Mall REITs Shrug Off Department Store Closures
March 01 2017 - 5:53PM
Dow Jones News
By Esther Fung
Mall anchors such as Macy's Inc., Sears Holding Corp. and J.C.
Penney Co. have announced closures of as many as 390 store
locations since August. But investors in real-estate investment
trusts that own shopping centers should avoid most of the pain,
analysts said.
Despite a selloff last week in mall-focused REITs following J.C.
Penney's announcement that it would shutter up to 140 stores,
analysts said only a handful of closures are expected to affect
those portfolios.
Landlords CBL & Associates Properties Inc., Pennsylvania
Real-estate investment Trust and Washington Prime Group Inc., which
operate class B and C malls, figure to suffer just one closure in
each of their respective portfolios, according to real-estate
research firm Green Street Advisors. Mall giants Simon Property
Group and Taubman Centers, which deal mainly in class A properties,
shouldn't see any of their J.C. Penney locations closed.
"There have been limited closures at REIT-owned malls, with
little to no existing anchor vacancies, as mall REITs have
diligently backfilled vacated space," said Green Street Advisors
analysts DJ Busch and Spenser Allaway in a recent report. In most
cases, this could also contribute to increased earnings as mall
REITs reload with more relevant, higher-paying tenants.
The best-performing, highest-quality shopping centers in the
U.S. are concentrated in the hands of publicly traded REITs,
suggesting they will attract other tenants should space become
vacant.
Pennsylvania REIT said it expects the J.C. Penney store at its
Willow Grove Park mall in Philadelphia to close but added the mall
does a strong business, with roughly $650 in sales a square foot.
U.S. malls typically average about $450 a square foot.
"We see great opportunity to bring in tenants to repurpose that
space," said Chief Executive Joseph Coradino in the company's
recent earnings call.
REIT-owned malls have been able to sign new tenants such as
Dicks Sporting Goods Inc. to replace department store closures.
"Well positioned retail REITs, when faced with the prospect of
taking back space from weak tenants that are shrinking their
physical store footprint, will manage repositioning successfully,
partly because they have the financial resources to do so," said
Robert Schulz, a credit analyst at Standard & Poor's.
That said, malls in weaker locations that face more competition
could suffer from department store closures if the departures
trigger a domino effect, allowing tenants to demand lower rents or
vacate entirely.
Write to Esther Fung at esther.fung@wsj.com
(END) Dow Jones Newswires
March 01, 2017 17:38 ET (22:38 GMT)
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