Michelle Napoli is the editor of Real Estate Media's Net Lease Forum. For the full story, please click on Net Lease Forum .
JACKSONVILLE, FL-It's no secret that Winn-Dixie Stores Inc., like many of the nation's traditional grocers, has been struggling in the face of increasing competition, particularly from Wal-Mart's steady expansion into the grocery business. Now, Winn-Dixie has filed for Chapter 11 bankruptcy reorganization, and landlords are left wondering whether the locations they own may eventually go dark.
The company said in announcing its bankruptcy filing that it intends to "evaluate the performance of every store and the terms of every lease in the company's real estate portfolio with the objective of achieving a rationalized store footprint that allows the company to operate profitably and increase cash flow and return on invested capital." Winn-Dixie has already received bankruptcy court approval to reject the leases on 148 locations that were already closed.
For individual owners of single-tenant properties who don't necessarily have large portfolios across which risk is spread, a bankruptcy can be particularly nerve-wracking. And freestanding Winn-Dixie properties up for sale aren't likely to move any quicker now that the company is in bankruptcy. A recent report by Jeff Rothbart, general counsel and research director for Northbrook, IL-based Boulder Group, noted that of the big-box properties available, some 15.58% were tenanted by Winn-Dixie, which tied with Petco for first place in terms of the greatest number of available properties. At the time of the report, available Winn-Dixie properties had an average asking price of just over $7.3 million and an average cap rate of 8.28%.
Of course, bankruptcies like Winn-Dixie's certainly drive home the potential uncertainties of credit and tenant sustainability for all property investors. Two shopping center REITs, New Plan Excel Realty Trust Inc. of New York City and Equity One Inc. of North Miami Beach, FL, have made announcements following the bankruptcy news. Equity One said that none of its 16 Winn-Dixie locations are on the list of stores the grocer has already petitioned the court to reject. Two locations owned by New Plan Excel are on the list, and the REIT said it "is already in active negotiations for replacement tenants at both locations;" it has another 20 Winn-Dixie locations in its portfolio, one of which has already seen its lease assigned to The Grocers Supply Co.'s Fiesta Mart. With regard to the remaining 19, "New Plan has not been informed of Winn-Dixie Stores' plans to reject or affirm these leases or its financial obligations thereunder," the REIT said.
The company "will implement further asset rationalization, additional asset sales and expense reduction plans to enhance productivity and take best advantage of its asset base," the announcement stated. "The company is also taking steps to substantially reduce its lease obligations on previously closed stores."
For now, Winn-Dixie says all of its 920 operating stores, located in eight Southeastern states and the Bahamas, are open for business. Last year, it announced plans to close 156 locations; of these, as of Feb. 9, 135 had been exited, 63 through either sale or sublease and 72 through closings.
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