The Great Atlantic & Pacific Tea Company Inc. (A&P) filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of New York.
A&P said it plans to continue to conduct business and serve customers at its 395 stores while proceeds through the Chapter 11 process. The company said the financial and operational restructuring was necessary in order to shed debt and restore it to long-term financial health.
However, as part of its bankruptcy filing, A&P is looking to cancel leases on 73 "dark" stores in 12 states, where the company has already ceased ongoing operations and has been unable to sublease, assign or terminate the relevant leases.
The filing could have a significant impact on retail centers in certain markets, said Suzanne Mulvee, a real estate strategist with CoStar Group's Property & Portfolio Research.
"It may be surprising that A&P has stumbled, given a geographic footprint in arguably more supply-constrained metros," Mulvee said. "But what is happening to A&P is an example of a bigger trend. The wholesale and discount stores have amassed a large stake in the grocery market - Wal-Mart, Sam's Club, Costco, and Target together make up 35% of U.S. food sales - and are pushing traditional discount grocers out of business. These nontraditional retailers continue to add more inventory to the market, stifling expansion by their traditional counterparts and making it likely that A&P will not be the last victim."
A&P "has an estimated 16 million square feet of store space in 400 locations, most of these stores are in the New York metropolitan area (which includes Bergen and Passaic counties in New Jersey)," Mulvee said. "There, A&P accounts for as much as 25% of the grocery store space, excluding ground floor retail in Manhattan. The grocer is also heavily concentrated on Long Island and in Northern New Jersey, where it comprises 22% and 17% of the local stock of traditional and nontraditional grocery retailers."
"It is in these markets where a failure to emerge from bankruptcy may cause the most disruption," Mulvee said. "However, under bankruptcy protection, locations in Baltimore and Hartford are more likely to be scrutinized for closure, as the grocer is less likely to have developed sufficient economies of scale there. These markets are also more saturated with grocery space."
The bankruptcy court has approved A&P's access to $800 million in debtor in possession (DIP) financing, which will enable it to continue paying local suppliers, vendors, employees and others in the normal course of business. The company has entered into an $800 million DIP facility with JPMorgan Chase & Co.
"We have taken this difficult but necessary step to enable A&P to fully implement our comprehensive financial and operational restructuring," said A&P president and CEO, Sam Martin. "While we have made substantial progress on the operational and merchandising aspects of our turnaround plan, we concluded that we could not complete our turnaround without availing ourselves of Chapter 11. It will allow us to restructure our debt, reduce our structural costs, and address our legacy issues."
A&P announced that Frederic F. (Jake) Brace, who was named chief administrative officer in August, will lead the company's restructuring effort. Brace will take the additional title of chief restructuring officer to reflect his expanded role.
For a list of the 73 store lease cancellations download tthe Watch List Newsletter,, a weekly pdf that includes leads of distressed properties and loans and other news items not found on the CoStar Group web news pages.
T.J. Maxx To Close 71 A.J. Wright Stores, Layoff 4,400
TJX Companies Inc., an off-price retailer of apparel and home fashions in the U.S. and worldwide, plans to consolidate its A.J. Wright division by converting 91 A.J. Wright stores into T.J. Maxx, Marshalls or HomeGoods stores and by closing the remaining 71 stores, along with A.J. Wright's two distribution centers and home office.
"A critical factor in this decision is that, over the past two years, we have learned how to serve the A.J. Wright customer with our T.J. Maxx and Marshalls banners and have seen very strong performance from these stores in demographic markets similar to those in which we have A.J. Wright stores," said Carol Meyrowitz, president and CEO of The TJX Cos. "We believe these markets represent an incremental growth opportunity for our Marmaxx division, and that this business now has the potential for 2,300-2,400 stores, 300-400 more than we had previously estimated."
"While this action will reduce our square footage growth in the near-term, due to the 71 store closures, we expect the square footage growth of our continuing operations to remain in the 5% to 6% range thereafter," Meyrowitz added. "In addition, with this growth, we would expect to continue to create thousands of jobs annually on a worldwide basis."
In total, across the United States, the company estimates that 4,400 positions will be eliminated as a result of this action, almost half of which are part-time positions. The company will also be closing its two A.J. Wright distribution centers, one in South Bend, IN, and the other in Fall River, MA, as well as the A.J. Wright headquarters in Framingham, MA and certain regional offices.
