Debt mauls mall operators

CNNMoney:

General Growth Properties Inc., the No. 2 mall operator in the United States, has warned that an ongoing slump in retail sales, combined with the credit market lockdown, has pushed the company to the brink of bankruptcy.

Chicago-based General Growth Properties said in an SEC filing late Monday that it has $900 million of property secured debt and $58 million of corporate debt coming up for renewal by Dec. 1. It also faces another $3.07 billion in debt that matures in 2009.

But "given the continued weakness of the retail and credit markets," the mall operator fears it may not be able to refinance its loans at lower rates to meet its short-term cash needs.

Shares of General Growth Properties (GGP) tumbled 66% to 46 cents on Tuesday.

General Growth announced in August that it might sell some assets to raise capital for servicing its debt. The company operates more than 200 malls -- including the Paramus Park Mall in New Jersey, Cumberland Mall in Atlanta, Water Tower Place in Chicago and the Glendale Galleria in California -- in 44 states.

"Our potential inability to address our 2008 or 2009 debt maturities in a satisfactory fashion raises substantial doubts as to our ability to continue as a going concern," the company said in the filing.

Retail real estate experts say other large mall operators could find themselves in the same situation as General Growth. Several of them have significant debt coming up for renewal at the end of 2008 and early 2009.

...

The mall business model is under stress for reasons beyond the credit situation. The financial dynamics of malls relies on anchor stores to pull in traffic that can also be exploited by smaller retailers who vie for space near the anchors or the food courts to get the traffic they can entice in for a sell.

But, the anchor stores have been suffering for sometime because of competition from category killer big box stores and the specialty stores that fed off the traffic in the malls are competing with internet retailers who can offer more specialties at lower prices without having to leave home. I cannot remember the last time I made a trip to a mall. I can find most of my needs at Wal-mart where the prices are better anyway.

Besides internet businesses one of the other winners in the new retail environment is UPS along with other delivery services like FedEx. Those are companies that seem better positioned in this economy than mall operators.

Comments

  1. Brad Williams12:03 PM

    The root issue in this economy is deflation, so all retail and consumer services are and will suffer. AMZN is dropping like a rock.

    ReplyDelete

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