Tag Archives: Retail Malls

Brick & Mortar Retailers, Malls, Mall-REITs, and their Debts: The Whole Schmear is Coming Apart, by Wolf Richter

Posted on July 25, 2020 | 1 comment

The grim news from bricks and mortar retailing, and the malls that stores used to inhabit, continues. From Wolf Richter at wolfstreet.com:

There’s Just No Good Way Out. The only thing that is surprising is how long these retailers and malls, which have been spiraling down for years, were able to hold on.

The WOLF STREET market-cap-weighted stock index of 11 mall REITs made a heroic effort to bounce off the crisis low, and was able to double in three months, but has by now given up much of it and appears to be heading back to crisis lows. The index includes: Simon Property Group, Tanger Factory Outlet Centers, Taubman Centers, Cedar Realty Trust, Macerich, Seritage Growth Properties, Kimco Realty, RPT Realty, Washington Prime Group, Brixmore Property Group, and CBL, which is preparing to file for bankruptcy.

After Friday’s 2.2% drop, the index is down 74% from August 2016, when the Big Skid started. And from that heroic spike that topped out on June 8, it has now plunged 35% (market cap data via YCharts):

What will be left when the brick-and-mortar meltdown is over?

The process started years ago. Ecommerce, a structural shift in how Americans shop, has wiped out retailer after retailer, from big ones such as Sears Holdings and Toys ‘R’ Us, to smaller ones. It created a night-mare scenario for malls and landlords – including REITs – that own the malls, and for investors that hold the mortgages and the Commercial Mortgage-Backed Securities (CMBS) that these mortgages have been packaged into.

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Malls and their Hapless Investors Keep Getting Crushed, by Wolf Richter

Posted on November 3, 2017 | 1 comment

It’s an old lesson that has to be relearned every time: high yield equals high risk. From Wolf Richter at wolfstreet.com:

(Creative) Destruction in the brick-and-mortar meltdown.

Investors in retail malls didn’t need another wake-up call. They’ve been wide awake all year, hearing from Wall Street that there’s no brick-and-mortar meltdown even as the shares of their real estate investment trusts (REITs) have gotten crushed by the travails of brick-and-mortar retail and the over-malling of America. But late Thursday, mall investors got another unneeded wake-up call.

CBL Properties, a mall REIT with 119 mostly retail-oriented properties, reported earnings, and shares plunged 26% on Friday, to $5.92. They’d already been dropping for years because the brick-and-mortar retail meltdown is structural, and not new, and will not turn around before it’s finished melting down. Shares of CBL are down 50% year-to-date and 75% from May 2013.

“This quarter’s results fell below our expectations as our revenues were impacted by additional bankruptcies, store closures and rent concessions,” CEO Stephen Lebovitz summarized it in the third-quarter earnings report.

Though investors knew the brick-and-mortar industry is in turmoil, they were nevertheless taken aback by the fact that it can still get worse – and that the sacrosanct dividends of a REIT can get slashed in no time.

CBL reported fundamental problems with the mall-REIT business (Q3 compared to a year ago, unless otherwise noted):

  • Revenues dropped 11% to $224.6 million.
  • Funds from Operations (“FFO”) per share fell 7.1% and “FFO, as adjusted,” per share fell 12.3%
  • Same-center Net Operating Income (parallel to same-store sales for retailers) at its malls fell 2.8%. This is a beautified version because CBL “excludes the impact of lease termination fees and certain non-cash items of straight-line rents, write-offs of landlord inducements, and net amortization of acquired above and below market leases.”
  • Occupancy rate of all properties declined 40 basis points to 93.1%. Mall occupancy rate declined a full percentage point to 91.6%.
  • Average gross rent per square foot at “stabilized malls” fell 13.7%: edging up 0.3% for new leases and plunging 16.1% for renewal leases. It shows what landlords have to do keep tenants.
  • Stabilized mall same-center sales per square foot for the 12 months ended Sep. 30 fell 1.8% to $373. Hang on to that $373 in sales per square foot; Moody’s has a warning about that in a moment.

The company lowered its guidance for 2017 across the board, including FFO per share (to $2.08-$2.12). Same-center NOI is now expected to decline by 2% to 3%. And occupancy rate is expected to decline by 1.25 percentage points.

To continue reading: Malls and their Hapless Investors Keep Getting Crushed

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