CBL & Associates Properties Inc. has been on an aggressive growth streak. The Chattanooga,Tenn.-based REIT has expanded its portfolio of regional malls from 15 to 28 properties in the past three years.

In 1999 alone, CBL plans to open 2 million sq. ft. of new space and start construction on another 1 million sq. ft. That's an ambitious plan considering the REIT industry's dismal ride on Wall Street during the past year.

CBL is just one of several REITs that has not allowed the recent hiccup in equity markets to derail its expansion strategy. "We're looking at ways to continue to grow our business," says Stephen Lebovitz, president of CBL & Associates.

CBL already has financing in place for projects set to break ground this year. The company secured capital via construction loans and new equity partners. CBL also continues to search for non-retail sources of revenue, such as advertising and sponsorship dollars. "We're just trying to be creative and think outside the box and look at malls for the amount of traffic that flows through them," Lebovitz says.

Despite low stock prices, REIT real estate and the operating companies themselves remain remarkably healthy. "Most of our properties are performing at extremely high levels due to several years of economic growth," says Ken Bernstein, president of Acadia Realty Trust, New York, who is convinced that investors will evenutally recognize that REITs are trading at discounts of 10% to 20% of their net asset value.

"However, until that disconnect is resolved, management has to be prepared to operate their businesses without accessing additional equity through Wall Street," Bernstein says.

So Wall Street's lack of appreciation is forcing the trusts to look elsewhere for capital, and several REIT managers are left wondering where to turn. More than half of 87 REIT executives participating in an electronic survey during NAREIT's February CEO Conference named access to capital as the biggest obstacle they face with regard to meeting growth objectives over the next five years. (See story at left.)

"We're continuing to remain active on the acquisition front, but that leads into the capital constraint question," says John Bucksbaum, an executive vice president with Chicago-based General Growth Properties, who has been appointed CEO effective July 1. "I don't think any REIT would deny the fact that stock prices are somewhat compressed. It's not an opportune time to raise equity, which you would typically need to make a lot of these acquisitions."

Consequently, several REITs are taking advantage of both internal and external sources of capital to finance ongoing acquisition and development activity.

Some REITs are stretching existing dollars by forming joint ventures, while others are focusing on internal operations to generate new income. REITs also hope that the extra effort will inflate earnings, and ultimately pique investor interest.

"The theme going forward is that REITs are going to hunker down and find revenue from other sources and prove themselves by posting a strong performance," says Mark Zeisloft, a vice president and retail REIT analyst with RREEF Real Estate Securities in Chicago.

Growth from within Generating revenue growth on the operations side is hardly a new idea. However, depressed stock prices are prompting public REITs to scrutinize internal operations for ways to cut spending and increase profitability. "When you're spending less time acquiring, you tend to spend more time focusing inward," says Stuart Boesky, president of Aegis Realty Inc. and senior managing director of Related Capital Co. in New York.

Among the REIT leaders surveyed by NAREIT, 37% listed internal opportunities as the primary avenue of growth, followed by acquisitions at 34%; mergers at 16% and joint ventures at 13%.

"Many of the shopping center REITs, our company included, are in a very good position to grow internally and create significant earnings growth without issuing additional shares," Bernstein says. Acadia, for example, has increased its portfolio occupancy from 84% to almost 90%.

"The host of companies that don't have strong internal opportunities are going to have a tougher time demonstrating acceptable earnings growth," he says. "In our case, we acquired a troubled company that was under-leased and under-managed."

Other companies have added skill sets to improve their portfolios and have seen results in increased occupancy and higher rents.

"We have focused a lot of our attention on internal growth," says Jonathan Weller, president and COO of Pennsylvania Real Estate Investment Trust (PREIT) in Philadelphia. PREIT's merger with the Rubin Organization Inc. in late 1997 brought management, leasing and development capabilities into the fold that could be applied to existing retail properties.

Occupancy within PREIT's portfolio has risen to 88%, and space that has rolled over is bringing in significantly higher rents.

For example, leases that expired during 1998 had an average rent of $10.60 per sq. ft. PREIT was able to increase its rent stream on those spaces by 64% with renewals that averaged $16.50 per sq. ft.

The company anticipates similar opportunities in 1999 with approximately 390,000 sq. ft. in leases expiring at an average rental rate of just under $7 per sq. ft.

Not only are REITs looking to squeeze added dollars from leasing and management functions, but they also are pursuing a myriad of new revenue sources.

