5 Key Retail Trends From General Growth Properties CEO Sandeep Mathrani

Decreased spending by U.S. businesses caused GDP growth to slow in Q4 2014; however, consumer spending was a bright spot, clocking in at a torrid 4.3 percent.

That was great news if you happen to be a shareholder of General Growth Properties Inc GGP the second largest owner of top U.S. malls. In fact, all REITs focused on Class-A malls were outstanding performers in 2014.

Tale Of The Tape - 2014

General Growth's 43.84 percent total return handily outperformed the healthy 30.4 percent returns from the Vanguard REIT Index Fund VNQ, a proxy for the broader REIT sector.

Macerich Co MAC led the way at just over 47 percent, boosted by an announcement that mall giant Simon Property Group Inc SPG had bought a 3 percent stake in its rival.

General Growth owns just under 25 percent of the estimated 425 better quality malls in the U.S.

GGP - Financial Outlook

The General Growth earnings call on January 29, was upbeat. Results for Q4 2014 generally exceeded expectations and were assisted by the unanticipated steep drop in the price of oil.

Related Link: General Growth Properties Beats On Q4 Revenue

Initial guidance for 2015 FFO was $1.40 to $1.46 per share, or 8 percent growth at the midpoint.

Q1 2015 Expectations:

• Same Store NOI growth of 4 percent.
• EBITDA growth of 4 percent.
• FFO range of $305 million to $315 million, or $0.31 to $0.33 per share.

5 Key Retail Trends - CEO Sandeep Mathrani

1. Omnichannel: "Real-time information of inventory in the store and warehouse is essential, and must be seamless to the customer."

2. Technology: Implementing omnichannel requires complex IT systems to support customer shopping in stores and online. "Some retailers are there and some are not, which has led to new technologies." Mathrani cited eBay's Connected Fitting Room and tablet based Retail Associate Platform, featuring Endless Aisle inventory view to help in-store sales associates interact with customers across more sales channels.

Footlocker was mentioned as a company which was ahead of the curve on implementing omnichannel by utilizing its Super Stock Locator initiative to give customers various options to buy online and ship to store, buy on mobile device and pick up at store.

3. Online Retailers: "Online is an incubator for bricks and mortar," examples cited include: Bonobos, Birchbox, Warby Parker and Zappos. Zappos, an Amazon.com company, now has a 20,000 SF store in Las Vegas.

"The physical store is about advertising a business in a way not possible online. The store allows them not only to sell products but also sell their brand."

4. Distressed Retailers: actually represent an opportunity for many top tier malls. GGP proactively identifies weak retailers and takes advantage of "lack of new supply" and "unmet demand" to increase revenues.

5. Redevelopment Opportunities: are more profitable than new development. GGP allocates the first $200 million to $400 million each year to redeveloping existing properties at 8 percent to 11 percent yields vs. new developments typically yielding in the 6's.

This reinforces the idea that the 425 or so top tier U.S. mall locations are irreplaceable, which is likely the rationale behind Simon Property Group's recent investment in Macerich.

Bottom Line

Many investors who realized that U.S. commercial real estate had a huge year in 2014, may still have been surprised to learn that REITs focused on Class-A malls had outperformed the broader REIT sector.

The retail trends discussed by Mathrani -- combined with the recent plunge in energy prices -- represent favorable dynamics for General Growth and its peer group moving forward.