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 General Growth Properties Inc.'s (NYSE: GGP) Thursday bankruptcy filing was no surprise. The REIT had been predicted for months that it would fall because of its insurmountable $25 billion debt it incurred from the go-go days of free spending when it was thought that commercial real estate had no where to go but up. But now it seems the REIT sector only has one way to go and it's down. The bankruptcy makes it one of the biggest commercial real estate falls in U.S. history. The fall of the second-largest mall operator triggers the obvious question: Which REIT may be next to fall?Investors will be scrutinizing General Growth's peers to see if they're headed in the same direction. Two companies that hit the radar are Kimco Realty Corp. (NYSE: KIM) and Simon Property Group Inc. (NYSE: SPG). Deutsche Bank AG recently pointed out that both REITs, which focus on investing in malls, have announced plans to strengthen their balance sheet by issuing more shares. The problem is that strategy only dilutes the stock and makes the companies payout more in dividends. Deutsche points out that Simon, which is the largest mall owner in the U.S., intends to avoid the scenario somewhat by paying 90% of its dividends in stock, but that obviously causes even more dilution. It doesn't help Simon and Kimco that the market for retail space in malls like the economy is in a deep funk. Circuit City Stores Inc. and Steve & Barry's LLC, for example, filed for bankruptcy last year and its expected the recession may shutter even more retailers. And with Simon holding $2 billion in debt coming due this year and Kimco with $7.5 billion in overall debt, according to Green Street Advisors Inc., a dwindling revenue base only worsens their prospects for a recovery. - Gerald Magpily
CategoriesComments
From: Gerald Magpily
 ,
Yes, thanks for the clarification. Kimco is the largest owner of a type of mall known as strip malls or clusters of open air retailers.
Posted on:
April 16, 2009 11:18 AM
From: Brian Walsh,
The difference between the two is that GGP is focused on and comprised of tenants who sell luxury goods and Kimco is focused on and largely comprised of tenants who sell staple or consumer goods (i.e. bread, milk, medicine). These two companies are not peers and in this type of economic environment serve two very different functions.
Posted on:
April 16, 2009 12:01 PM
From: Matthew Wurtzel
,
Indeed, Kimco and GGP operate different kind of malls, and therefore rely upon different tenants. However, Kimco's tenants have "surprisingly" been decimated by the recent recession. In the last 16 months, Circuit City, Linens N' Things, CompUSA, Tweeter, Steve & Barry's, and a host of other strip mall tenants disappeared, so certainly Kimco is feeling some pressure from the recession.
Posted on:
April 16, 2009 5:06 PM
From: Gerald Magpily
,
The line is slowly blurring between the type of tenants these two companies are attracting. Yes, Kimco may have more consumer oriented basic staples stores such as groceries Simon's Willowbrook Mall and Woodbridge Center in New Jersey each lease to retailers that include: The Gap, Macy's, Old Navy, Only 99 Cents Store and Cohen's Optical. Stores that hardly fall in the luxury category. Meanwhile, Kimco also leases to a contingent of stores on its properties such as Willowbrook Plaza in New Jersey that has a Sports Authority and Electronics Expo. Another Kimco strip mall, Edgewater Commons, in New Jersey has a Bed Bath & Beyond, TJ Maxx and Target. All these retailers don't sell luxury goods as well but still focus on reaching a wider audience - consumers who are looking for a good deal. And that's who Simon and Kimco are betting will shop at their malls and keep their shopping centers fully leased.
Posted on:
April 16, 2009 5:40 PM
From: Greg Holtzmeyer,
I suspected Kimco was having problems. They've begun billing tenants for garbage service on a monthly basis above and in additon to CAM. I know times are tuff, but if they have to double bill tenants for garbage on top of what's already in the lease, that's pretty bad.
Posted on:
April 28, 2009 8:34 AM
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Kimco is not an enclosed Mall owner like GGP or Simon. Kimco owns and operates open air grocery and drug store anchored community shopping centers.