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REITs May Feel Sting from Bed Bath & Beyond's Woes -- Barrons.com

Barron's · 01/06/2023 19:54
By Carleton English

Bed Bath & Beyond's problems may cause a headache for its landlords.

Earlier this week the big box retailer warned there is "substantial doubt" it can continue. That was enough to send Bed Bath & Beyond (ticker: BBBY) shares down roughly 50% this week to $1.31 apiece. But that news also puts the company's landlords in a difficult spot -- at least in the near term

Analysts at Citigroup surveyed their coverage area to find the real estate investment trusts (REITs) that have the greatest exposure to Bed Bath & Beyond to see which could be most impacted by the retailer's potential bankruptcy.

Acadia Realty Trust (AKR) tops their list, deriving 2.7% of its annualized based rent (ABR) from Bed Bath & Beyond. SITE Centers (SITC) is a close second with 2.1% of its ABR coming from Bed Bath & Beyond, while Kite Realty Group Trust (KRG) gets 1.4% of its ABR from the company.

Compounding the problems around the troubled retailer is Citi's forecast of a mild recession in the back half of 2023. It is one thing for one retailer to fall but if several fail during a downturn, REITs may have a tough time getting their other tenants to pay rent or refilling spaces when tenants exit, causing an "incremental drag" on earnings, analysts wrote.

That said, REIT investors with a longer term outlook may have reasons to be cautiously optimistic.

First, the early days of the Covid pandemic in 2020 led to a shake-up in the retail sector with names like J.C. Penney and Lord & Taylor filing for bankruptcy. While bricks-and-mortar retail remains a challenging space, many of the companies that were able to make it through the pandemic are generally in better financial health. (It is worth noting Bed Bath & Beyond's woes predate the pandemic.)

Second, the Citigroup analysts note that Bed Bath & Beyond has been on "tenant watch lists" for several years, suggesting that they may have already taken measures to mitigate the impact of the retailer's bankruptcy on their earnings.

If true, the near term headwind could end up putting the REITs in a better position in the long run.

"While a bankruptcy could drag on earnings and cause accounting noise in the near term, the ability to backfill the boxes with stronger tenants, in many cases, at positive marks-to-market, could be a long-term positive," Citigroup analysts wrote.

Write to Carleton English at carleton.english@dowjones.com

(END) Dow Jones Newswires

January 06, 2023 19:54 ET (00:54 GMT)

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