" for the real estate investment trust (REIT) and that nothing was off the table.

In May, GGP shares rose 4.6 percent on the announcement but on Wednesday the stock dropped more than 8 percent before closing down 4.9 percent at $21.91, a 2-1/2 month low.

"They told everybody they were going to get married and then they said 'Oh no, we're not,'" said Alex Goldfarb, an analyst at Sandler O'Neill + Partners LLP in New York, who added that the reversal in outlook was a big negative.

RETAIL REIT SKID

Retailers have been slammed by e-commerce. The share price of retail REITs is down by 30 percent or more over the past 12 months even as leasing volumes and rental prices have held up.

Most of the retail REITs' portfolios of tenants are 95 percent occupied, which points to a conundrum, Goldfarb said.

"If it were really that bad, these guys would be far under 95," he said. "If you look at their results, look across REIT land, almost all the companies are fine."

Leasing volume year-to-date at Kimco Realty Corp (>> Kimco Realty Corp), an owner of open-air shopping centers, is at the highest in the company's history, illustrating a sector strength.

"We still see pretty good demand out there from multiple sources and different users," said Dave Bujnicki, in charge of investor relations at Kimco.

Probably 80 percent of the value of the malls is in the top 200 malls and the majority of those are owned by the REITs, which will be the survivors because they will adapt, said Marc Halle, head of global real estate securities at PGIM Real Estate.

There is increased competition, whether in the mall or the grocery-anchored centers, which is going to drive down margins of the retailers and means they will pay lower rent, he said.

"The REITs have dropped pretty dramatically because no one knows what that downside is going to be," he said, adding the caveat that he thinks the price declines are likely overdone.

(Editing by Daniel Bases and Matthew Lewis)

By Herbert Lash

Stocks treated in this article : Kimco Realty Corp, GGP Inc
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Financials ($)
Sales 2017 2 282 M
EBIT 2017 863 M
Net income 2017 613 M
Debt 2017 15 573 M
Yield 2017 4,02%
P/E ratio 2017 36,83
P/E ratio 2018 40,45
EV / Sales 2017 16,5x
EV / Sales 2018 16,0x
Capitalization 22 126 M
Chart GGP INC
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GGP Inc Technical Analysis Chart | GGP | US36174X1019 | 4-Traders
Technical analysis trends GGP INC
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Income Statement Evolution
Consensus
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Mean consensus OUTPERFORM
Number of Analysts 17
Average target price 25,4 $
Spread / Average Target 8,6%
EPS Revisions
Managers
NameTitle
Sandeep Lakhmi Mathrani Chief Executive Officer & Director
Shobi Khan President & Chief Operating Officer
James Bruce Flatt Independent Chairman
Michael Bruce Berman Chief Financial Officer & Executive Vice President
John K. Haley Independent Director
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