Retail REITs Post Losses, but Leasing Remains Steady

Retail real estate investment trusts, the companies that own the shopping centers and malls that consumers frequent every day, are reporting losses during this quarterly result period. However, those entities’ occupancy rates, which illustrate how many stores are staying open or closing in the properties, are holding up surprisingly well.

This is significant due to the number of store closures predicted by industry watchers at the beginning of the year. The International Council of Shopping Centers, for one, forecast that a whopping 73,000 stores would close in the first half of the year.

Not that the retail real estate industry isn’t seeing a good deal of carnage. Big-name chain Linens ‘n Things is gone, as is former electronics giant Circuit City. Large regional brands like Mervyns and Gottschalks also shut down. And there are many other examples of smaller stores closing.

But to look at the occupancy rates of some of the larger retail REITs, the major closings aren’t totally apparent. Developers Diversified Realty, the owner of about 670 shopping centers across the country, operates a portfolio that is 90.9 percent occupied, actually up from 90.7 percent at the end of June. And that’s after the company reported a a $148.4-million loss in the third quarter.

Weingarten Realty Investors is a company with similar results. The owner of 315 shopping centers reported a net loss of $9.4 million, but occupancy remained stable quarter over quarter, increasing to 91.1 percent from 90.9 percent.

On the mall end, Pennsylvania Real Estate Investment Trust, the owner of 38 major malls in the Northeast and 16 smaller shopping centers, fared very much the same. That company’s occupancy only fell to 89.4 percent from 89.9 percent year over year despite a $9.6-million net loss.

There is no doubt that the owners of retail assets are feeling a major pinch in their fundamentals. But despite the major store closings of the past year, these financial problems aren’t a result of half-empty shopping centers dotting the country. The reasons for the lagging performance are that sales per square foot are down in these properties, and the REITs aren’t collecting as much money from tenants as they used to. The good news is that not more of those tenants might be around than earlier predicted.