General Growth Properties Inc. (GGP)

[Chance To See]

Excerpts from DDR’s Q4 CC

http://www.earnings.com/company.asp?client=cb&ticker=ddr#

This is part of the CEO’s opening remarks in the Developers Diversified Realty (DDR) Q4 cc from this afternoon. I have no idea if this fellow’s rather upbeat view of the environment for mall operators is accurate, but it certainly caught my attention. I think that DDR has lower-scale properties than GGP, but what he says would probably still be applicable to GGP.

“While we’re mindful of the fact that some retail companies have struggled and will likely continue to struggle, the reality is that many retailers are using this unprecedented economic environment to reassess their business plans and capture market share from their weaker competitors.

“During 2008 and into 2009 we had numerous meetings with retailers who were dropping their store count out of necessity not because of any flaws in their business platforms or an active desire to scale back expansion plans. Quite simply, for many retailers there are not enough development opportunities in today’s market to support their growth initiatives. You’ve heard me say this before, but it is worth re-iterating: in many cases, if a retailer could open 50 new stores, they would happily do so. As much as the headlines may imply that reduced store openings are another sign of a weakening retail environment, in many cases the reduced store opening plans are more the result of real estate issues than fundamental weakness within the retailers’ operating platforms, and the issue is a lack of viable new supply compared to demand. Even in this environment, retailers look well beyond the current year, typically modeling payback over a 3-to-5 year period, which will work to our benefit as we look to re-tenant our vacancies.

“Along the same lines many in our industry equate the health of retailers to their headline sales number metrics like same store sales. Like 2008, 2009 is going to be a year where retailers look to solidify their margins as opposed to chasing high sales volumes. It would be imprudent for retailers to aggressively stock their shelves with large quantities of inventory and hope the headwinds facing the consumer subside and spending patterns immediately return to the norm. So even though you saw some drops in same store sales in the holiday season and will likely see similar figures as we get further into 2009, that doesn’t necessarily mean that retailers are not achieving their plans. In many cases the opposite may be true, and they may be using this opportunity to enhance their profitability and the quality of their credit.”