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Scrapped Rite Aid-Albertsons Merger, Mattress Firm’s Financial Struggles Could Lead to Thousands of Vacancies

Developers Are Already ‘Salivating,’ One Broker Said
August 10, 2018
Thousands of retail properties could become prime targets for redevelopment if Rite Aid and Mattress Firm close stores.

Some analysts raised questions about Rite-Aid’s future this week after the drug store and grocer Albertsons scrapped their proposed merger. It follows recent announcements by financially struggling Mattress Firm that it would continue to close many of its 3,000 stores across the country.

An analysis by investment banking company Morgan Stanley suggested that the struggles of both companies could have "broader implications" for real estate investment trusts that operate strip malls if one or both companies close stores.

It "has led to increased questions if store closure could reaccelerate after a benign start to the year," the report said, noting that retailers across the country could close as many as 11,000 stores this year. So far this year, 4,204 store closures have been announced, according to retail and tech research and advisory firm Coresight Research.

Developers are already "salivating" over redevelopment possibilities for Mattress Firm’s stores, said Barry Wolfe, a vice president of investments at real estate brokerage Marcus & Millichap’s Fort Lauderdale office, adding that both companies operate freestanding stores as well.

He added that Mattress Firm stores attract customers because they’re well located, and their configuration makes them easier to redevelop than Rite Aid properties.

"Everyone will be talking that the sky is falling and more retail is coming onto the market, but good real estate gets backfilled," he said.

Wolfe said the death of the Rite Aid-Albertsons merger has raised questions about the drugstore chain’s future, as CVS and Walgreens continue to expand. The merger would have made the combined company one of the top food and drug retailers in the U.S. with 4,868 stores, 4,327 pharmacies and 320 clinics in 38 states and Washington, D.C.

The Morgan Stanley report said the terminated merger could have implications for Kimco Realty Corp., a real estate investment trust (REIT) based in New Hyde Park, New York. As of Dec. 31, 2017, Kimco had a 9.74 percent ownership interest in Albertsons with a cumulative investment of $140 million, though it also said that "there’s nothing baked into Kimco’s numbers for 2018 or 2019" as it relates to Albertsons.

The report noted, however, that Kimco’s open-air shopping centers contain 38 Albertsons stores, 64 Mattress Firm properties and 21 Rite Aid stores.

Other REIT’S with significant numbers of those stores include DDR Corp., Brixmore Property Group and Regency Centers Corp., the report said.

Rob Smith, National Retail Reporter  CoStar Group   
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