Borders closing a couple hundred stores

Bodamer reports.

Our Exposure List.

Top retail bankruptcies this century (link from Bodamer's post).

UPDATE - here's a list. At least 36 are in CMBS deals - I'll post a list after I finish my phat lunch...

Simon and GGP Marriage - With wedding photos and charts

What would this look like?



Something like the above, where the little rusty-red dots are GGP and the Blue dots are SPG. Note that I think the "CUBA" property is really in Italy and the GEO-Coder misinterpreted it - you can click here for an interactive map that includes all their properties, not just domestic.

GGP has substantially lower coupons on their mortgage debt, averaging 63 bps lower @ 5.29%, but the divide is even larger on loans maturing before the end of 2012, favoring GGP by an average of 125 bps. So, given everything else remains the same, Simon will be likely to assume GGP's mortgage loans. Add in factors such as the lack of available financing, higher coupons, stricter underwriting, etc. SPG's only roadblock to assuming the mortgage debt is getting rating-agency sign-off where its required.

GGP's mortgages on their malls actually perform slightly better than Simon's from a cash flow over debt service perspective. The majority of GGP's malls have a NCF DSCR greater than 2x. Simon's average DSCR is 1.83x.

GGP properties also have slightly lower leverage, with average original LTVs at 62.72% versus SPG's average orig. LTV of 66.53%.

Obviously GGP has a lot more overall debt (mortgage and corporate) due to the Rouse acquisition, and we all know about their huge refi hurdle - look below. This is the maturity schedule, in billions, for all GGP and SPG CMBS mortgages, extended out to their maximum ARD or Extension date.


The footprint overlap is probably of some concern that might lead Simon to cherry pick assets instead of taking the entire platform down. Some MSAs have multiple properties operated by each REIT.

Take Atlanta-proper, for instance. SPG has Phipps Plaza, Lenox Square, and Northlake, while GGP has Cumberland and Perimeter; if you expand to the Atlanta MSA, you end up with SPG malls Discover Mills, Gwinnett Place, Town Center at Cobb, Mall of Georgia, Mall of Georgia Crossing, North Georgia, and GGP has North Point and Southlake. Not only is there a high number of malls in the Atlanta MSA from both sponsors, but a quick look at the loans and the GGP Atlanta loans are higher leveraged then average (so are the SPG loans), and have lower DSCRs than average.

Tenant overlap is pretty consistent, just looking at the non-anchors, and focused on revenue, Simon has a slightly more diverse tenant base.

Top Retail Tenants by Rental Income	Simon	GGP
The Gap	2.20%	2.90%
Limited	2.00%	2.60%
Abercrombie & Fitch	1.80%	2.30%
Foot Locker	1.40%	2.30%
Zale	1.00%	<1%
Luxottica Group	1.00%	<1%
American Eagle	0.90%	1.50%
Express	0.90%	1.30%
Sterling Jewelry	0.90%	<1%
Genesco	0.80%	1.10%

Not sure who wins the battle of increased tenant concentration - probably the tenants since they have more negotiating power, but could go to the landlords because the tenants have fewer location options.

Will be interesting to see if Simon cherry picks the performing assets and let's the others (especially in high-overlap areas) flounder, or if they go in and take it a substantial percentage of the total to increase their footprint and dominate the space (as if they don't already) blocking out any competitors.

ESH Ruling Problematic?

Moody's pondered that the Judge's ruling in the ESH bankruptcy case that the actual investor list be released so he could hear their concerns directly (versus through the Trustee/Servicer)

Moody’s noted it cautioned in June this scenario might lead to “free-for-all financing” as certificate-holders plead their own cases, bypassing the natural filtering process of the trustee and servicers. Because of the implications, Moody’s said at the time any judge would be unlikely to pursue that option.

“Judge [James] Peck may return to his initial skepticism and rule on later substantive motions the way all market participants, even the certificateholders now attempting opportunistically to bypass the trust structure, thought the rules would work when the ESH transaction went out the door,” Rubock said. “Or me may not, and we may need to rethink how robust many structures are — from trusts to participants — under the extreme tests to come.”

Probably not a big deal at this stage, but maybe it sets a new precedent for other workouts down the road.

CMBS spreads unchanged to slightly tighter on bad news

How can spreads be unchanged today! A ton of bad news comes out and spreads go down or sit tight - sounds like the equity market.

