EVENTS TO WATCH
KSS, Department Stores - Strip Center and Regional Mall 1Q15 Vacancy Rates
Takeaway: Here's a quick summary of what went down on the real estate front in 1Q15. Regional mall vacancies continue to outperform strip/community centers in the US with vacancy rates 220bps below the 7,000+ strip centers which sits at 10.1%. Only marginally off the 11% recession peaks. While rents at regional malls increased 1.8% in 1Q (driven in large part by 'A' properties) while stripe center occupancy rates creeped up by just 0.5%. Those are important data points given the questions we've fielded on KSS over the past few months in regards to the company's real estate optionality.
KSS operates just 7% of its stores in regional malls, the rest are split between strip centers (67%) and freestanding locations (26%). Besides the fact that the company owns just 36% of its properties outright, it has practically no exposure to the space's beach front property -- the 300 or so 'A' malls in the country. Strip center space is a dime a dozen, though construction has stalled out following the recession there is little demand to fill the vacant space. Plus negative sq. ft. events like the Office Depot/Max/Staples will continue to weigh on this space. Add on the fact that we are massively overstored in the US today, we average 46. sq. ft./capita, compared to #2 on the list the UK at 9 sq. ft./capita. That leaves KSS with very little ability to monetize its real estate assets.
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