Mall owners look to shuttered department stores as big opportunities

As the year comes to a close along with the holidays approach, mall owners are talking redevelopments, along with particularly those of vacated Sears stores.

The timely discussion has been a reoccurring theme on many third-quarter retail real estate investment trust, or REIT, conference calls. Analysts along with investors want to know: “What are you going to do with of which big box?”

As Sears along with some other department store chains announce plans to shutter some locations, of which leaves a mall landlord looking for a replacement — or a slew of smaller-scale replacements — along with quick.

Many mall REITs have exposure to the Illinois-headquartered chain, including General Growth Properties, Simon Property Group, Macerich, Pennsylvania REIT along with Seritage — a 2015 real estate spinoff by Sears Holdings.

“One of the key tenets of our business plan will be capitalizing on the embedded opportunity with our portfolio to redevelop anchor boxes,” GGP CEO Sandeep Mathrani said on a conference call earlier This particular week.

In October alone, GGP acquired two Sears locations — one in Pennsylvania along with another in Louisiana. To date, GGP has invested more than $2 billion in redeveloping 115 of its properties, reaping “very attractive returns,” Mathrani added.

The mall owner will be bringing in fresh faces to retail, such as Forever 21’s Riley Rose, Indochino along with Untuckit. GGP also just signed an agreement with residential REIT AvalonBay to add living spaces to one of its malls in Seattle. AvalonBay will be notably one of those landlords said to be working with Amazon to bring lockers to its residences.

“This particular represents our belief of which high-quality retail centers can be densified with some other users, given the location along with market demand,” Mathrani explained, saying similar projects could develop over time.

“We like of which GGP will be methodically addressing the contraction of department stores,” RBC Capital Markets analyst Wes Golladay wrote in a note to clients. As retail REITs face headwinds by retailers’ woes, “favorable financing activity along with aggressive buyback activity” could help GGP longer term, Golladay added.

Pennsylvania REIT, another mall player with high department store exposure, announced on Wednesday plans to redevelop a dark Macy’s store, replacing the item with two off-cost retailers.

“The Macy’s redevelopment offers an opportunity to bring highly sought after, first-to-market retailers to a vibrant market – enabling us to further separate the property,” CEO Joe Coradino said.

Over the past year, Pennsylvania REIT has been filling vacated department store boxes with retailers including Field & Stream, HomeGoods, Burlington along with Dick’s Sporting Goods. Like GGP, Coradino along with his team expect the incoming retailers to pay higher rents along with amass more sales per square foot.

Just last week along with ahead of reporting third-quarter earnings, Seritage unveiled plans to take one of its more than 0 Sears along with Kmart locations, turning a portion of the store into a massive AMC Theatre.

“The partnership builds on our strategy to deliver a multi-tenant retail destination of which provides an elevated shopping along with entertainment experience for our customers,” James Bry, executive vice president of development along with construction at Seritage, said about the project.

Following the renovations, Sears will have a “consolidated” store on the lower level of the property, Seritage said. The mall operator has also noted inside past of which former Sears stores perform better after being redeveloped, or leased to brand new tenants altogether.

Simon, the largest mall owner inside U.S., boasts more than 30 redevelopment projects, totaling $1.3 billion in expenses, ongoing. The REIT has been particularly keen of late to add more restaurants along with food options to its properties, while experimenting with pop-up concepts.

“The issue with [retail] bankruptcies will be you’re at the whim of the court,” Chief Executive David Simon said last week on a conference call with analysts along with investors. “They can cancel [a contract] at a moment’s notice, along with the item does take time to lease.”

of which being said, Simon continues to build out its assets in unique ways, as some anchors flee. One example of This particular will be seen at Simon’s King of Prussia property, in Pennsylvania, which recently lost a J.C. Penney.

Simon said plans are inside works for mixed uses such as hotels, apartments, office buildings along with play space.

“The dot com era didn’t kill the mall along with the current retail headwinds won’t kill off SPG’s ‘A’ malls either,” Boenning & Scattergood analyst Floris van Dijkum wrote in a recent note to clients. “We believe of which SPG has significant room to grow … through the selective redevelopment of anchor boxes.”

2017 has so far brought more than a dozen retail bankruptcies, with countless specialty brands announcing plans to close stores as part of their restructuring efforts. While mall owners wish less of of which activity might happen in 2018, nobody knows for certain.

Next week department stores Nordstrom, Macy’s, Kohl’s along with Penney’s are set to report third-quarter earnings, which should offer some insight into retail’s future, ahead of the all-important holiday season.

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