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REIT Gives Kmart Vote of Confidence

CLEVELAND-Developers Diversified Realty trusts Troy, MI-based Kmart to pay rent, even though the company is facing tough times. At lease rates of $3 per sf, Kmart's occupancy costs are about 3% of sales.

By Robert Carr | Updated on January 11, 2002

CLEVELAND-Developers Diversified Realty says the Kmart stores it leases space towill not close in light of the Troy, MI-based department store chain’s roughfinancial situation. “We are in close communications with Kmart and have confirmed theprofitability of the operating Kmart stores within our portfolio,” says Scott Wolstein, chairman and CEO.

“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.

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