Kmart's flickering blue light

Discount retailer to outline store closing plans March 20

KMART CORP. PLANS TO ANNOUNCE IN MARCH WHICH stores it wants to close under its ongoing bankruptcy reorganization. The retailer's top attorney, John W. Butler Jr., also told a meeting of vendors and creditors Jan. 31 that Kmart plans to emerge from bankruptcy by as early as July 2003.

The Troy, Mich.-based retailer is reviewing the financial performance of its 2,100 stores in advance of a March 20 court hearing to determine their fate. Some analysts say the final number of stores to be shuttered will range between 250 and 500 locations, saving the company nearly $600 million a year.

Kmart already has made some progress in its restructuring effort. The company announced in January that it had received court approval to continue providing wages and benefits to its employees, and many of its key vendors had resumed merchandise shipments under normal terms.

From slashing prices to slashing stores

Under Chapter 11, Kmart will be offered protection from creditors as it reorganizes and prepares a plan to pay off its debts. Here's how the lease termination process works: Once Kmart determines which leases it wants to terminate, the retailer will ask a court-appointed trustee to act as a liaison between Kmart and the landlords. After the parties settle on a payment to end the agreement, the trustee will present the cases to the judge, who ultimately decides if the leases will be terminated.

Landlords with large Kmart holdings are keeping a close watch on the proceedings. When a Kmart goes dark, the vacancy can have a ripple effect on the performance of other stores in the plaza where the once-dominant discounter was located.

Kimco Realty Corp., a New Hyde Park, N.Y.-based REIT, operates 75 Kmarts. Kimco already has shut down 13 stores because of a round of early-2001 Kmart closings. Kmart is still paying full rent on the spaces and is attempting to sublease them.

Despite the closings, Scott Onufrey, vice president of investor relations for Kimco, remains optimistic about re-leasing the space. “We think the real estate is good, and if we need to find new tenants at some of our locations, we are confident that will happen,” he says. “As for our existing Kmart stores, this restructuring should help Kmart emerge as a stronger company.”

Inland Retail expands Southeast portfolio with $316M purchase

OAK BROOK, ILL.-BASED INLAND RETAIL REAL ESTATE TRUST INC. will expand its portfolio in the Southeast with a $316 million purchase of eight retail properties from Smyrna, Ga.-based Thomas Enterprises Inc.

The properties are located in Georgia, Florida, North Carolina and Tennessee. They include Douglas Pavilion Shopping Center in Douglasville, Ga.; Venture Point Shopping Center in Duluth, Ga.; Southlake Pavilion in Morrow, Ga.; Fayetteville Pavilion in Fayetteville, N.C.; and Pavilion at Turkey Creek in Knoxville, Tenn. The purchases of the remaining properties are expected to be finalized in early 2002.

According to Joe Cosenza, chairman of Inland Real Estate Acquisitions, which handled the transaction for Inland Retail, the centers typify the type of properties the company likes to add to its portfolio. “They are all anchored by major discount and/or grocery stores, they are located in high-traffic areas and in the southeastern United States, which is predicted to be one of the highest growth areas for the next 15 to 20 years,” Cosenza says.

Shopping center companies with the most exposure to Kmart

  1. Malan Realty, 26% of rents from Kmart
  2. Agree Realty, 24%
  3. Kimco, 13.3%
  4. Ramco-Gershenson, 6%
  5. New Plan Excel, 5.4%
  6. Acadia Realty, 5.2%
  7. IRT Property, 4.5%
  8. JDN Realty, 3%
  9. DDR, 3%
  10. Glimcher, 2.4%
  11. Federal Realty Investment Trust, 1.1%

Source: Salomon Smith Barney

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