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From WSJ

April 9, 2008; Page C10

Weak consumer spending is pushing struggling retailers close to or over the edge, and that is starting to hurt shopping-mall owners.

The latest retail casualty is Linens ‘n Things Inc., a 500-store home-accessory chain, which is considering filing for bankruptcy-court protection as soon as this week. The chain, which went private in a leveraged buyout two years ago, is running short of cash, and its vendors have stopped shipping products, said two people familiar with the company.

For shopping-mall owners, it is a rude awakening from the boom times of the past few years, when consumers borrowed to furnish new homes. While vacancies should remain low, the slowdown means weaker rent growth for all mall owners and serious pain for the most heavily indebted landlords.

Stock investors are dismissing the weakness, driving up shares of retail-property owners 7.7% this year, though the sector fell 19.6% last year.

The list of weak retailers is growing by the day, including furniture seller Domain Inc., high-end jeweler Fortunoff Inc. and electronics merchant Sharper Image Corp., all of which have sought bankruptcy protection since January.

Mall mainstay Foot Locker Inc. closed 274 stores last year and anticipates 140 more closures this year. Jeweler Zale Corp. is closing 100 stores in the wake of disastrous holiday sales. Wilsons the Leather Experts Inc. is closing 158 of its 260 mall stores this year, and teen retailer Pacific Sunwear of California Inc. is closing its 153-store Demo chain.

Making matters worse, new construction will raise the total amount of retail space by 3.5% this year in the top 54 U.S. markets. But retail-sales demand, which has slowed with the economy, will justify only a third of that new space when it is completed, according to market-research firm Property & Portfolio Research Inc.

Problems with lenders are especially painful for retail landlords who bet that rising rents and falling vacancies would help them handle heavy debt loads.

Centro Properties Group, a debt-laden Australian real-estate investment trust that owns 682 shopping centers in the U.S., faces an April 30 deadline to present a plan for repaying $3.4 billion in short-term debt that it failed to pay on time earlier this year. The company recently attracted preliminary buyout bids averaging $1 per share, according to people familiar with the matter, far less than the 10 Australian dollars (US$9.27) per share it traded for last year.

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