• ESH bankruptcy front page news - WSJ misrepresents the CMBS debt and quotes an idiotic lawyer who doesn't know who owns the bonds and apparently never used the PHDC function in Bloomberg or called the Trustee (who delivers coupon payments to the bondholders every single month).
• Red Roof Inn defaults - again WSJ reporting. It's in several CMBS deals as previously noted.
• Tishman defaulted on an $86mm (86, the same age as Alan Tishman when he passed on) land loan on 42 acres it purchased just 3 years ago.
  
• Worldwide Plaza can't close a deal.
• Naysayers of the current government "plans" are claiming to be in the Appalachian forests but are found to actually be cutting through the Argentinian bush.
• Six Flags - bankrupt. (Looked at a CMBS loan once - hah).
• Eddie Bauer - bankrupt. Whiskey Tango Foxtrot (WTF)?
• Reuhl (aka Abercrombie & Fitch subsidiary) - bankrupt.
• Even the Pink Elephant went bankrupt last week.
• Apartment rents in Manhattan dropped 12.3% - to JUST $3k or so for a 2 bedroom apartment without a bedroom. In the real world (outside of the city) that would buy you a far more than average house worth more than half a million (assuming T&I of $3.6k per year, a 20% downpayment, 30-yr mtg, and 5% or 6% interest). Not to mention that the median income of the entire country, including Manhattan, is just about $10k more a year than an 'average' apartment in NYC would cost you!
  

I guess news like BB&B earning money last quarter (mainly because its competitors are just empty store fronts now), ReREMIC deals, and hopes that TALF 2.1 works are carrying the market through. Spreads didn't move today.

Nothing to see here, move along.

Update: Ed McMahon was also 86 when he passed, on the 23rd! Further, Eddie Bauer (the human) died in 1986, the same year Billy Ocean and The Cure and even The Eurythmics put on shows at Six Flags, the number for the Chinese manufacturer that makes the clothes sold at Reuhl stores begins with 86 (China's country code), Governor Sanford 86'd his family this very week to get his jollys on with his latina lover, I once stayed very near the #86 Red Roof Inn (in Richmond, VA) at a much nicer establishment in town, I have driven by the #86 Extended Stay south of Charlotte within the last month, Maxwell Smart was Agent 86, the Sopranos had 86 series (so did Secret Agent Man), not to mention that the ship my grandfather served on in the war is docked at pier 86 in Manhattan at this very moment! There is definitely a pattern here - it involves Tishman, although it is unclear at this time what the precise connection is - stay tuned for further updates.

Just give me time - I'll tie McMahon to all this somehow - the Donald did bail him out of foreclosure... Check back for further updates...

Extended Stay Files

Extended Stay was destined for failure as we noted on numerous occasions, but in detail back in December. They defaulted earlier this month on the big CMBS loan, and the mezz lenders (BOA and Wells Fargo) and holders started a court battle last week.

Today's big news is that they finally filed for bankruptcy - they should of done this the day after they originally closed the deal.

Circuit City Bankruptcy

Nothing new here, but also not much of a chance for exposure. You can count the CMBS deals on your fingers and toes, and the only ones with significant exposure can be counted with just fingers. They tend to be in strip centers or in standalone stores (for some reason these seem to be horrible locations), which do not have any significant REIT exposure (DDR has a little exposure, but its not related to today's 25% decline in their stock).

I'm not sure exactly where they locked in their decision to fail, but it could have been in 2003 when they decided their knowledgeable sales staff were making way too much with the silly commission-based pay, so they fired them all and replaced them with your typical high-school grad (or not) working for an hourly wage, just long enough to find a better job, with no experience. The handful of these employees, bless their hearts, that survived enough to get some pay raises, were subsequently let go in March 2007 - again because they were paid too much. Purportedly, the same employees were asked to rejoin the firm just two months later after sales plummeted (whoa, the sales people were SELLING things? That's just crazy logic).

Management turned down multiple buyout offers and cobranding strategies, sold and allowed profitable lines of business to leave the firm, fired all the good employees, maintained horrible locations (even after the currently announced closures), and now they're in Chapter 11?!

Of course, this filing does let them reject leases in bankruptcy court, and is a negative for the CMBS deals where they reside, and a horrible negative for any employees that are left (take your severance and move on ASAP).