Dying Malls Increasingly Rely On Taxpayer Handouts For Survival

America"s dying malls have been a frequent topic of discussion of late as these relics of the 80"s have been forced to convert once valuable high-end retail square footage into grocery stores, libraries and doctor offices just to keep the lights on.  Here"s just a small sampling of the recent carnage:

• A Third Of All Shopping Malls Are Projected To Close As "Space Available" Signs Go Up All Over America


• America"s Desperate Mall Owners Turn To Grocers, Doctors & High Schools To Fill Empty Space


• Failing Malls Turn Empty Parking Lots Into Carnivals To Generate Cash

But, as Bloomberg points out today, one other funding source is increasingly emerging as a key financial sponsor in the efforts of commercial REITs to re-purpose their failing assets: taxpayers.

In Brookfield, Wisconsin, for example, the city is using tax-increment financing (TIF), a common tool for municipalities to subsidize development by putting property taxes from new projects into a fund that pays for building cost, to help rebuild the Brookfield Square Mall. Meanwhile, as if that weren"t enough, the city has also agreed to pay for remediation costs related an old Sears auto repair shop and to build a new convention center and hotel where the Sears once stood.

In this depressing landscape, there is at least one player still willing to take the risk: local governments hungry for tax revenues. Developers incorporating additions such as housing and parks in their plans are turning to public partners to help rehabilitate the aging retail meccas that dot the U.S. Public subsidies have been part of retail development for decades, but with landlords pouring billions of dollars into renovation to battle a wave of store closures, public-private partnerships are more urgent, and more fraught, than ever.

 

At the Brookfield Square mall in Wisconsin, the landlord, CBL & Associates Properties Inc., needed a new occupant for a fading Sears. CBL had been tinkering with the mix for the past few years. Earlier, in 2008, it completed a 20,000-square-foot expansion, adding grocery stores and restaurants and renovating the interior.

 

In the end, it found its tenant: the city of Brookfield.

 

The local government plans to step in to build a conference center and hotel. By creating a hub for small and medium-size conventions on 9 of the 29 acres currently occupied by Sears, the city hopes to boost CBL’s efforts to reinvent the property, the largest taxpayer in Waukesha County. The idea is a greater focus on entertainment, recreation and business, according to Daniel Ertl, director of community development for the city of about 38,000.

 

“The Sears store is really a shadow of what it used to be,” Ertl said. “We encourage CBL to continue to reinvent themselves. God knows where retail is going to be in 20 years.”

As Bayer Properties CFO, Jami Wadkins, who just secured all sorts of taxpayer-funded handouts to rebuild a failed mall in Alabama, points out, public funding is becoming an "important element of the capital stack of every developer."

These expansive developments often secure additional public financing through various forms of tax arrangements and incentives, as well as infrastructure spending for things like parking garages. Such funding has become an important element of the capital stack for every developer, according to Jami Wadkins, chief financial officer of Bayer Properties, a real estate company that develops and manages retail real estate.

 

In Birmingham, Alabama, Bayer worked with the city government to transform the site of the Pizitz, a historic department store that closed in 1987. The Pizitz, which Bayer bought as a vacant building in 2000, was in a rundown neighborhood that lagged behind the revival occurring in other areas of downtown.

 

Numerous plans ended up on the scrap heap before federal and state aid was secured to build a mixed-use community, which opened in 2016. The development houses 143 residential units -- now 90 percent occupied -- a co-working space, a food hall and retailers, including Alabama’s first Warby Parker.

 

The project cost was $70 million, including public and private funds. Bayer was able to obtain a low-interest loan from the U.S. Department of Energy, as well as tax credits from the state. The city paid to refurbish the landscaping in the area, including the sidewalks and street lamps, according to Wadkins.

 

“If you can put a plan together for a city that doesn’t put the city at great risk, then they will invest with you,” Wadkins said. 

To conclude, perhaps no one summarized this lunacy better than Ronald Reagan who succinctly described the Government"s approach to economic affairs as follows:

"Government"s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it."

Malls are clearly now in the "subsidize it" phase of the Government"s economic plan.

