Ralph Lauren’s new chief executive officer Stefan Larsson had said in June that the company would be closing 50 of its retail locations, although it didn’t say which stores would be affected. Morningstar’s analyst Sarah Helwig identified two loans in which Ralph Lauren’s retail space totals more than 20 percent of the gross leasable space and six loans where occupancy would drop to 80 percent or below if Ralph Lauren left. All told, there are 30 securitized loans with exposure to Ralph Lauren brands.
The loans appear to be in good shape. All are current and none have debt service coverage ratios below break-even. Morningstar said Ralph Lauren was the largest tenant at the Mammoth Luxury Outlets loan in California and when it left in May after the lease expired, the property’s occupancy dropped from 74 percent to 57.2 percent.
Morningstar sees risk in the Chevy Chase Center loan in Washington, D.C. even though Ralph Lauren is only 4 percent of the space. The borrower told Morningstar that several retail tenants wouldn’t be renewing their leases and vacancies could create a cash flow problem. Ralph Lauren’s lease ends in January 2018.
Another loan that Morningstar highlighted was the 109 Prince Street loan in Manhattan in which Ralph Lauren occupies 74.2 percent of the space. But its prime location in SoHo, New York makes it unlikely that Ralph Lauren would leave. Even if the company did vacate the space, the prime spot makes it desirable and easy to re-lease.
Morningstar Ratings doesn’t see a high risk for the Manhattan locations. It does point out that Ralph Lauren could choose to expand internationally and as such could close properties in smaller markets in the U.S. Morningstar’s equity analyst Paul Swinand observed that as Ralph Lauren focuses on core brands, it may be other brands like Club Monaco that could see closures. The loans aren’t as exposed to this brand.
Ralph Lauren stock is down 23 percent for the past year, but in the last month has begun climbing back and has risen 3 percent. It was lately trading at $99.89.