Circuit City bankruptcy roils US property investors

By Ilaina Jonas and Emily Chasan

NEW YORK, Nov 10 (Reuters) - U.S. shopping center and mall property owners took a thumping on Monday as investors feared Circuit City Stores Inc's CC.N bankruptcy filing would usher in more failures and take property owners down with them.

"What a lot of landlords should be worried about is if these guys do not succeed, they're going to have a lot of vacant space, so the best alternative for them is to consider a renegotiation where Circuit City would get better leases," Frank Conrad, a retired bankruptcy judge who is now a partner in the restructuring group at Weiser LLP in New York.

Fears that the drastic cutback by U.S. consumers will drive more stores out of business sent the benchmark MSCI U.S. REIT Index .RMZ down 9.3 percent. The Dow Jones industrial average .DJI fell less than 1 percent.

"I am at the point where I'm lost as to what sort of statement the market is making," said RBC Capital Markets analyst Rich Moore, noting that Circuit City's bankruptcy wasn't a surprise to many investors.

Circuit City, the No. 2 U.S. consumer electronics retailer, arranged $1.1 billion of debtor-in-possession financing from existing lenders led by Bank of America that will allow it to continue operating under bankruptcy. But it requires the retailer to bring that down to $900 million by Dec. 29 and use proceeds from its holiday sales to repay other loans outstanding prior to the filing.

"They're giving them enough liquidity to carry them through the retail season, and it remains to be seen if they will get through the next year," Conrad said.

Shares of Developers Diversified Realty Corp (DDR.N: Quote, Profile, Research), which has 50 Circuit City stores in its 720 shopping centers, saw its stock slide 24.6 percent to $61.01 on the New York Stock Exchange. The Cleveland, Ohio-based company derives about 1.7 percent of its annual revenue from Richmond, Virgina-based Circuit City.

"They are taking the stock down 25 percent because they have exposure to 1.7 percent," Moore said. "If they have four tenants each with only 1.7 percent of base rent (investors) would take the stock to zero."