Summary
This is the first article I have seen by an industry insider, that blows the whistle on the pending crisis in REIT profits. The implications are significant in that the reporter only talks about the smaller and/or independent retailers that are struggling to survive in shopping centers across America. The reporter pains a bleak picture of what is happening on a daily basis and what is likely to happen by next January after a deluge of retailers call it quits after lasting through the Christmas season and then closing their doors. If the reporter were to investigate the even more dangerous pending crisis brought on by the rapid departure of anchors, REIT stocks would be revealed to all be in serious danger.
Analysis
While the reporter is essentially correct in her observations of what is happening now and will be happening at an accelerated rate immediately after Christmas 2009, she really does not go deep enough into the impending storm.
What we have here is a "chicken and egg situation". The smaller tenants are closing their doors in unprecedented numbers. This obviously weakens the centers they are leaving. One of the main reasons they are leaving however is not mentioned by the reporter and that is the obvious decline or actual closing of the anchor stores.
This very scary phenomenon is happening for the most part, in "C" level centers. The "A" level centers are continuing to show strength. However, all REITs have a good portion of "C" level centers in their portfolio and will be adversely impacted by the situation described in the article. This will not only hasten the demise of many "C" level centers but also sharply reduce the glamor of mall and shopping center REIT stocks.
As dark a picture as this article paints, I would like to darken it even further for the benefit of GLG News readers! The regular readers of my previous articles should be well aware of my belief in the coming debacle of mall REIT stocks brought about primarily by the closing of even more Sears and Dillard's stores in "B" & "C" level malls. When this occurs it will send even more of the inline retailers into retirement or bankruptcy and the cycle will not end until we have reached the "pre-saturation" level that can be supported by the existing population and income levels in each market.
For many badly "overstored" markets this could mean a rollback of retail square footage to perhaps the number of square feet that existed in 1999 or 2000! Take a look at industry reports of the number of square feet of retail space that existed in 1999 in your area and compare that to the numbers that exist today. The difference is the amount of decline yet to come.
