Should Simon Property Group bail out (invest in) more retail tenants?
Thousands of retail stores have closed in recent years with the prospect of thousands more to come. What’s a mall landlord to do? For Simon Property Group, the largest operator of malls in the U.S., one answer may be to take a stake in struggling chains (AKA tenants) to help them keep their store doors open and lights on.
David Simon, chairman, CEO and president, said on Simon’s second quarter earnings call that the company has the resources — “$6.8 billion in liquidity” — and the eye for the right deals — “We’re certainly as good as the private equity guys when it comes to retail investment” — to consider taking stakes in the right tenants going forward.
Mr. Simon pointed to the success that his company has had with its investment in Aeropostale. In 2016, Simon along with General Growth Properties (now part of Brookfield Property Partners) and some liquidators bid $243 million to keep 227 Aeropostale stores operating after the teen clothing chain failed to find buyers for its bankrupt business.
At the time of the deal for Aeropostale, Ray Schrock, a lawyer for the retailer, told the bankruptcy court that the investment “could be a model for future restructurings in the years ahead.”
While Simon has clearly not jumped in to save struggling tenants since Aeropostale, the mall operator may have a new opportunity with Forever 21, according to reports by Bloomberg and CNBC. Forever 21 has found itself facing headwinds in recent years as sales slowed at the same time the chain countered the industry trend by expanding its average store footprint.
The fast fashion retailer, according to a Bloomberg report in late June, has “a small faction” within the company who support working out investment deals with landlords as a potential way forward for the business. The same report, however, said Forever 21 co-founder Do Won Chang and others oppose selling a stake to Simon or other landlords.
While not speaking to any specific opportunity, Mr. Simon told analysts that his company would likely work with partners again if choosing to invest in a retailer or brand. He pointed to the success that his company had working with GGP and later Brookfield on the Aeropostale deal.
Mr. Simon also mentioned several times on the call with analysts that the mall operator is not facing a crisis situation with tenants, despite announcements of retail bankruptcies. He pointed to increased revenue comps for his business and how Simon has found creative uses of newly opened spaces to keep traffic strong.
- Simon Property Group, Inc (SPG) CEO David Simon on Q2 2019 Results (Earnings Call Transcript) – Seeking Alpha
- Forever 21 Officials Approached Landlords About Possible Purchase – Bloomberg
- The biggest mall owner in the US could be the one to save retailers on the cusp of going out of business – CNBC
- Why did mall landlords step in to save Aeropostale? – RetailWire
DISCUSSION QUESTIONS: Do you think Simon Property Group should be looking for solutions beyond rent relief to support select retail tenants? Is it a wiser move for Simon and other mall operators to invest in struggling tenants or to find alternative uses for space that previously housed department store anchors and other specialty retail businesses?