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The Weekend Edition is pulled from the daily Stansberry Digest. The Digest comes free with a subscription to any of our premium products.

The Death of These American Landmarks Is Imminent

By Justin Brill
Saturday, June 25, 2016

 America's shopping malls are dying...
 
Earlier this month, one of the country's largest commercial real estate investment trusts ("REITs") – General Growth Properties (GGP) – defaulted on its $144 million loan on suburban Detroit's Lakeside Mall.
 
 Unfortunately, Lakeside's story isn't an unusual one...
 
The mall's 1.5 million-square-foot property contains about 120 retailers. Like many low- and mid-range malls, it's anchored by a number of familiar (and struggling) department stores like JC Penney (JCP), Macy's (M), and Sears (SHLD). And it features a number of familiar (and struggling) niche retailers like...
 
•   Teen clothing store Aéropostale, which filed for bankruptcy in May.
   
•   Surf-lifestyle clothing store Pacific Sunwear, which filed for bankruptcy in April.
    
•   Jewelry and trinket seller Claire's, which saw its CEO resign in May and currently has $2.4 billion in debt trading at distressed levels. Claire's new CEO previously headed up bookseller Borders, which filed for bankruptcy in February 2011.

 Online retailers – as well as top-tier malls that cater to the wealthy – are squeezing out malls like Lakeside. Meanwhile, a big wave of additional shopping-center debt is coming due soon. As Bloomberg reported...
 
About $47.5 billion of loans backed by retail properties are set to mature over the next 18 months, data from Bank of America Merrill Lynch show. That's coinciding with a tighter market for commercial-mortgage backed securities, where many such properties are financed.

 Remember... the carnage in retail happened even as the U.S. economy was still officially growing. What happens when the next recession inevitably arrives? Porter discussed this scenario in the April 29 edition of our subscribers-only Stansberry Digest...
 
The U.S. consumer has been powering the global economy (thanks to a strong dollar and strong credit growth). Those trends are going to reverse, significantly, as our economy goes into recession. That will hurt the retail sector and, indirectly, commercial real estate, which always gets hammered during recessions and will get hammered doubly hard this time.
 
Think about the amount of empty mall space. It's great that Amazon's earnings are soaring, but what that also means is malls are dying. Sooner or later, all of this empty commercial space will begin to hurt commercial real estate in general. Those malls are going to end up as office complexes and apartments... something nobody has figured out yet.

In other words, this default will not be the last.
 
 In general, these indebted malls have two choices...
 
1.   They can restructure or extend their debt. This will be difficult... Lenders aren't blind to the realities facing brick-and-mortar retail businesses.
   
2.   Or... they can simply hand over the buildings to their lenders.

 This second choice is exactly what Porter's least-favorite REIT – WP Glimcher (WPG) – plans to do with five of its malls.
 
In a recent earnings call, the company detailed its plans to turn over several of its lower-tier malls to lenders. Commercial real estate information firm CoStar detailed analysts' reactions to the news (emphasis added)...
 
Four of the five malls WP Glimcher plans to transition to a servicer secure CMBS [commercial mortgage-backed securities] loans, according to Nomura Securities. WP Glimcher is also planning to enter into discussions with the special servicer for the Southern Hills Mall in Sioux City, Iowa, over the next several months.
 
"We therefore believe that all 15 of the CMBS loans secured with WPG's Tier 2 assets now face a higher risk of default," Nomura analysts wrote. "However, as many continue to report a high DSCR [debt service coverage ratio], this story will likely take some time to play out."

We doubt it will take as long to play out as these folks expect...
 
 In the meantime, Extreme Value editor Dan Ferris recently recommended a way to profit from the death of the American mall... It's a company in a specific niche sector where "whole swaths of [its] business will disappear over the next few years."
 
Worse, the company has tried to hide its accounting practices... papering over failures and attempting to distract investors by launching new business segments.
 
 Dan believes the end is near for this company. It's too dependent on mall traffic to succeed in today's era of instant shopping and two-day delivery. As he explained in the June issue of Extreme Value...
 
It's harder than ever to get customers to buy something in your store because they can get better prices and more variety online.
 
In its fifth annual online shopper survey, analytics firm comScore reported that U.S. shoppers are now making 51% of their purchases online compared with 48% in 2015 and 47% in 2014.

 It all adds up to an increasingly grim picture for this company... It suffers from exorbitant spending, deceptive accounting policies, and an outdated business model that isn't adapting to a changing market.
 
Dan says the bottom line is simple... A company either makes money, or it doesn't. It either spends wisely, or it doesn't. It either adapts to the modern world, or it doesn't. And this company is failing in every one of those ways and more...
 
Dan says it offers one of the best investment opportunities he has seen all year... a way to set yourself up for gains of up to 60% AND protect your portfolio at the same time.
 
Get the details right here.
 
Regards,
 
Justin Brill

Editor's note: Recently, Extreme Value editor Dan Ferris spotted a business that's bound to fail. It's a company that sells an increasingly obsolete product... through dying sales channels... while spending recklessly... and trying to cover up its spectacular mismanagement with accounting tricks and questionable reporting.
 
Dan says you could make as much as 60% in the coming months by shorting the stock. If you've never shorted a stock before, don't worry... This is a perfect opportunity to see just how easy it is. You can do it online or on the phone with your broker, just like when you buy a stock. Gain instant access to Dan's recommendation with a risk-free trial subscription to Extreme Value right here.



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