For one thing, there is a lag between the improvement in retailer health and better landlord financials. Sure, some retailers are performing well now: Thomson Reuters reported that same-store sales of heavy-hitter retail companies like Walmart (WMT), Target (TGT) and Gap Inc. (GAP) rose 9.1 percent year over year in March, the largest such gain since Thomson began tracking those figures in 2000. But from the landlords' point of view, that doesn't erase the fact that large chains such as Circuit City and Linens 'n Things went out of business, leaving a lot of empty spaces.
Vacancies at large malls reached a decade-long high, hitting 8.9 percent in the first quarter, and smaller outdoor shopping centers recorded the highest vacancies, at 10.8 percent, since 1991, according to research firm Ries (REIS).
Landlords are also suffering from lower rents. Last year, a number of struggling retailers asked for rent reductions. Pier 1 Imports (PIR) negotiated significant reductions, as did Cost Plus (CPWM). Shopping center owners in these situations face a dilemma. If they don't work with financially distraught retailers, then those chains might close down stores, leaving vacancies. But lower rents mean less revenue.
And things could still get worse. Although retailers had a good March, the International Council of Shopping Centers contends that an early Easter had more to do with that than anything else. According to its research, sales could fall by as much as 3% in April year over year.
David Schick, an analyst at Stifel Nicolaus & Co. told Bloomberg that the March bump was so strong mainly because of comparisons to weak sales during the same year-ago month. "What we need to see is healthy numbers against comparisons that aren't as easy," he said.
One thing is for certain: If what looks like a retail recovery turns into a dead-cat bounce, landlords will feel the reverberations, too.
Empty mall image by Flickr user CstrzRock.