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In a Retail Storm, Strip Malls Provide Some Cover

Posted by Yijy8kNUMO on August 15, 2017

Open-air shopping centers are on the upswing.

Shares of real-estate investment trusts that own and operate the broad category of open-air shopping centers are up about 7% since June 30 after skidding 19.6% in the first half of this year, according to an index that tracks shopping center REITs by the National Association of Real Estate Investment Trusts.

For the year, the shares are still down 14%.

 The open-air mall category comprises strip malls that don’t have enclosed walkways linking stores, power centers, which are open-air shopping centers that include anchor stores such as department stores and a few small tenants. It also encompasses community centers, which are neighborhood shopping centers that offer convenience-oriented stores.

Retail landlords have been battered in recent years as online shopping grabs market share and major retailers announce store closures.

Occupancy rates declined in the first half of the year, but most 2017 store closures likely have occurred already because tenants typically stay put in the second half through the year-end holidays, analysts said.

Strip centers are less vulnerable to the retail storm, according to Mizuho Securities, because they have less exposure to apparel retailers and offer more affordable rents than mall landlords.

Kimco Realty Corp. , based in New Hyde Park, N.Y., said it already has accounted for retailers that are restructuring and remains confident about its portfolio, with well-located sites and affordable leases.

“It’s hard for retailers to find a better economic deal in these tough markets. So typically, the rents that they have are very much below-market so they have to hold on to those leases,” Kimco Chief Executive Conor Flynn said recently. He said the growing number of retailers Kimco is doing business with will far outweigh exposure to some of its tenants that are closing stores.

Shares of Kimco are up 9% since June 30. They are down 20% for the year.

 Mall landlords concede they are working harder to woo tenants that are more in tune with customers’ tastes and are spending more time structuring leases that are accommodative to tenants’ demands while stile being profitable.

Federal Realty, another shopping center REIT, said it still has concerns about how Ascena Retail Group Inc., which owns Ann Taylor and Loft, could continue to stay in its lease contracts and pay its rents, but added that it is getting calls from mall-based retailers looking for better deals.

Ascena has yet to respond to a request for comment but has previously said it has been negotiating with landlords for rent concessions to keep some of their stores open.

Federal Realty, Rockville, Md., also announced a $345 million joint venture this month with Primestor Development Inc. for a majority stake in a portfolio of seven retail properties in underserved Hispanic communities in Southern California.

“The retail world right now is very unpredictable,” Christopher Weilminster, executive vice president at Federal Realty, said recently.

Source: Wall Street Journal,  August 15, 2017 4:27pm

Author: Esther Fung

Photo Credit: Mike Kane/ Bloomberg News

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