Will Best Buy (BBY) Closures Send REITs into the Toilet? Wells Fargo Weighs In

August 7, 2012 2:47 PM EDT
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Let's start with some numbers.

As of February of 2012, Best Buy (NYSE: BBY) had 1,103 stores, 305 Best Buy mobile stores, and collectively operated in 43.785MM sq. ft. Of the
1,103 Best Buy stores, 1,042 are leased from third parties, 37 are Best Buy owned buildings on leased land, and the remaining 24 sites are fee simple interests in land and building. Beyond the stores there are 24 distribution facilities (7.4MM sq. ft. leased, 3.9MM sq. ft. owned), the 1.5MM sq. ft. owned corp. headquarters in Richfield, MN and other corporate offices (430k sq. ft.). These statistics were compiled by analysts at Wells Fargo. Here’s why they, and the analysis that goes along with it, are important.

This week we learned that Richard Schulze, the founder and former Chairman of Best Buy submitted an informal offer to acquire the outstanding shares of the company and take it private. While not finalized, the deal could not only effect Best Buy shareholders, it might also affect Best Buy's landlords - and the REITs that own share in companies like CBL & Associates Properties, Inc.(NYSE: CBL) and DDR Corp. (NYSE: DDR).

It is an interesting view, and the report by Wells and analyst Jeffrey J.
Donnelly is well thought out just outside the box enough to draw attention.

Donnelly concludes that "if Best Buy is taken private by its former Chairman, we do not expect to see a wave of store closures at the onset although we do ultimately believe that Best Buy is more competitive and profitable in a smaller store format and that over the next 5-10 years a rationalization of the store base would occur."

Additionally, REIT Exposure to Best Buy is fairly low at the 1-3% of annual base rents and less than 1.5% for most retail REITs.

The bottom line is that, according to Donnelly, the effects will be minimal. Never the less, it was an interesting investment theory and certainly worth considering.

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