Mall Owners Go on Defensive to Rescue Aé ropostale
September 27 2016 - 6:20AM
Dow Jones News
A move by a pair of mall owners to rescue distressed retailer Aé
ropostale Inc. shows how some landlords are getting more aggressive
as they seek to stem a rising tide of vacancies and store
closings.
Simon Property Group and General Growth Properties Inc. were
part of a consortium that last week won an auction to purchase
teen-apparel retailer Aé ropostale, an unusual move in which
shopping-center landlords stepped in to rescue a tenant to preserve
the tenant's business.
The push to take over the struggling retailer comes at a time
when changing shopping habits and the growth of e-commerce are
eating into traditional retailers' revenue and in some cases
forcing store closures. That, in turn, is weighing on mall
operators, forcing some to reconfigure their properties and add
other attractions to bring in shoppers.
Simon and General Growth saw value in keeping afloat Aé
ropostale, which had filed for chapter 11 bankruptcy protection in
May and later faced the threat of liquidation. Aé ropostale stores
potentially generate more than $1 billion in global retail sales,
of which more than $800 million is from the U.S., said General
Growth Chief Executive Sandeep Mathrani in a news release. Simon
counts 160 Aé ropostale stores and General Growth has 77 in their
respective tenant portfolios.
General Growth and Simon declined to comment about their
turnaround strategy for Aé ropostale.
Faced with rising vacancies as retailers close their stores amid
the increasing popularity of online shopping, landlords are trying
to find ways to avoid being left with crumbs, said Tom Mullaney,
JLL's managing director of restructuring services.
But by moving into retailing, Simon and General Growth are
stepping out of their comfort zones.
"It's going to be a very interesting experiment to see if they
can operate the retailer successfully," Mr. Mullaney said.
When retailers file for bankruptcy and are liquidated, landlords
are vulnerable to vacancies and undesirable situations where the
tenant might stay open for a prolonged period to sell down
inventory.
Landlords don't like to see going-out-of-business-sale signs on
the windows and fear being stuck with blighted space, said Thomas
Dobrowski, senior managing director of capital markets with
real-estate-services firm Newmark Grubb Knight Frank. That
restricts the landlord's ability to find higher-caliber,
creditworthy tenants or market the space at higher rents.
"Liquidation and bankruptcies tend to be messy and landlords
would rather avoid that at nearly all cost," said D.J. Busch, an
analyst at Green Street Advisers. "That said, we have not seen
landlords step in and 'save' a distressed retailer as it seems to
be the case with Aé ropostale. This seems unprecedented."
Shopping-center landlords have bought out distressed retailers
in recent years, but primarily for the real estate they owned
rather than to preserve the tenant's business.
In the early 2000s, retail property landlord Kimco Realty Corp.,
along with other lenders, extended financing to discount retail
chain Ames Department Stores Inc. with its properties as
collateral. Ames eventually folded. In 1995, Steven Roth, CEO of
Vornado Realty Trust, bought a controlling interest in ailing
discount department store Alexander's Inc. Alexander was then
converted to a real-estate investment trust.
In contrast, the deal by Simon and General Growth seems to be
more defensive, with the pair moving in only when it became
apparent no other party was going to put in a bid to keep Aé
ropostale from going out of business.
If the retailer had gone through a liquidation, the landlords
would have been left with more than 200 vacant stores, and might
only get one-year's rent or 15% of the remaining lease payment,
whichever is greater. But rental leases are typically an unsecured
claim and landlords are parked at the bottom of the distribution
totem pole behind secured creditors.
Simon and General Growth led a consortium that included
Authentic Brands Group, Hilco Merchant Resources and Gordon
Brothers Retail Partners to invest $243.3 million for the
acquisition, which they say saved thousands of jobs and will keep
the brand available in more than 400 stores in the U.S. and
Canada.
Leasing agents have said that some mall landlords are agreeable
to lower rents for Aé ropostale following the bailout. Court
documents showed Aé ropostale had been operating 623 retail
stores.
Lillian Rizzo contributed to this article.
Write to Esther Fung at esther.fung@wsj.com
(END) Dow Jones Newswires
September 27, 2016 06:05 ET (10:05 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
GGP Inc. (NYSE:GGP)
Historical Stock Chart
From Aug 2024 to Sep 2024
GGP Inc. (NYSE:GGP)
Historical Stock Chart
From Sep 2023 to Sep 2024