Interview conducted by Michael Lagazo
Rouse (NYSE:RSE) is a publicly traded real estate investment trust headquartered in New York City. Among the country’s largest publicly traded regional mall owners, the Company’s geographically diverse portfolio spans the United States from coast to coast, and includes 34 malls in 21 states encompassing approximately 23.4 million square feet of space.
Mr. Silberfein, 49, is the chief executive of Rouse Properties, a publicly traded real estate investment trust based in New York. The company owns and operates 34 malls in 21 states, or around 24.5 million square feet of retail property. Mr. Silberfein previously held the position of Executive Vice President—Retail and Finance for Forest City Ratner Companies, a developer, owner and operator of real estate primarily in the New York metropolitan area, where he was employed from 1995 to 2011. Mr. Silberfein was responsible for managing Forest City Ratner Companies’ retail portfolio, consisting of over 5.1 million square feet of existing and under construction shopping centers and malls. Mr. Silberfein also had the overall responsibility for all aspects of Forest City Ratner Companies’ debt and equity financing requirements for its real estate portfolio. Mr. Silberfein holds a Bachelor of Arts degree from Lafayette College and a Master of Business Administration degree from Columbia University School of Business.
How is Rouse’s business performing? How has the company grown since spinning off from General Growth Properties (GGP)?
We’ve had two very strong years since our formation with the portfolio’s metrics improving across the board. Since our spinoff from GGP in early 2012 we’ve implemented a comprehensive plan to change the direction of the portfolio.
Each asset had really needed to be looked at on an individual basis. We had to put plans in place to effectively unlock the embedded potential and re-establish each asset’s position in the marketplace. We’ve committed to invest capital of approximately $250 million in both what we call cosmetic and strategic capital projects throughout the portfolio to get there.
While we’re at the early stages I am certainly pleased to say that our leasing and capital investment initiatives have already significantly improved our occupancies, our level of permanent leases, and our tenant mix. As it relates to leasing, which is the lifeblood of our company, we leased over 2.3 million square feet in 2013 and 2.1 million square feet in 2012 which was our first year of operation. Now this compares to only 920,000 square feet in 2011 under the prior owner. So we made a lot of progress both on the small shop space as well as on the anchor space. In terms of growth not only are we growing what I call organically but we have been quite active adding external growth as well. We’ve already completed $523 million of acquisitions of additional enclosed malls. The progress that we have achieved is truly a testament to our organizational focus and the talent of the professionals we employ.
Mall at Turtle Creek, which Rouse acquired in early 2013.
I see Rouse made several mall acquisitions over the past year. How did these deals come about and what made them attractive?
In 2013 we acquired three malls that we’re obviously very excited about and each deal is unique in its own right in terms of how it was sourced. It was a combination of private sellers and public REITs. What made each deal attractive to us was the opportunity to really strengthen our portfolio by adding a dominant middle market regional mall with considerable upside potential. Each of the malls we acquired really serve expansive trade areas with limited enclosed mall competition. Those are the characteristics we look for when we evaluate a deal. We recognized in each of these assets that we bought the opportunity to unlock the value at the asset level really by leveraging our proven operating platform to improve the metrics, the tenant quality, and the sale productivity in each mall.
I understand the malls in your portfolio are located in secondary and tertiary markets. Why is Rouse attracted to these markets?
Obviously as you alluded to what differentiates us from our industry peers and other mall companies is our focus on owning well located middle market malls. We obviously see considerable potential in the space over both the near and long term as retailers continue to focus their expansion plans on high quality space in middle markets. We like the stability these markets offer. They tend to be less susceptible to some of the volatility larger markets can experience.
What’s unique about our company and our model from both an investor and retailer perspective is we tend to be the only game in town. In fact, eighty percent of our malls are the only enclosed mall in a submarket or market or sometimes even as far away as a hundred miles. Our malls offer retailers access to trade areas with limited competition. What makes us different as well is we are one of the few companies with the size, the established operating platform, retail relationships, and balance sheet necessary to successfully operate middle
market malls on a national basis. With very little product being built it’s an attractive backdrop for us going forward. We are a pure play middle market enclosed mall company.
