RETAIL REITSDO BATTLE WITH A NEW ENEMY
Seritage Growth Partners was born from the idea that there is value to unlock in struggling retail real estate portfolios if you look hard enough. Founded in 2015, the publicly-traded REIT was established to transform a stressed retail real estate portfolio, which it acquired from Sears Holdings. “Redeveloping and repositioning our portfolio has been, and remains, a core part of our business and value creation strategy. We are fortunate to own some of the best located retail real estatein the country,” Bry told us before the coronavirus entered the US.
Since then, retail has shuttered across the nation, laying siege to the REITs that specialize in thissector. Their short-term plight is obvious: with tenants’ stores closed and consumers staying home,rents will not get paid.
GETTING THROUGH THE CRISIS
One glimmer of hope for mall REITs in the long run, though, is that they have faced challenges inthe sector before—such as the shift to e-commerce and consumers’ rapidly-changing tastes andbehaviors—and they have the muscle memory to address this new set of challenges.
Of course, more artillery will be needed for this fight. REITs lucky enough to have low-leveragebalance sheets and the ability to draw on credit facilities are those best positioned to survive thecoronavirus. “Most of the REITs began the year with low leverage and they have pretty good liquidityresources to help them face the challenges ahead,” Nareit senior economist Calvin Schnure hassaid. Even these companies, though, will likely cut dividends to conserve cash flow and will continueto see their shares beaten down in the market.
The survivors will ultimately be defined not just by their financial metrics, but also by their abilityto adapt. “In normal times, factors like operating performance and profitability are primary,”Schnure wrote on the Nareit website. “Today, however, these measures are less important. Whatmatters most is to what extent a company or a sector has the resources to be resilient through acrisis that may last longer than initially anticipated.”
MALL REITS HAVE HAD THEIR CHALLENGES IN THE PAST
AND THEIR BATTLE SCARS MAY WELL BE WHAT GETS
THEM THROUGH THIS CRISIS.
BY MARIAH BROWN