Morningstar report raises concern for Southridge

Lists malls with major debt and Bon-Ton anchor stores, but offers no store closure predictions

Southridge Mall

Last updated on May 15th, 2019 at 04:54 pm

Southridge Mall will be down two anchor stores by next year year and if it loses a third, it could be the beginning of a downward spiral for the Greendale mall, according to a new report by Morningstar Credit Ratings.

Sears closed its store at the mall this summer and Kohl’s announced it will close its Southridge store and move to the 84South development along I-894 in Greenfield in 2018.

That means the remaining anchor stores at Southridge will be Macy’s, JCPenney and Boston Store. All of those retailers have struggled recently and have had to close stores. Macy’s and JCPenney are both closing more than 100 stores this year. The Bon-Ton Stores Inc., the Milwaukee and York, Pa.-based parent company of Boston Store, has not turned an annual profit since 2010 and recently announced it was planning to close 40 stores.

Boston Store occupies 103,837 square feet at Southridge.

The Morningstar report listed malls with large loans that also have Bon-Ton anchor stores. The report said the loans could be at risk if those malls were to lose their Bon-Ton stores. Considering Bon-Ton’s struggles, the future of its stores is in question. However, the Morningstar report did not indicate if any particular Bon-Ton stores are at risk of closing.

“I don’t know if Bon-Ton is closing its store at Southridge, we do not have any data on Bon-Ton finances or closings,” said Steve Jellinek, vice president of CMBS Research with Morningstar.

But Morningstar is concerned about Southridge, which has lost one anchor (Sears), will lose another (Kohl’s) and is counting on Boston Store to remain and help drive traffic at the mall.

“The loss of an anchor diminishes foot traffic and if Southridge loses another, this could be the beginning of a downward spiral,” Jellinek said.

If a mall owner does not replace anchor stores within a certain time period, it could open up a situation in which inline tenants begin to exercise their rights within their own leases to either terminate their lease or reduce their rents, Jellinek said.

Southridge Mall, which is owned by Indianapolis-based Simon Property Group L.P., was one of 12 malls across the country placed on the Morningstar list of malls that are anchored by Bon-Ton stores and have loans that Morningstar says have an “elevated risk” based on either debt service coverage ratio, vacancy rates at the malls or anchor store closures.

The only other mall in Wisconsin on the list was Wausau Center.

Simon Property Group has $119.6 million in debt on the Southridge Mall building, excluding the Boston Store portion of the mall, according to Morningstar.

The Boston Store building at Southridge is a separate property from the rest of the mall. In 2015, Bon-Ton sold six of its store properties, including the Southridge store building, to one of New York-based W.P. Carey Inc.’s non-traded real estate investment trusts for $84 million. There is an $8 million loan on the Southridge Boston Store building, according to Morningstar. Bon-Ton’s lease on the building runs until 2035, which renders that loan a low risk, Jellinek said.

“Short of (Bon-Ton) filing for bankruptcy, there is not a lot of concern there,” Jellinek said. “The concern lies with the mall’s overall performance. Anchor stores draw traffic to a mall. They have already lost two large anchors.”

For now, Southridge is in good shape. The mall’s vacancy rate in June was 96 percent. Revenue was down $800,000 at the end of 2016 compared to the end of 2012, according to Morningstar, but Jellinek said there is no cause for immediate concern with the property’s cash flow, which is 150 percent of debt payment.

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