The company anticipates that all 162 A.J. Wright stores will close between late January and the middle of February 2011. For the 91 stores that will be converting to other banners, the company estimates this conversion process will generally take eight weeks, during which time the stores will remain closed.
Th company plans to permanently close the following A.J. Wright stores:
- California: Bakersfield, San Bernadino/Colton, El Monte, Inglewood and La Puente;
- Connecticut: Bridgeport, Hamden, West Haven and Wethersfield;
- Florida: Jacksonville (St. John's Square);
- Georgia: Decatur and Stone Mountain;
- Illinois: Calumet Park, Chicago (Six Corners), Chicago (Bricktown Square), Cicero (Cicero Marketplace), Forest Park, Chicago (Washington Square), River Grove, Evanston, Markham, Loves Park and Matteson;
- Indiana: Highland;
- Massachusetts: Fitchburg, Malden, Medford, Methuen, New Bedford, Quincy, Somerville, Springfield (Lowe's Plaza), Waltham and Worcester (Perkins Farms Plaza);
- Maryland: Baltimore (Meadows Park Shopping Center);
- Michigan: Grand Rapids, Oak Park, Redford and Southgate;
- New Hampshire: Nashua;
- New Jersey: North Brunswick and North Bergen;
- New York: Albany, Amherst, Buffalo (Delaware Consumer Square), West Seneca, Cheektowaga, Irondequoit, Long Island City, Newburgh, Schenectady, Syracuse (Shop City Plaza), Syracuse (Western Lights Plaza) and Utica;
- Ohio: Willoughby Hills, Columbus (Great Western Shopping Center), Columbus (Great Southern Shopping Center) and Columbus (Town & Country Plaza);
- Pennsylvania: Pittsburgh (Edgewood Towne Center), Pittsburgh (Crafton-Ingram Shopping Center), Philadelphia (Park West Shopping Center) and Wyncote;
- Rhode Island: East Providence;
- Tennessee: Memphis (Raleigh Springs Marketplace) and Memphis (South Plaza);
- Virginia: Chesapeake, Hampton, Richmond (Merchants Walk), Virginia Beach and Woodbridge; and
- Wisconsin: Milwaukee (709 East Capitol Drive).
Dollar General Ahead of Count in New Stores; Looks to Up Total Even More
Dollar General Corp. in Goodlettsville, TN, has pumped nearly $260 million into new property and equipment so far this year.
The capital expenditures include $95 million relating to new leased stores and store purchases, $85 million for improvements and upgrades to existing stores, $44 million for remodels and relocations of existing stores, $18 million for distribution and transportation improvements and $17 million for systems-related capital projects.
Year-to-date, the discount retailer has opened 491 new stores and relocated or remodeled 458 stores.
Dollar General said it plans to open 600 new stores and to remodel or relocate a total of 500 stores in 2010. Total capital expenditures for the fiscal year are currently expected to be $410 to $430 million.
The company's previous guidance was for capital expenditures of $350 million.
The upward revised estimate includes the anticipated purchase of certain of the company's store real estate locations and initial costs relating to the construction of a new distribution center in the Southeast.
In 2011, the company plans to open 625 new stores, including expansion into Connecticut, New Hampshire and Nevada. In addition, the company plans to remodel or relocate 550 stores. Selling square footage is expected to increase 7% in 2011.
Realty Income Acquires 135 SuperAmerica Stations
Realty Income Corp. completed the acquisition of 135 SuperAmerica convenience stores and one support facility for $248 million under long-term, triple-net lease agreements.
These, and certain other assets, were sold by Marathon Oil and will be leased to newly formed companies owned and operated by Northern Tier Energy, a portfolio company of ACON Investments and TPG Capital.
Realty Income acquired the 136 SuperAmerica properties under 15-year, triple-net lease agreements.
The stores are in Minnesota and Wisconsin, and average 3,500 leasable square feet on 1.14 acres.
In addition, the individual locations have, on average, 6.5 multi-pump gasoline dispensers, and are seasoned stores with long term operating histories. The stores are operationally strong with gallons sold and merchandise sales well above national averages, and strong cash-flow coverage of rent at the store levels.
