Nothing stays the same for long in retail, particularly among consolidating shopping center owners. Shopping Center World's 2003 Top Owners and 2003 Top Managers rankings show an industry in flux last year, its face changed by the steady pace of buying and selling.
The top positions on both lists are, as usual, dominated by large REITs. This year's top 10 owners control an aggregate 695 million square feet. But that's just a small piece of the shopping center pie, which has hundreds of smaller firms, says Bear Stearns REIT analyst Ross Smotrich.
"The shopping center sector remains highly fragmented, made up of numerous institutional and individual owners," says Smotrich. "In fact, REITs own and manage only 9.7 percent of the shopping center universe. REITs will continue to increase their share over the next several years as regional players strive to become more national in reach and as national players seek to expand their presence."
Among the transactions that affected this year's survey, the Rodamco North America breakup was perhaps the most significant. Simon, Westfield and Rouse divided up the Dutch company's 41.8 million-square-foot Urban Retail Centers portfolio last May. The deal's biggest GLA infusion went to The Rouse Co., which moved from No. 13 on last year's Top Owners list to No. 7 this year, adding more than 13 million square feet to its portfolio. The deal also pushed Urban Retail Centers out of the Top Owners list, as it is now the independent third-party management arm of the three REITs.
No. 5-ranked The Macerich Co. grew considerably. The REIT acquired West Coast rival Westcor (which ranked No. 24 on 2002's Top Owners survey), and added 15 million square feet to its portfolio. And No. 6-ranked New Plan Excel Realty Trust gained approximately 15 million square feet by acquiring the CenterAmerica portfolio for $654 million last March, and 58 strip centers from Equity Investment Group for $437 million.
"There's obviously been a massive consolidation in the past two years, and I don't think there's any reason to think that it won't continue," says Scott A. Wolstein, CEO of Developers Diversified Realty Corp. Developers Diversified illustrates the rapid rate of change. As of Dec. 31, it ranked No.9 on our Top Owners list with a portfolio of about 40 million square feet, up from 31 million in 2002. But that was before its March acquisition of JDN Realty Corp., which more than doubled its GLA to 87 million square feet -- a size that will catapult it up to the No. 3 spot for 2004.
Wolstein believes there is more consolidation to come. "You're going to have the greatest consolidation in an environment where stock prices are high," he says. How much longer will the frenzy of buying and selling go on? "On a continuum," he says, "we're probably in the fifth inning."
John Bucksbaum, CEO of No.2-ranked General Growth Properties agrees that the consolidation trend probably is closer to the end than the beginning, in part because of the declining number of properties still in private hands. "I would be surprised if 2003 has as much volume and activity" as 2002," he says. General Growth grew by about 21 million square feet in 2002, mainly driven by its acquisition of JP Realty Inc.
Wolstein agrees with others in the industry that "the sector will resolve itself into five or 10 players at some point." A growing disparity in stock prices of shopping center owners "would accelerate the trend. It's always easiest to achieve a merger when the acquiring company can pay a premium."
As for the fast-growing Developers Diversified, "We're more likely to be a consolidator than a consolidatee," Wolstein says. "Whenever we have an opportunity to do a deal that enhances shareholder value, we'll look at it seriously. As deals emerge, we'll be at the table."
And if No.1 Simon and No. 4 Westfield's ongoing attempt to acquire No. 18 Taubman Centers is any indication, top regional mall REITs will continue to snap up smaller competitors as well. "We've been at the forefront of the consolidation of the industry, with purchases of portfolios and companies," says Westfield America CEO Peter Lowy. "So far we've been in some solicited transactions and some unsolicited ones. You'll continue to see us at the forefront of consolidation in the industry, while we work on the portfolio we own and focus on redevelopment opportunities."
Our ranking of the industry's top owners and managers is based on total retail GLA owned and managed, as reported by companies in our Annual Industry Survey. Respondents were asked to include GLA owned and managed through Dec. 31, 2002, and were instructed to report only retail GLA and only their percentage of ownership in the case of joint ventures.
Click here for 2003's Top 50 Owners.