Specialty leasing is one key profit center. Mall REITs such as General Growth have found that they can generate tens of millions of dollars in added revenue each year simply by leasing common area space to temporary tenants. "We're always looking to be creative in our approach to finding different sources of revenue," Bucksbaum says.

In addition, REITs are learning to leverage the substantial traffic volumes and specific shopper demographics of their centers to court corporate sponsorship dollars. For example, General Growth has been successful in attracting corporate sponsorship of child play areas and customer service centers withinits mall properties.

Indianapolis-based Simon Property Group has created its own operating unit devoted to such mall marketing initiatives. Simon Brand Ventures has established partnerships with national brands such as VISA U.S.A. and Pepsi. Also, the division recently announced an alliance with AT&T that gives the telecommunications firm promotional rights to Simon malls, which attract 100 million shoppers annually.

One AT&T program allows its residential phone customers to redeem their monthly long-distance service, calling card and local toll charges in exchange for MALLPeRKS shopper loyalty points. In addition, anyone who switches to AT&T at a Simon mall will receive 60 free minutes of domestic long distance and 150 MALLPeRKS points.

Capital sources REITs are looking at new sources of capital ranging from private partners to traditional lenders. Aegis, for example, is being courted by a bevy of financial institutions.

"There's no shortage of private equity partners in the market who will do transactions with us," Boesky says. And Aegis plans to form joint ventures to close on a significant number of acquisitions this year. These off-balance-sheet transactions will involve partnering with groups such as private equity funds, insurance companies and pension advisers.

One advantage of joint ventures is that they allow REITs to stretch their capital further compared to wholly owned transactions. "Part of our strategy is to make the dollars that we have available last as long as possible, or until the equity markets improve," Boesky says.

PREIT also hopes to bring in outside investors to purchase a stake in its existing properties, which will free up dollars to fund new development. "We are looking at various strategies that would allow us to recapture capital by selling partial interest in some type of joint venture," Weller says.

PREIT plans to sell part ownership in a parcel of properties later this year. However, Weller says, the company does plan to maintain its property management functions within these new partnerships.

Even REITs that are not feeling the squeeze from Wall Street are drawn to joint ventures. Simon Property Group has a $1.25 billion credit line with about $900 million currently available. "So we have been able to execute our business plan without any concerns as to the status of capital markets," says Steve Sterrett, a senior vice president and treasurer for Simon.

However, Simon is using joint ventures as a means to conserve its supply of capital. For example, Simon entered into a joint venture agreement to acquire the privately owned portfolio of Boston-based New England Development. The deal also allows Simon to assume management of the affiliated WellsPark Management LLC.

Simon partnered with institutional investors to come up with the hefty $1.7 billion sale price. "That is a shift from how Simon has operated in the past," Sterrett notes.

Mergers and acquisitions continue to be another viable means of growth for REITs. "I think what we're going to see is continued discussions about mergers, consolidation and privatization," Bernstein says. "I'm not sure that you'll see a significant volume of transactions completed in 1999, but discussions are beginning."

In addition, REITs are raising capital by putting properties back on the sale block. "For some companies, the ability to sell assets with limited additional future growth is a better way for them to raise capital than utilizing debt on their already leveraged balance sheet or equity at current multiples," Bernstein says.

REITs are realizing the value of mature assets, as well as selling off assets that don't quite fit the portfolio. "We feel it's strategically important that we eliminate over time those assets that we don't believe have long-term growth opportunities, and are not consistent with our core focus," Bernstein says.

Acadia recently sold three mall properties. Those properties will likely be repositioned for non-conventional retail or non-retail use such as back- office industrial.

"We're more interested in properties that have high barriers to entry, that are well located, and that attract our stable of tenants such as Old Navy, Wal-Mart and T.J. Maxx," Bernstein adds.

Columbus-based Glimcher Realty Trust hopes to maximize values by selling properties while buyer demand and prices remain high. The REIT is focusing on cleaning up its portfolio by selling properties that don't quite mesh with the geographic mix or property type.

"We want to be a more efficient operator," states Bill Cornely, an executive vice president, COO and CFO at Glimcher. Consequently, the company is taking advantage of opportunities to sell successful properties, and then reinvesting those dollars. The capital raised can be redeployed to finance growth, buy back stock or pay off debt.

"We are in the business of value creation," Cornely says. "We're working on streamlining our balance sheet and capital structure."