PREIT, Cafaro Lend Boscov’s a Helping Hand (12/17)
Dec 17, 2008 12:03 PM
If Boscov’s liquidates, landlords at Boscov’s-anchored properties might end up having to resort to low-end retailers to take the chain’s spaces, says Davidowitz. Boscov’s currently operates 39 stores, including 24 in Pennsylvania, six in New Jersey and three in New York, Maryland and Delaware. Boscov’s, a privately-owned company, does not report operating results so it’s not clear how many of its locations are leased or owned and how much its real estate is worth. PREIT experienced a 90 basis point drop in the occupancy level at its mall portfolio during the third quarter, to 86.5 percent, a figure that could get worse if Boscov’s liquidates.
The 97-year-old chain filed for Chapter 11 bankruptcy on Aug. 4. The firm cited tightening consumer spending on discretionary items and the ongoing credit crisis as primary causes of its financial distress. At the time, Boscov’s operated 49 stores, but it has since closed 10 under-performing locations.
Boscov’s operated under the control of the descendants of its founder Solomon Boscov until it signed a letter of intent to sell virtually all of its assets to Versa Capital Management, a Philadelphia-based private equity firm on Sept. 18. In exchange, Versa would assume Boscov’s debt in a deal valued at $288 million. The buyout by Al Boscov will allow the firm to remain in the Boscov family’s hands. Boscov’s did not return calls seeking comment.
The chain’s troubles have coincided with a general decline in department store fortunes. In November, the U.S. department store sector registered a 13.3 percent decline in same-store sales, compared to a decline of 2.7 percent for all chain retailers, according to ICSC. Boscov’s does not report its same-store sales figures.
REITs, as a group, have a history of buying debt securities that are tied to property ownership, but direct loans to tenants are rare and tend to be viewed negatively because they don’t qualify as REIT income, according to Joel Bloomer, an analyst with Morningstar.
“It makes sense to consider it if it is a large tenant, but there will probably be a lot of retailers in Boscov’s position over the next year or two and you can’t save them all,” Bloomer adds. “Extending an unsecured loan to a shaky retailer just sounds very aggressive.”
--Elaine Misonzhnik
