High-End Mall REITs Take a Hit From Forever 21 Bankruptcy

Store closures and retailer bankruptcies have become a huge drag on mall REITs' financial results in recent years. Owners of low- and mid-tier malls have been hit hardest. Falling traffic to those properties caused two department store chains, Bon-Ton and Sears Holdings, to file for bankruptcy last year. In 2019 alone, numerous chains that were once ubiquitous at mid-tier malls -- such as Gymboree, Crazy 8, Payless ShoeSource, and Things Remembered -- have closed their doors for good.

However, one of the more recent retail bankruptcies is impacting a different slice of the REIT world. Fast-fashion giant Forever 21 filed for bankruptcy a little over a month ago and announced plans to close up to 178 stores in the U.S. Its restructuring is disproportionately hurting high-end mall REITs, as seen in recent earnings reports from Taubman Centers (NYSE: TCO) and Macerich (NYSE: MAC).

Taubman Centers owns some of the best malls in the U.S. It recently reported that sales per square foot for comparable centers in the U.S. reached $964 for the 12-month period ending on Sept. 30, up nearly 14% from $848 during the prior 12-month period. Yet Taubman has struggled to translate this portfolio of superior malls into strong growth in funds from operations (FFO) per share, due to a combination of poor execution and questionable investment decisions.

Source Fool.com