With this acquisition, the company anticipates that the convenience store industry will now generate 20% of Realty Income's revenue going forward.
Including the SuperAmerica transaction, and other properties to be acquired in the fourth quarter, we now anticipate that acquisition activity should exceed $700 million for 2010," said Tom A. Lewis, CEO of Realty Income. "These acquisitions should contribute to the continued stable stream of lease revenue from which we pay monthly dividends."
Pantry Acquires 47 Presto Convenience Stores
The Pantry Inc., owner and operator of Kangaroo gas and convenience stores, acquired 47 convenience stores from Presto Convenience Stores LLC. The stores operate under the Presto trade name and are in Kansas with three stores in Missouri.
The 47 acquired stores generated revenues of $194 million for the 12 months ended May 2010.
The acquisition is expected to be accretive to the company's earnings per share in fiscal 2011 and was funded with cash on hand. The acquisition includes the real estate underlying 36 of the stores. Terms were not disclosed.
The acquisition expands Pantry's geographic footprint and creates new fill-in opportunities for future growth.
Retail Outlook for CMBS is Cautiously Optimistic
While this holiday season is expected to see a slight gain in same store sales over last year, increases are expected to be in the low single digits, according to Fitch Ratings, which anticipates the retail sector will see similar growth rates in 2011.
Despite continuing high unemployment, consumers have begun to cautiously increase spending. Retailers that are expected to fare better into 2011 are value-oriented, needs-based centers. Malls, especially those secondary in their markets, will continue to struggle to keep sales and occupancy.
Recovery is expected to come at a relatively slow pace as many landlords have yet to re-lease vacant big box spaces. Absorption is slowly trending upward as the strategy of some retailers to expand into untapped markets (while the rent remains low) has more than counterbalanced additional store closures in underperforming locations.
By dollar balance, retail loans represent 30% of the current outstanding balance of U.S. CMBS transactions. Current delinquencies (6.25%) and cumulative default rates (9.21%) for retail are slightly lagging the overall CMBS universe at 7.78% and 10.60%, respectively.
Recent lending for retail has been fairly strong compared to other property types, as evidenced by the large percentage in 2010 CMBS conduit deals, ranging from 33% to 71%.
CVS Rolling Up 77 New Store Loans
CVS/Caremark Corp. plans to securitize more than $338 million in loans backing 77 new drugstores in 28 states.
Based on information received through Dec. 1, 2010, Moody's Investors Service has assigned a provisional (P) Baa2 rating to $338.1 million of CVS Lease-Backed Pass-Through Certificates, Series 2010-B, to be issued by a trust that will acquire 77 first-priority lien commercial mortgage, credit-tenant lease loans.
The loans will be secured by mostly newly constructed drug stores and related realty that will be triple-net leased to subsidiaries of CVS/Caremark. Each of the leases will be bondable and guaranteed by CVS, and bankruptcy-remote, special purpose borrowers will own each of the fee or ground-leased properties.
The loans mature in January 2033. Fixed net rent under the leases will be sufficient to pay in full all interest and principal of the loans.
Macy's Chooses West Virginia for New Fulfillment Center
Macy's Inc. plans to build a major new fulfillment center near Martinsburg in Berkeley County, WV, to support the continued growth of its online business. The site is located strategically along I-81, about 80 miles northwest of Washington, D.C.
Construction on the 1.3 million-square-foot facility is expected to begin in spring 2011, with operations beginning in April 2012 and order shipments beginning in summer 2012.
Two sites in Berkeley County are under consideration for the final location. When fully operational, the Martinsburg fulfillment center is expected to employ approximately 1,200 full- and part-time associates year-round. In addition, another approximately 700 temporary seasonal associates are expected to be hired each year to handle a significantly higher level of online orders from customers during the holiday shopping season.
"Our internet sales continue to grow rapidly as part of the omnichannel strategy at Macy's and Bloomingdale's - allowing customers to shop seamlessly in stores, online and via mobile devices in a manner that meets their needs and preferences. In the first 10 months of fiscal 2010, our online sales were up by about 29% compared with the same period last year. This is on top of growth of about 20% in 2009," said Terry J. Lundgren, chairman, president and CEO of Macy's. "The new Martinsburg fulfillment center will represent a significant expansion of our online capacity, and will be used in particular to prepare and ship orders to macys.com customers in Northeast and Middle Atlantic states."
