"Kmart further confirmed it has no intention of closing any of its stores at DDR shopping centers," Wolstein adds. "These locations are true infill sites that have been successful for Kmart for many years. Since many of these leases are substantially below market, Kmart's occupancy costs as a percent of sales are incredibly low."
In November, Standard & Poor's lowered its ratings on 14 Kmart Corp.-related lease transactions. This action is in conjunction with S&P's downgrade of the company's creditrating to BB from BB+ on Nov. 27. The ratings on the securities are dependent on the credit rating of Kmart. The outlook is negative, said S&P officials. The company's stock price has dropped in recent weeks.
Developers Diversified has 25 locations leased to Kmart and one Builders Square leaseguaranteed by Kmart. Four Kmart locations are held in joint ventures in which Developers Diversified owns only a 20% interest and two of the wholly-owned Kmart locations are subleased. Kmart is operating a store at all the remaining Kmart locations.
These Kmart and Builders Square leases represent approximately 2.8% of the company's total base rents and approximately 5.7% of owned gross leasable area.
Kmart's average rent to DDR is less than $3 per sf, which is below the typical rental rate paid by Kmart. At those Kmart stores reporting sales, sales averaged approximately $200 per sf and occupancy costs averaged approximately 3% of sales.
Kmart, which currently operates approximately 2,100 stores, has already closed its weakest store locations. In 1995 and 1996, Kmart executed a comprehensive reorganization, which included many store closures.
In 2000, Kmart announced additional store closures, one of which was at a Developers center. This lease was terminated in the fourth quarter of 2001, which generated a $1.75-million termination fee to Developers, which is currently in negotiations with replacement tenants.
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