General Growth Properties Inc.'s (GGP) big retail tenants say
they are so far standing by the mall operator as it enters what
could be a lengthy and historic bankruptcy restructuring, but
analysts believe the leaseholders also may begin asking for
concessions and the properties could suffer.
J.C. Penney Corp. (JCP), Macy's Inc. (M) and Bon-Ton Department
Stores Inc. (BONT), which have in the vicinity of 10% their stores
in General Growth malls, say the Chapter 11 filing hardly caught
them unaware - given General Growth's very public problems with its
debt load - and they will sit pat, while closely watching as
bankruptcy proceedings unfold.
General Growth "has been a good mall operator for us," said J.C.
Penney spokeswoman Darcie Brossart. "As long as the malls continue
to be operated properly, we do not foresee any issues."
J.C. Penney has 90 of its 1,101 stores in General Growth malls
that are part of the bankruptcy filing.
Bon-Ton "has been corresponding with (General Growth), and based
on their responses we do not anticipate impacts" from the
bankruptcy, said the department store chain's spokeswoman Mary
Kerr.
Bon-Ton has a "very astute" person in charge of real estate to
monitor the bankruptcy's progress and the condition of General
Growth's malls, Kerr said.
To Macy's, the Chapter 11 filing "doesn't really affect us,"
said spokesman Jim Sluzewski. "We're still making payments at the
malls on leases, which are typically long-term."
Macy's has 106 of its 840 stores in General Growth's malls,
according to a regulatory filing by the mall operator.
The retailers' spokespeople declined to discuss whether their
companies could or planned to use the bankruptcy as a way of
gaining leverage with General Growth to renegotiate leases or
receive other concessions.
General Growth wants to "make the whole process invisible to our
shoppers," said the mall operator's president, Tom Nolan, in a call
with reporters Thursday afternoon.
"We want to give tenants confidence we will continue to market
these malls and they will be the resources they expected," Nolan
said.
General Growth's other big tenants include Sears Holdings Corp.
(SHLD), Target Corp. (TGT), Dillard's Inc. (DDS), and Belk Inc.
Nordstrom Inc. (JWN), Neiman Marcus Group Inc., Lord &
Taylor and Dick's Sporting Goods Inc. (DKS) also have a number of
stores in General Growth malls.
The company includes a number of struggling retailers among its
biggest unsecured creditors. Borders Group Inc. (BGP) is owed $1.4
million; Guess Inc. (GES), $581,000; Macy's Inc., $492,000; Talbots
Inc.'s (TLB) J.Jill unit, $263,000; and Christopher & Banks
Corp. (CBK), $182,000, according to the mall operator's bankruptcy
filing. The retailers may be owed the money because of an
arrangement in which part of their rent is based on a percentage of
estimated sales and if they fall short, they receive the money back
or a credit toward future rent, said Christopher Moon, head of the
bankruptcy market at SecondMarket, which matches buyers and seller
of illiquid assets.
Commerzbank unit Eurohypo AG is General Growth's biggest
unsecured creditor, owed close to $2 billion; while Wilmington
Trust Corp. (WL) is the second, owed $1.55 billion, the filing
said.
Analysts believe General Growth's bankruptcy could give its
tenants, especially larger ones, leverage to receive some breaks
from the company, or from buyers of some of its malls.
"Retailers may end up with more attractive lease rates,
especially if some of the malls get sold, because the real value of
the properties is the retailers," said Brian Sozzi, equity research
analyst at Wall Street Strategies. "They may be able to use this as
leverage."
General Growth also could put off upkeep, such as new facades
and the painting of parking lots, as available cash is deployed to
"must-pay" expenses.
"All the various things that make a mall a destination and an
attractive place to shop ... will not happen and if people aren't
drawn in, it just makes it tougher," said Anthony Sabino, professor
of Law and Business at St. John's University.
Retail tenants "are going to have to confront issues that will
probably cause a decrease in their business (and) their revenue,"
Sabino said.
The collapse of General Growth Properties, which operates more
than 200 properties, is being called by analysts the largest ever
failing by a mall operator.
General Growth is the second largest mall operator in the U.S.
behind Simon Property Group (SPG) and General Growth's failure was
caused by carrying too much debt, with its cash flow strained as
retailers engaged in less expansion and consumers cut back
spending.
The bankruptcy is not seen as leading to a big closing of
General Growth's malls. The company itself may well reorganize and
better-capitalized mall operators may pick up some of the
locations, analysts said.
General Growth's malls are viewed as being of generally high
quality, and posted an occupancy rate of 92.5% as of last year's
fourth quarter.
The New York Stock Exchange has now suspended trading of General
Growth shares with the next step being a delisting. The shares have
not traded in regular trading Thursday and in premarket trading
fell 52% to 50 cents.
Shares of the retailers, except for Talbots, closed higher on
Thursday.
-By Karen Talley, Dow Jones Newswires; 201-938-5106;
karen.talley@dowjones.com
(A.D. Pruitt contributed to this story.)