BINGHAM FARMS, MI-Malan Realty Investors, Inc. derives approximately 25% of its annualized base rents from Kmart Corp., which leases 27 properties from the REIT. The hit to funds from operations could be as high as $2.2 million a year, or $0.43 per share.
“While Kmart has not informed us of any stores it intends to close in our portfolio, we estimate Malan has a potential exposure on approximately six to 12 properties,” says Malan chief executive officer Jeff Lewis. “The likely scenario is that of these six to 12 properties, Kmart may reject the leases on some of these properties while closing stores and subleasing the space on the others.
“Several of the properties present opportunities for repositioning and re-tenanting due to below-market rental terms in the Kmart leases,” Lewis adds. “Our ability to redevelop or re-tenant these stores will depend mainly on the property's location and market conditions in each community.”
Cash available for distribution could be reduced even further, depending on costs incurred to re-tenant and re-lease any closed stores, according to the company. Estimates do not include any future rents that would be due from Kmart under the bankruptcy laws or revenues from re-leasing any Kmart space.
Malan believes that the other Kmart stores in its portfolio will be unaffected by the bankruptcy filing because they are well located within their communities, are generating sales at acceptable levels and have relatively low occupancy costs.
The REIT owns 58 properties located in nine states containing approximately 5.4 million sf of gross leasable area.
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