Caught On Video: This Is All That"s Left Of Sears Canada

On October 11, we reported that the now defunct Sears Canada announced plans to liquidate its remaining 150 stores instead of restructuring, the latest admission of brick and mortar defeat in the war with Amazon, with the result some 12,000 job losses in the coming weeks. The Canadian version of Sears is the latest victim of department-store decline that’s swept North America as shoppers gravitate online. While the retailer has dabbled in pop-up stores and e-commerce, its distribution centers aren’t as automated as Amazon.com Inc. or even Canadian peer Hudson’s Bay Co., which last year opened its own robotic facility to accelerate online orders.

For thousands of soon to be unemployed Sears Canada workers and retirees the future of their pensions remains in limbo: Sears Canada has 18,000 retirees and beneficiaries whose monthly pensions its has to address. A motion was filed in August for a windup of the plan, which would require the company to pay the full C$266.8 million deficit, according to the filing. That motion has been postponed until at least Nov. 30.

There is also the question of what happens to all the local malls that suddenly find themselves without 150 anchor tennants. The Sears bankruptcy comes two years after Target"s liquidation left a hole in many of the country’s malls, which made it tougher for Sears Canada to find buyers for its real estate and leases.

What there is zero confusion about however, is what happens to liquidating stores once their employees - aware their termination is imminent - lose all interest in even pretending to keep up an appearance of normalcy.

The answer is shown in the following video from Vtography, which was taken in the Fairview Mall in Toronto on October 22, 2017, and which captures the chaos from a liquidation sale at, well, liquidating Sears Canada. All that"s missing from the post-apocalyptic scenes are the zombies.

Sears Crashes After Second Largest Shareholder Resigns From Board

With Toys "R" Us having already filed Chapter 11 bankruptcy, in a move that came as a shock to most of its bondholders, suddenly the race between Bon-Ton Stores and Sears Holdings who will file next, is entering its last lap.

For those who may have missed it, late last week, in a scenario right out of the last days of Toys "R" Us, some of Bon-Ton Stores’s suppliers reportedly scaled back shipments and asked to be paid sooner in order to protect themselves from potential losses in case the department-store chain unexpectedly filed for bankruptcy, Bloomberg reported on Friday.

The suppliers have insisted on getting paid with letters of credit or cash on delivery, which can be a drain on the company’s resources, said the people, who asked not to be named because the matter is private. The demands come just as the chain enters the key holiday-shopping season in the U.S. “We maintain constructive relationships with our vendors,” Christine Hojnacki, a spokeswoman for the York, Pennsylvania-based company, said in a statement. “Our team has been working closely with all of our vendors, large and small, as we build inventory ahead of the holiday season.”

Unlike Toys, however, Bon-Ton"s inevitable default has already been largely priced in, and the news of the supplier strike had a modest impact on Bon-Ton’s $350 million of 8% second-lien bonds due 2021 which dropped "ony" 2.5 cents to trade at 32.6 cents on the dollar Friday.

Bon-Ton, which operates 260 stores across 24 states, had hired PJT Partners and AlixPartners over the summer to explore options for dealing with its more than $1 billion debt load. In September, it announced an $18.9 million sale-and-leaseback transaction for a store in Roseville, Minnesota, that will boost liquidity in the short-term and buy breathing room.

And while Bon-Ton"s fate now appears sealed, the question is whether or not that other perrenial bankruptcy candidate, Sears Holdings, will get to bankruptcy court first.

The reason, and why Sears stock crashed 12%, on track for its close in 8 months is that on Monday the struggling department store chain said that Bruce Berkowitz, CIO of of Fairholme Capital Management LLC and the company"s second largest shareholder after Eddie Lampert, was stepping down from its board of directors at the end of the month. Fairholme Capital controlled 28.9 million Sears shares as of June 30, making it second-largest shareholder with just shy of 27% of the shares outstanding.

With today"s collapse, the stock has erased all gains it made since it announced a $1 billion restructuring in early February, and has plunged 26% over the past three months. A Sears bankruptcy would be catastrophic for the US mall sector, and as such we expect the "big short" trade, the CMBX 6 BBB- tranche to blow out sharply on the news of Berkowitz" resignation.