Tell me about the strategies Rouse employs to attract top retail, restaurant, and entertainment brands.
First, our efforts are driven by our leasing and marketing initiatives which promote each mall’s location, the surrounding community, and the unique characteristics of the area. Retailers have responded to our continual commitment to each asset to create a vibrant property – we’re seeing a lot of repeat business as they continue to grow with us as a partner.
The important part to understand is investing about $250 million in various cosmetic and strategic initiatives to reposition and enhance our portfolio. Our cosmetic programs accomplish everything from installing new and upgraded amenities such as Wi-Fi, soft seating, new tile flooring, and upgrading interior and exterior signage.
We’re paying attention to each asset and to the details of each asset. As an example, I believe we’re the only enclosed mall operator to have Wi-Fi from end zone to end zone throughout our entire mall portfolio. We have our strategic capital programs which target certain portions of our malls where we reconfigure excess unproductive inline and anchor areas of the mall and add a mix of high volume restaurants and entertainment brands, larger format, and everyday uses. Our malls tend to function as the downtowns of their markets so our focus – our goal is to increase the relevance and improve the offering of our properties. Through the end of 2013, we’ve already leased 260,000 square feet of high volume restaurants; we’ve already leased 200,000 square feet of entertainment tenants like premier megaplex movie theater operators. We’ve already signed leases for 720,000 of leading national larger format tenants.
Chula Vista Center before (left) and after (right)
I see that repositioning and renovating your malls is a key part of your business strategy. What does a typical project consist of and what is the desired outcome?
These mall-specific programs run the gamut of what we call cosmetic renovations to more complex changes we call strategic capital programs that involve reworking sections of the malls. Whatever the program entails for each asset, the end goal is really to attract better quality retailers, to increase the frequency and duration of customer visits to our malls.
In terms of the outcome, we expect these programs to continue to yield solid results, increase our cash flows, create a better sense of place for our customers, higher productivity levels for our retailers, and further strengthen our position as the dominant owner and operator of middle market regional enclosed malls.
What is your assessment of the retail environment? What are the current trends creating demand for retail space?
We see three major trends that we’re focusing on. The first is a long and growing list of retailers that are focusing their expansion efforts on middle markets. This is being driven by the increased occupancy cost of A malls, the lack of new construction, and sometimes driven by the profit margins afforded by operating in B malls versus A malls.
Second trend is a growing movement from big box or larger format retailers to expand or relocate into our malls. Our malls provide retailers with the ability to obtain the best real estate in a given market, gain competitive advantages against other competitors who may come into a market later by occupying the best located real estate in the market and benefitting from the higher traffic and sales generated by our malls.
Third, we expect to continue to benefit from a lack of new supply being built. It’s unlikely that much will be constructed across the country for the foreseeable future and in our markets. Retail development could be restrained across the board especially in secondary markets.
What is your outlook for Rouse in 2014? Where is the company headed?
We have a great business here at Rouse. We have considerable potential and we will continue to focus on executing our plans to unlock the inherent value in our portfolio. We believe we are one of the few retail REITs offering such exciting internal and external growth possibilities. With our talented team, national platform, and disciplined strategy we believe we can build on the positive momentum we have already established in 2012 and 2013.
One of the things I’d like to point out is that you’re seeing only a couple of malls being built but you’re seeing the same lack of supply being built in power center arena. Those two areas are really helpful to us because retailers looking to expand have to go somewhere. We have the ability to put them in our properties.
Regarding ICSC RECon – we’ve had a great two years, our leasing momentum continues to be strong, and the changes in our portfolio resonate with retailers as well as shoppers. We’re going to continue doing what we’re doing and we’re going to continue to looking for opportunities to grow. We’re excited about 2014 and beyond.