CFO Studio Magazine with Robert Falzon, CFO, Prudential

Q2 2017 WWW.CFOSTUDIO.COM 15 background gives him a unique perspective on the intricacies of shopping center investing and operations: He received his Bachelor’s degree from the State University of NewYork at Binghamton and a JD from BostonUniversity School of Law, after which he worked as an attorney for two years before going back to school to earn anMBA fromColumbia University. His 30 years of experience in the legal, real estate, and financial industries also carry plenty of clout. Prior to joining GGP, Berman served as Executive Vice President and Chief Financial Officer of Equity LifeStyle Properties, a Chicago-based REIT owned by legendary investor Sam Zell. From 1989 through 2002, Berman was in the investment banking department at Merrill Lynch & Co. (now part of Bank of America). During his time there, Berman was involved in numerous capital market and advisory transactions, including the IPOs of Equity Residential Properties; Vornado, Inc.; and Equity Office Properties. Berman seems to have taken elements from each of his previous incarnations— the attention to detail of an attorney, the nerve of an investment banker, and the strategic abilities of a finance pro—andmarinated them until he achieved just the right balance. An Unusual Deal “There’s a different rhythm to investment banking,” Berman observes. “At the end of each year, you close the books and start the next one with a blank slate. But working for a REIT is like rafting down a river: The river never ends. Sometimes it’s calm, and at other times it’s white-water turbulent, but either way, you’ve got to be flexible, rethinking and re-strategizing on the go. The energy required to succeed is enormous because the only way to stay ahead of your competition is by continually improving.” That canmean freshening the product by investing in mall design and other improvements. Berman and his teamwork closely with GGP’s operational and other departments to uncover opportunities, tracking and responding to consumer and other trends. GGP also takes innovative steps, like the September announcement that the company has joined a consortium that includes Authentic Brands Group and Simon Property Group in acquiring the global trend-focused apparel and accessories retail brand, Aéropostale, whose primary market is millennials.The move saved Aéropostale, a tenant of GGP and Simon, from liquidation and will likely preserve approximately 500 of the brand’s stores. The partners in the consortium are an interesting mix. Simon Property Group is a global company involved in retail real estate ownership, management, and development, and thus is a direct competitor of GGP. Authentic Brands Group owns intellectual property associated with well-known fashion, sports, celebrity, and entertainment brands, MarilynMonroe, Elvis Presley, Muhammad Ali, Shaquille O’Neal, and Prince; as well as establishedmenswear names Hart Schaffner Marx andHickey Freeman. But an innovative approach is particularly important in the retail segment, where traditional department stores still make up about two- thirds of mall anchors but “are not the traffic drivers” they used to be, according to a report by Green Street Advisors, a real estate research firm. For example, retailers likeMacy’s, Nordstrom, Kohl’s, and Sears are anchor tenants at some General Growth Properties malls, but Macy’s has announced that it plans to close about 100 stores in 2017; while the other three retailers have all suffered some sales slumps and/ or closed a number of stores.The Green Street report notes, though, that “high-endmalls” have some positive redevelopment options. Curating Malls Berman says that GGP is on top of things. “Our approach is to curate our mall, ensuring that we’ve got the right mix of retailers,” Berman says. “Of course there’ll be changes—retailing is dynamic and some anchors and others will come in, while some will rotate out. But we keep a close watch on things, and when we get space back, we’re nimble about replacing it.”That’s reflected in the REIT’s total mall occupancy figures, which rose from an already impressive 94.9 percent in 2012 to 96.5 percent at the end of 2015. “As CFO, I don’t often get directly involved in leasing negotiations,” he explains. “We havemore than 100 experts in that, andmore than 50 involved in developing our properties. Butmy teamand I understand the operations andwe support themwith resources and discussions.” Looking ahead, Berman explains that while technology is greatly impacting the way people shop, it is actually a misconception to think that e-commerce is a threat to regional shopping center owners and operators like GGP. “Successful retailers need an omni-channel distribution system, which is why we’re seeing e-commerce companies, likeWarby Parker andModCloth, open physical stores,” he reports. “Remember, there is a total of $4.6 trillion in retail sales per year, and less than 4 percent is attributed to pure e-commerce retailers. GGP is positioned very well, and we’re confident in our ability to deliver results for shoppers, retailers, and investors.” He’s also up to the challenges. “My job is not just numbers and accounting,” Berman explains. “The people I work with and otherwise deal withmake it fun and challenging, because this job is a mix of finance, coaching, encouragement, andmanagement skills.The thing is, it’s really a team effort, onmany levels.” C A Data-driven Mall Company “We don’t shy away from new rules, or from gathering useful market and other information that can impact our competitive advantage,” says General Growth Properties Inc. CFO Michael Berman. “We’re open to recognizing and investigating new issues and data, examining and researching it. There’s a constant dialogue within our organization, and between us and our outside advisors.” But it’s also a balancing act, he adds. Thanks in part to the digital revolution, information is constantly flowing in to Berman’s team, “however, we have to know what to weed out, to prevent information overload,” he cautions. “You use your experience and business judgment to prioritize matters and quickly recognize what’s substantive and needs to be addressed immediately, what can be put aside for further analysis, and what can be discarded.” That sounds like a formula for continued success. Michael Berman, CFO General Growth Properties, Inc.