Online orders from macys.com currently are handled primarily by Macy's Inc. fulfillment centers located in Portland, TN, and Goodyear, AZ. Bloomingdales.com orders are handled primarily from a fulfillment center in Cheshire, CT. As previously announced, the Portland facility, with 600,000 square feet of space, currently is being expanded by 374,000 square feet in a project expected to be completed in fall 2011.
Tanger Ups, Extends its Lines of Credit
Tanger Factory Outlet Centers entered into a $385 million unsecured revolving credit bank facility.
In addition to this syndicated facility, Tanger simultaneously entered into a $15 million stand-alone liquidity revolving credit facility with Bank of America providing total revolving line capacity of $400 million. The liquidity facility's terms are substantially the same as the syndicated facility, including maturity date.
"This new syndicated facility has provided us the opportunity to reinforce our relationships with our long-term banking partners and to initiate a number of new banking relationships," said Steven B. Tanger, president and CEO. "With the additional stand-alone revolving credit facility, Tanger now has $400 million in line of credit capacity through late 2013. Coupled with the free cash flow generated by our operations, we believe that we are well positioned for future growth."
The syndicated facility replaces Tanger's previous $325 million in bilateral lines of credit that were scheduled to mature between June and August 2011, and, together with the stand-alone facility, represents an increase in line capacity of more than 20%.
Through an accordion feature, the maximum borrowing capacity on the syndicated facility may be increased to up to $500 million in certain circumstances. The maturity date of the new facility is Nov. 29, 2013, and the company has an option to extend the facility for one year.
At closing, the facilities bear interest at a spread over LIBOR of 190 basis points, based on the operating partnership's current long-term debt rating.
Merrill Lynch, Pierce, Fenner & Smith, successor by merger to Banc of America Securities, and Wells Fargo Securities were Joint bookrunners and joint lead arrangers. Participating banks are as follows: Bank of America, Wells Fargo Bank, Branch Banking and Trust Co., SunTrust Bank, US Bank, PNC Bank, Regions Bank, Royal Bank of Canada and Scotiabanc.
O'Charley's Closes 16 Restaurants
O'Charley's Inc. closed 11 underperforming O'Charley's restaurants and five underperforming Ninety Nine restaurants.
The decision to close the restaurants was the result of an extensive review of the company's restaurant portfolio that examined each restaurant's recent and historical financial and operating performance, its position in the marketplace, and other operating considerations.
"These closings permit us to focus our energy and efforts on improving the performance of our remaining 339 company-operated restaurants in 25 states," said David Head, president and CEO of Nashville-based O'Charley's. "We continue to strongly believe in the potential of our three concepts which enjoy high brand loyalty and guest appeal."
Eight of the 16 closed restaurants will be treated as discontinued operations in the company's financial statements. Not including the discontinued operations, the company estimates that total pretax charges relating to these closings will be approximately $5 million.
DJM Realty Hired To Dispose of Lack's Stores, Warehouses
Retail home furnishings chain operating Lack's Stores Inc. and Lack Properties Inc. have hired DJM Realty, a Gordon Brothers Group Co., to manage the disposition of all leased and owned retail and warehouse facilities throughout Texas.
Lack's Stores specializes in quality home furnishings including furniture, bedding, major appliances and home electronics through retail outlets throughout Texas. Lack's Stores is the lessor of 35 retail locations, and Lack Properties, a wholly-owned subsidiary, is the owner of the real property and improvements associated with 14 store and warehouse locations that are leased to Lack's.
DJM Realty will be marketing 35 retail locations which range from 16,000 to 70,000 square in: Abilene, Alice, Austin, Bay City, Beeville, Clute, College Station, Corpus Christi, Del Rio, El Campo, Killeen, Leon Valley, Longview, Lubbock, Lufkin, Midland, New Braunfels, Odessa, Port Lavaca, Portland, San Angelo, San Antonio, Temple, Tyler, Uvalde, Victoria and Waco.
In addition, it will be marketing four warehouse facilities, including a 380,000-square-foot state of the art distribution center in Schertz, TX.
Lack's Stores recently filed for Chapter 11 and is currently liquidating its inventory through their stores until closing sales are complete. The retention of DJM is subject to the approval of the United States Bankruptcy Court.
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