After months of racing toward the bottom, Bed Bath & Beyond (NASDAQ:BBBY) stock is back in the green. The struggling retailer has been swept up in this week’s meme-stock surge, described by CNBC as a “nonsense rally.” But even as shares continue to climb, dark clouds loom on the company’s horizon.
Last week, Bed Bath & Beyond reported that amid quarterly losses and dwindling cash supplies, it could be facing bankruptcy. On top of that, Bed Bath & Beyond recently announced plans to close 130 stores across the U.S. This means not just turbulence for the stock but significant job cuts as well.
The looming store closings are bad news not only for investors but also for the companies that lease their retail space. Real estate investment trusts (REITs) are also likely to suffer if their exposure to Bed Bath & Beyond is high. With that in mind, investors should also be considering the top RETs to sell.
Barron’s recently reported that the landlords who own the soon-to-be closing retail spaces may be in for a difficult year. As a Citigroup analyst noted:
“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.”
This sounds especially grim for companies like Bed Bath & Beyond. In September 2022, a Seeking Alpha contributor reported that of its 770 retail locations, 22% were owned by REITs.
Let’s take a look at the names with the highest exposure to the troubled retailer, which should be on top of every list of REITs to sell.
|AKR||Acadia Realty Trust||$15.07|
|SITC||Site Centers Corp||$13.27|
Acadia Realty Trust (AKR)
This trust topped Citigroup’s list of REITs with the highest risk due to Bed Bath & Beyond exposure. It certainly belongs there. Although Acadia Realty Trust (NYSE:AKR) only leased three properties to Bed Bath & Beyond as of September 2022, it boasts the highest percentage of area leased by the company of any of the most exposed REITs at 3.2%. The most important statistic, though, is the percentage of rental revenue for which Bed Bath & Beyond accounts in each REIT. In the case of AKR, it is the highest on the list at 2.7%. That type of exposure puts it at significant risk if the company continues closing stores.
Early in January, both ARK and BBBY stock displayed similar patterns as both plunged. Like the stock, this REIT is rising today as BBBY continues to climb amid the short squeeze. But like the company that generates almost 3% of its rental revenue, ARK should be avoided. Any company with strong ties to Bed Bath & Beyond will be in trouble as soon as the short squeeze ends. Acadia is a clear choice for REITs to sell before one of last year’s biggest retail losers goes down and takes it with it.
RPT Realty (RPT)
Previously known as the Ramco-Gershenson Properties Trust, this REIT is based in New York City and deals primarily in open-air shopping centers. It’s hard to be in that space without doing business with Bed Bath & Beyond. Therefore, it comes as no surprise that RPT Realty (NYSE:RPT) has 12 properties leased by the retailer, representing 3% of its collective area. Of the REITs with the highest exposure to Bed Bath & Beyond, it derives the second-highest percentage of rental revenue at 2.4%. Other tenants across the U.S. include Dollar Tree (NASDAQ:DLTR) and Whole Foods. The company owns the most properties in Florida, with 17 holdings currently listed.
Most of the spaces leased by RPT to Bed Bath & Beyond are located throughout the American South and Midwest. These more rural areas aren’t likely to be doing the most business so they might be tempting targets for executives looking for locations to shut down. After a difficult year for retailers, REITs in RPT’s space are facing an uncertain economic landscape. BBBY stock’s volatility is only likely to make things worse.
Site Centers Corp (SITC)
Like the other REITs to sell on this list, Site Centers Corp (NYSE:SITC) focuses on shopping centers. It is heavily linked to Bed Bath and & Beyond, with the company leasing 21 properties, representing 2.6% of its collective area and 2% of its rental revenue. That may be a smaller percentage than those of the other REITs to sell on this list. But it is important to consider the fact that Site Centers also boasts the highest number of properties leased to Bed Bath. Its holdings span most of the country from California to Florida and many other states in between. Unlike RPT, it has holdings on the East Coast as well. The more locations a company leases to Bed Bath & Beyond, the most likely it is that the store closings will affect them. Any REIT that has this many ties to a retailer poised to go under should be watched closely and likely sold.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.