Retail ruh-roh: Mall REITs take hit following Forever 21 bankruptcy

Taubman fell nearly 10%

Oct.October 04, 2019 07:00 AM
Retail stocks take a hit after Forever 21 files for bankruptcy (Credit: iStock, Phillip Pessar via Flickr)

Retail stocks take a hit after Forever 21 files for bankruptcy (Credit: iStock, Phillip Pessar via Flickr)

Fast-fashion retailer Forever 21’s bankruptcy filing earlier this week did not help the stock prices of the top mall real estate investment trusts in the country, already facing headwinds from declining foot traffic, nearly continual store closures and the rise of e-commerce.

Macerich, Simon Property Group, Brookfield Property Partners, Taubman Centers and Vornado Realty Trust saw their stock prices take a hit this week. Taubman’s stock price took the greatest hit, falling almost 10 percent to close Thursday at $37.49. Westfield-Unibail-Rodamco, which trades on the Euronext exchange in Amsterdam and Paris, also saw its price dip about €4.

Aside from Taubman, the other five landlords also represent some of Forever 21’s largest unsecured creditors. Cumulatively, the retailer owes them $20.9 million, bankruptcy court records show.
The S&P 500 also is down about 56 points since Monday’s open, taking a tumble Tuesday after a key metric for the manufacturing sector contracted in September to the worst reading in a decade.

To some extent, mall owners had braced for Forever 21’s filing, which was expected throughout the industry, experts said. For example, Simon’s stock drop — closing Thursday at $147 after trading around $155 per share over the prior week — may be related to Forever 21’s filing but is likely also tied to broader concerns about retail, said James Shanahan, an equity analyst at Edward Jones.

Mall owners also tend to have internal “watch lists” of tenants potentially headed for trouble, said Kevin Brown, an equity analyst covering REITs at Morningstar.
“They get the sales numbers from their tenants so they have the insight as to how their tenants are doing … Generally the mall REITs are not surprised and they start taking actions in advance,” said Brown.

But the constant drumbeat of store closures is making it hard for many mall REITs to outperform, according to Shanahan. Edward Jones cut its buy rating of Simon to a hold.

Unlike other real estate investment trust sectors, enclosed mall REITs are among the worst-performing so far this year, experiencing one-year return losses of 13.5 percent, research released by Barclays earlier this week shows. The only sector performing poorer was hotels, with return losses of 14.9 percent.

The stronger-performing REIT segments tend to be those with long-term leases that are not prone to cyclical changes — think healthcare and industrial properties, said Morningstar’s Brown. While malls also hold long-term leases with their tenants, there is too much uncertainty with some tenants. “The total number of stores closing is a record number in 2019 and we still have three more months to go in the year,” Brown said.

After it filed for bankruptcy, Forever 21 said it would close at least 178 stores across the U.S., and that figure might change. Meanwhile, other retailers are closing up shop; also bankrupt Payless ShoeSource opted to close all of its over 2,300 stores.

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