Here Is The Retail "Chart Of Doom", Now With Toys "R" Us

After claiming its 27th victim of the year in the form of the Toys "R" Us bankruptcy filed earlier this morning, the Amazon-induced retail bloodbath of 2017 has just turned full-on apocalyptic.  According to data aggregated by Reorg First Day, the Toys "R" Us filing brings the total amount of defaulted retail debt to over $14 billion so far in 2017. 

All of which should be sufficient to drive U.S. equity markets to fresh new highs before the end of the day.

Meanwhile, according to Bankrupty Data, Toys "R" Us marks the third largest U.S. retail bankruptcy in history, based on assets, exceeded only by Kmart and Federated Department Stores...

...and here is how the 2017 retail bankruptcies have stacked up.

Of course, the real question is whether the 3rd largest retail bankruptcy in U.S. history is enough to once again push Amazon"s Jeff Bezos to the top the world"s list of biggest douches wealthiest men.

Sears Canada Pays Execs Bonuses While Laid-Off Workers Get No Severance

After filing for bankruptcy protection in an Ontario court last month, Sears Canada said Friday that it plans to dole out big bonuses to senior management while the retailer trudges through a painful restructuring, even as thousands of laid-off workers aren"t being paid promised severance.

According to court documents, Sears - which promised to close 59 stores and eliminate 2,900 jobs across the country as part of a court-supervised restructuring process - will pay up to $7.6 million in retention bonuses to 43 executives and senior managers at the company"s head office in Toronto – the same management team that lead the company as sales plummeted and it spiraled into insolvency. As CBC News reports, that works out to an average of $176,744 per employee, although it"s unlikely the money will be divided up so evenly.

Meanwhile, the company said it won"t be paying lower-level employees a severance, which could equate to a loss of tens of thousands of dollars per person. Predictably, the news isn"t going over well with the company"s laid-off workers.

"Why aren"t they able to pay us out the severance if they have this [bonus] money?" says Zobeida Maharaj, a laid-off senior operations manager who spent 28 years working for Sears in the Toronto area.

"They have no moral values, no compassion, nothing in their hearts."

Sears argues that the hefty paydays are necessary to keep the management team from jumping ship as the company restructures.

Sears Canada points out that the bonus payments — known as the Key Employee Retention Program (KERP) — have been approved by the Ontario Superior Court. Offering cash incentives during restructuring is common and often necessary to retain key employees, the company said.

"A lack of a KERP in this scenario would potentially result in a worse outcome and negatively impact a variety of stakeholders," spokesperson Joel Shaffer told CBC News.

In a revelatory twist, the managers who guided the company into bankruptcy stand to profit handsomely by doing so; many could reap enormous bonus payments beyond those mentioned above, including incentive-based payoffs, if they can bring the company through bankruptcy intact.

“The executives and senior managers tasked with guiding Sears through the restructuring will earn up to an additional 25 per cent to 100 per cent, on top of their base salary.

Most will get their bonuses in quarterly installments, receiving 75 per cent of their payments within six months. The final 25 per cent won"t be paid out until a successful restructuring is complete.

Sears also plans to pay retention bonuses of up to $1.6 million to 116 senior store employees who will oversee liquidation sales at locations that are closing. That amount works out to an average of $13,793 each and will be contingent on certain sales targets.”

But try explaining to recently unemployed Sears workers why the compay should be allowed to pay out these bonuses before the severence payments promised to them and thousands of their peers.

[Zobeida ] Maharaj says she can understand paying retention bonuses to store employees working on the front lines. But she argues the big payouts to higher-ups at head office are unfair when ex-workers like her have lost their severance.

"I"m shocked as to how they got this grant permitted to have these people — these headquarters [big-wigs] — fill their pockets even more on the suffering of Sears employees," says Maharaj. "We"re just the little ants at the bottom."

Rosa Dalessandro also wonders why there"s money to pay Sears executives when she"s losing severance that amounts to about a year"s salary.

"It"s very upsetting," says the former Toronto-based sales manager, who worked for the company for 20 years.

