More About Mills – The Operations Based Solution

Implications: The key to the future success of the Mills’ properties lies with the releasing and renovation programs which will increase sales volumes and the profitability of tenants. The rents will then accelerate and the return on the investment will provide a greater residual to the land/equity. This is the story of a program underway at a property which may be typical of Mills. The property is the largest retail property in Northern California and typical of the design found in other properties such as its Ontario, CA and Tempe, AZ locations. The tenant turnover and past mix are probably typical of Mills too.

Analysis:

The mix has changed to a larger percentage of full-price stores which indicates that the lines are blurring between Mills, regional shopping EMAC’s and Power/Lifestyle centers.  The property had a $ 15 million makeover which may be typical of the need.  The principal cosmetic needs are at the entries and for mall floor coverings.  Capital needs might typically be limited to roof, HVAC and parking lot renewals.  Tenant improvements are minimal since the typical floor dividers are fixtures rather than partitions and the properties are mostly single story designs, unless the occupancies require more extensive plumbing and electrical installations.  The makeover also included renovations for Kohl’s of a Skate Park building which may have required pretty extensive work.  The point here is that if this typical, the total renovation bill for the properties may be reasonable.

Remember what the future Mills management is looking to do is raise sales volumes currently reported at as low as an average $ 370 per sq.ft. to $ 450 - $ 500 per sq. ft. annually without destroying the cost basis of the properties.  The results here and elsewhere as they straighten out ownership and financial difficulties will be interesting.