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Retail REITs Were Prepared For Winn-Dixie Closings

Winn-Dixie Stores Inc.'s decision to close 326 stores and lay off 22,000 employees won't have that much impact on shopping center REITs, which have been unloading centers with the supermarket chain. That strategy left companies like New Plan Excel Realty Trust, Equity One Inc., and Regency Centers largely unscathed by Tuesday's announcement.

New Plan will feel the greatest impact, losing eight of its 19 Winn-Dixie stores. The grocer pays $2.1 million in base rent on the eight stores. When base rent, CAM costs, taxes, insurance and potential impact of co-tenancy clauses is factored in, New Plan could record a $0.07 per share impairment in 2005. Winn-Dixie has also filed a motion in bankruptcy court to reject one additional lease with New Plan. Nonetheless, New Plan is sticking with its profit estimates for 2005.

Equity One has the greatest exposure to Winn-Dixie: Sixteen stores in its portfolio represent 5.5 percent of its funds from operations. But the REIT will only lose one store in this round of closings. When asked about Winn-Dixie in the past, Equity One executives have repeatedly said that they see any closings as an opportunity. Winn-Dixie pays between $6 and $6.50 per square foot in rent while Equity One gets $11 to $12 per square foot from other grocers, such as Publix.

A spokesman at Publix, which is strongest in Florida, said it was too early to speculate about whether the company would take over some of the empty locations. But Marc Weinberg of the Atlanta-based Shopping Center Group said that Publix could use this as an opportunity to expand its presence in the Atlanta market. There, Winn-Dixie is closing its SaveRite chain.

Other REITs impacted by the Winn-Dixie closings include Developers Diversified Realty Trust, which will lose four of its 11 stores. Regency will lose three of its six Winn-Dixies. And Kimco Realty Corp. will lose one of its six Winn-Dixies.

"We've been very proactive over the past three or four years, as part of our overall strategy of disposing high-risk shopping centers," says Lisa Palmer, senior vice president of capital markets at Regency. Because of that, she says, the REIT has only six Winn-Dixie-anchored centers, compared with 17 five years ago. All three properties affected are part of a joint venture that Regency has with Macquarie Bank.

Winn-Dixie, which will have 587 stores left after this round of closings, has been troubled for years. It entered bankruptcy protection in February. Last April, it announced 156 store closings and 10,000 layoffs. In 2002 it sold 76 stores and in the process exited the Texas and Oklahoma markets. In 2000, it undertook a massive restructuring, that included closing 114 stores, 11,000 layoffs, the elimination of three regional offices and the closing of manufacturing facilities. It has lost market share both to other grocers-- such as Kroger and Publix--as well as to Wal-Mart. Over the years, it has slowly shrunk its footprint and retreated from markets where it has done poorly. The latest round of closings is concentrated in Georgia, North Carolina and South Carolina.

--David Bodamer

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