On Jan. 15, Penney announced a "strategic initiative" -- a band-aid -- to close 33 under-performing stores as part of "its turnaround efforts." Around 25% of the closures (10) are owned by REIT landlords: four are owned by CBL Properties (CBL), two owned by Simon (SPG), one by Westfield (WDC), one by Rouse (RSE), one by Macerich Co. (MAC) and one by Pennsylvania REIT (PEI).
Penney said the company may save around $65 million beginning in 2014. However, the landlords with the lowest-quality properties will likely see more closures in the upcoming months. Investors should pay close attention to Penney's off-balance sheet assets as they could be the final straw that makes or breaks the 85-year-old chain. Conversely, REIT Investors should monitor their portfolio of assets and determine whether or not there is a "margin of safety" that will insure REIT investors against a tenant bankruptcy.
Now may be a good time to consider the REITs with more necessity-based revenue.
Some of my favorites include Excel Trust (EXL), yielding 6.23%, or Inland Real Estate Corp. (IRC), yielding 5.48%. Also, a more defensive play may be to move up the quality ladder and invest in the "blue-chip" mall landlord Taubman Centers (TCO). I really like the foot traffic that Taubman's malls generate and the consistency of the earnings is directly correlated with the sustainable dividend record -- a 15-year streak of never cutting a dividend (the current yield is 3.13%).
At the time of publication the author had no position in any of the stocks mentioned. Follow @swan_investor This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.