Struggling mall owner files for Chapter 11 bankruptcy protection
por Daniel Kline

The Street: Stock Market / 2023-12-11 21:1245
With a number of major department store brands struggling and shrinking, malls have suffered. Macy's has closed a number of underperforming stores over the past few years and J.C. Penney only survived a Chapter 11 bankruptcy because two of its landlords, Simon Property Group and Brookfield Asset Management, bought it.

Malls have also largely lost Sears as an anchor tenant since that chain has shrunk to just a handful of stores. This year's big retail bankruptcies of Bed Bath & Beyond, Tuesday Morning, and Christmas Tree Shops largely hurt strip malls rather than indoor shopping centers, but their closures put an awful lot of real estate on the market.

Related: Popular retailer closing hundreds of stores, slashing big brand

In reality, though, not all malls are created equally. Traffic to top-tier malls has stayed relatively flat year-over-year, according to data from Placer.ai. Wealthy customers in general are actually visiting malls more.

"While the wealthiest mall shoppers tend to visit Open-Air Lifestyle Centers, all mall visitors are wealthier than the national median...wealthier areas of the country experienced the greatest YoY visit growth to malls," according to the report.

That's good news for a player like Simon Property Group, which generally owns high-end malls and outdoor outlet malls in wealthy areas. It's not as bright a picture for Pennsylvania Real Estate Investment Trust (PREIT) which has a mix of holdings.

Not all malls are created equal.
Image source: Getty Images

PREIT files for Chapter 11 bankruptcy (again)
PREIT has filed what it known as a "prepackaged' bankruptcy. Basically, it's using the court to enact a plan that it expects will allow the business to emerge in a healthier financial position. 

The plan, which is supported by 100% of PREIT's first and second Lien Lenders, according to a company press release would reduce its debt by roughly $880 million and push some of its loan due dates further out. 

"The company has received commitments for new money debtor-in-possession (DIP) and exit revolver financing in an aggregate amount of approximately $135 million from a diverse group of leading investors, led by Redwood Capital Management, LLC and Nut Tree Capital Management, LP," the company shared.

At the end of the process, if everything goes as planned, PREIT, which is filing Chapter 11 for the second time in three years, would emerge as a privately held company.

PREIT owns and operates 23 retail centers with more than 18.3 million square feet of retail space in eight states across the eastern U.S. 

"We are a Real Estate Investment Trust owning a portfolio of bullseye locations in high barrier-to-entry markets that create the opportunity to reinvent what we deliver to our communities. We use our assets to attract a variety of new businesses to redefine the future of the American mall into mixed-use districts," the company shared on its website.

PREIT will shed some assets
As part of the plan, PREIT could end up surrendering some lower-performing assets to its creditors but continue to run those properties. Banks generally don't have the ability to operate malls, and there are few, if any, buyers for weaker malls. 

Simon, however, could purchase some of PREIT's higher-end malls as the company has made acquisitions of top-tier properties over the past few years. 

"Today's announcement will position a restructured PREIT to execute on strategic initiatives to continue transforming its portfolio for the tenants and communities it serves. We look forward to quickly emerging from this process as a financially stronger company with the resources and support to continue creating diverse, multi-use property experiences throughout our portfolio," said PREIT CEO Joseph F. Coradino.

The company expects to continue to pay all of its bills including both its vendors and workers during the bankruptcy period. 

While the company expects to act on its plans quickly, the filing does require court approval. The company filed its voluntary Chapter 11 bankruptcy in the United States Bankruptcy Court for the District of Delaware.

 

 

Enclosures

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FA Center: Inflation will have to get a lot worse to justify gold's current price
MarketWatch.com - Top Stories / 2023-12-11 21:2330
Inflation is not nearly high enough to justify gold's recent rise to a new all-time high. That's the conclusion I draw from research conducted by Campbell Harvey, a Duke University finance professor, and Claude Erb, a former commodities portfolio manager at TCW Group. Their study, entitled The Golden Dilemma, was published a decade ago in the Financial Analysts Journal.

The researchers started with the core idea made famous by Roy Jastram in his book "The Golden Constant" — that gold GC00, -0.84% over long periods of time maintains its purchasing power. That is, its real price over the long term will be constant. Therefore, when gold's real (inflation-adjusted) price surges over shorter time periods, odds are good that it will eventually come back down. Likewise, when gold's real price declines significantly it eventually will rise again.

Harvey and Erb developed these insights into a model based on the average ratio of gold's price to the U.S. Consumer Price Index. In their model, it is this ratio that exerts a gravitational pull on gold's real price: When the ratio is well below that average, gold is undervalued and expected to rise in real terms. And when the ratio is well above that average, as it is today, gold is overvalued and expected to decline.

Since 1975, the average ratio of gold's price to the Consumer Price Index is 3.9 to 1, Erb said in an email. That is far lower than the current ratio of 6.5-to-1. Instead of its current price of around $2,000, bullion would be trading at $1,190 an ounce if gold were trading at its average gold-to-CPI ratio.


The chart above plots gold's historical price along with similar calculations of gold's fair value for each month since 1975. Here are the three past occasions in which gold was more overvalued relative to inflation than it is today:

The early 1980s
2011
Late 2020 and 2021
Harvey and Erb's study began circulating in academic circles in 2012, soon after the second of these three occasions. Over the subsequent three years, gold's real price fell by nearly half.

The implication of this research is that, at a minimum, gold investors should at least prepare for the possibility that gold's fate in coming years will be similar.

Other ways to value gold
You may disagree with the assumption that gold's price is a function of inflation. But none of the other models that Harvey and Erb analyzed fared any better than their gold/CPI model, and many performed far worse. Readers are directed to their study for a more extensive analysis of those other models; below is a list of those they analyzed:

Gold is a hedge against currency devaluation
Gold is an attractive alternate to assets with low real (inflation-adjusted) returns
Gold is a safe haven during periods of geopolitical stress
Gold should be held because the world is moving towards a gold standard
Gold is "underowned" and will appreciate as more investors decide to allocate some of their portfolios to gold
You shouldn't be surprised that gold has become so overvalued relative to inflation. All assets, not just gold, experience wide swings between periods of over- and undervaluation. Now just happens to be one of those times in which gold is overvalued.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

More: Gold just hit a record high. Is it too late for investors to add it to portfolios?

Also read: Betting grows that S&P 500 will hit record high, with Oppenheimer joining Wall Street's bullish calls for 2024

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