Dalessandro was laid off in March and Sears cut off her severance payments last month. This week, the retailer also cut her benefits and she got hit with an unexpected $400 dental bill.

"I"m opening all the bills right now and I"m like, "Wow, wow, wow," because you don"t have money coming in. It"s really affected me and my family," says Dalessandro.

"It"s almost like what they took from us, they"re giving to the executives downtown."

Sears management argues that the bonuses are necessary to ensure that important employees stick around to help rebuild the company as it struggles through bankruptcy.

While it may sound "cold and heartless" to some workers, putting money aside to keep key employees is considered a prudent move, says employment lawyer Adrian Ishak. "These KERPS are a necessary evil."

When a company is insolvent, Ishak explains, creditors line up to try to recoup their losses. While laid-off employees are considered low priority, retention bonuses for key staff — if approved by the court — often get top priority because those employees are needed to help restructure the company.

"Where you really need to incentivize are people at the top levels, those who are going to be responsible for elaborating the plan, as well as implementing it," says Ishak, a partner with Rubin Thomlinson LLP in Toronto.

If key staff manage to successfully restructure Sears, he adds, it will be the best-case scenario for the company"s creditors. "If it"s a continuing enterprise, there will be far fewer losers," he says.

But perhaps the most outrageous injustices can be found at the highest level of Sears senior management, where CEO Eddie Lambert has spent years laying claim to the company’s assets.

As we’ve reported, previously if Sears Canada were to go bankrupt, Lambert - also the company"s largest shareholder - loses his equity stake, but he remains the company’s principal creditor. Already, Lampert has effectively laid claim to enormous amounts of the company’s assets through loans he’s made. His hedge fund, ESL Investments, also owns large stakes in Lands’ End and a Real Estate Investment Trust that gained control of some of Sears’ best properties in a $2.8 billion deal back in 2015, then leased them back to the company.

As is the case in many bankruptcy filings, the owners and managers of the company protected themselves while the company floundered. Now, Sears employees will need to make do without thousands of dollars in wages they had been anticipating.
 

Amazon is Now Worth More Than Every Store in the Mall Combined

Content originally published at iBankCoin.com

Everyone knew Amazon was crushing retail, dating back at least a decade. But for some reason, very few went through with the easiest pair trade of all time -- long AMZN, short shopping mall operators. What a simple, yet brilliant, trade. Is it not?

Here"s an old market cap chart of when Amazon topped Walmart. Now it"s worth two Walmarts.

Here"s another old chart that captures the spirit of Amazon"s sales explosion. The current annual run rate is in excess of $140b.

So how does Amazon"s $143b in annual revenues stack up against other retailers?

According to Exodus, there are 31 companies in the Apparel Stores industry, the names you"re all familiar with when shopping at the old dead mall, whose sales equal $107b combined, with net income of $13.6b. Their composite market caps are $81.69b, the inversion of the price/sales ratio is indicative of an industry in duress.

Amazon"s $143b in annual sales and net income of just $9b is rewarded with a market capitalization of $469b.

Think about that for a moment. The entire shopping mall, sporting +1.1% quarterly revenue growth, does more net income than Amazon, on 40% less in revenues, and yet Amazon is valued at 5x what the entire mall is being sold for on the market today.

The Department Stores are an even worse comparison. TJX, M, KSS, SHLD, DDS, JCP, SRSC, SHOS and BONT combined do revenues of $129b, netting $10.17b in income, yet the composite market caps are just $68b on -4.5% quarterly revenue growth.

I get Amazon is the future and they"re growing at 22% per annum. But is it worth more than all the department stores and apparel stores combined 3x over?

And now for the most egregious juxtaposition: Amazon vs the Discount/Variety Store industry.

The Discount Variety stores include WMT, TGT, COST, DG, DLTR, BURL, PSMT, BIG, FRED and TUES. An impressive set of retailers, no doubt. Together, they sport sales of $729b with net income of $51b, enjoying median quarterly revenues growth of nearly 5%.

Their market caps combined equal $389b. If you threw in another COST, you might get to match Amazon"s market cap.

Does any of this shit make sense to you?

The Entire Retail Sector is a Short (Video)

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