Westfield Negotiating Purchase of 12 Federated Stores in its Portfolio

SYDNEY-Westfield Group is negotiating to purchase the 12 department stores in its US portfolio that are slated for closure and sale related to the $11-billion merger of Federated Department Stores and May Department Store Co. In all, 68 department stores will close at 66 malls, 40 of which are owned by REITS.”The discussions (with Federated) are at an initial stage and will take some time to complete,” says Westfield Group managing director Peter Lowry. “If successful, the purchase of these stores would create the opportunity to further redevelop and improve our portfolio, as well as substantially increase our development pipeline in the United States.”Westfield’s US portfolio includes a total of 50 stores currently operated by the May Co. and 39 stores operated by Federated. As announced, it is expected that most of the May Co. stores retained by Federated will be converted to the Macy’s nameplate following the merger, which will create a company with nearly 1,000 department stores in the United States.Of the 12 stores to close in Westfield’s portfolio, nine are owned by May and three are owned by Federated. Also, nine (6 owned by May, 3 by Federated) of the 12 stores are located in Southern California. As reported Thursday on GlobeSt.com, the May-Federated merger is expected to close sometime this quarter and the store closures will begin next year. The see that story, click here .Westfield isn’t the only REIT that will see Department stores close due to the merger. Indeed, it’s not even the most affected. Based on the store closing list published by FD and analyzed by UBS Investment Research, the exposure by US REIT is as follows: Simon Property Group (18 locations, 1.5% of GLA), General Growth Properties (12, 1.5%), Macerich (7, 1.4%), Mills (3, 1%), Penn REIT (2, 1.5%), Glimcher Realty Trust ( 2, 2%), CBL & Assoc. (1, 0.5%) and Taubman Centers (1, 1%).”Despite losing approx 1% of their total GLA, UBS Investment Research thinks the REITs are well positioned against this latest round of closings. “First, with MAY owning nearly 80% of its locations, the hit to rent will be minimal,” according to a Thursday research report. “Second, many of the stores (to be closed are) located in dominant malls with above average demographics, thus increasing the probability for a quick turn-around on releasing.”Simon Property Group declined to comment at this time on whether it is negotiating with Federated to purchase the department stores closing at its malls, though a statement released yesterday alludes to the fact that it would have control of the space. “We have already initiated conversations with a wide range of potential users that are interested in stores that might become available,” says SPG president/COO Rick Sokolov. “We are confident that we will find quality replacements for any Federated store closings, consistent with our historical performance as demonstrated by our results with previous anchor stores that have become available such as Lord and Taylor and Montgomery Ward.” As for how it will affect the mall REITs’ performance, UBS analysts said they anticipate “limited downward FFO revisions” from the mall REITs as a result of the FD/MAY closures. “However, longer term, the potential for collateral damage related to in-line defections remains,” states the report.The 12 stores slated to close at Westfield locations are Filenes at Westfield Trumbull in Trumbull, CT; Hecht’s at Westfield Wheaton in Wheaton, MD; Kaufmann’s at Westfield Richland in Mansfield, OH; Robinsons-May at Westfield Fox Hills in Culver City, CA; Robinsons-May at Westfield MainPlace in Santa Ana, CA; Robinsons-May at Westfield North County in Escondido, CA; Robinsons-May at Westfield Plaza Camino Real in Carlsbad, CA; Robinsons-May at Westfield Santa Anita in Arcadia, CA; Robinsons-May at Westfield UTC in San Diego, CA; Macy’s at Westfield West Covina in West Covina, CA; Macy’s (apparel) and Macy’s (home) at Westfield Palm Desert in Palm Desert, CA.

SPG only named nine of the malls affected by the merger in Thursday’s statement. Those malls are King of Prussia near Philadelphia; South Shore Plaza and Burlington Mall in Boston; Houston Galleria; Castleton Square and Greenwood Park Mall in Indianapolis; Ross Park Mall and South Hills Village in Pittsburgh; and Shops at Mission Viejo in Orange County, CA. Representatives of General Growth Properties and Macerich, the two other significantly affected mall REIT, did not release any statements with regard to the merger on Thursday and were not immediately available Friday for comment.