{"id":1004438668,"date":"2020-05-13T03:24:43","date_gmt":"2020-05-13T11:24:43","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004438668"},"modified":"2020-05-20T12:37:21","modified_gmt":"2020-05-20T20:37:21","slug":"what-simon-property-groups-q1-results-say-about-retails-future","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/what-simon-property-groups-q1-results-say-about-retails-future\/","title":{"rendered":"What Simon Property’s Q1 Results Say About Retail\u2019s Future"},"content":{"rendered":"
\"\"<\/a>

Image via Pixabay.com<\/em><\/p><\/div>\n

Simon Property Group, the nation\u2019s largest owner and operator of shopping malls, is leading the charge back to retail centers by opening 77 of its U.S. properties in states where COVID-19-related restrictions have been loosened. The REIT expects to have about half of its U.S. assets reopened next week<\/a> and has also begun opening its designer and international premium outlets. Those shoppers who venture out will find shortened hours at the shopping centers, so maintenance can do more sanitizing, disinfecting and other safeguards, including reduced capacity and social distancing enforcement.<\/p>\n

\n

READ ALSO<\/strong>: Macy\u2019s Starts Reopening Amid Department Store Woes<\/a><\/p>\n

\n

\u201cShopper response to our reopening has been positive and sales, as many tenants have seen, have been better than their initial expectations,\u201d<\/em> David Simon, chairman, CEO & president of Simon Property Group, told analysts on a call Monday to discuss the first quarter earnings report.<\/p>\n

Simon said they weren\u2019t forcing retailers to open but noted for those that are opening, \u201cthey\u2019re gaining market share. They\u2019re taking advantage of pent-up demand and I think others that aren\u2019t ready are missing that opportunity\u2026But in terms of whether retailers open or not, we want to help these local communities because frankly, they depend on our sales tax and our real estate.\u201d<\/em><\/p>\n

He said he expected more retailers to open weekly and acknowledged that some shoppers, at least initially, may feel more comfortable at the company\u2019s outdoor shopping centers or in suburban locations where there is less density.<\/p>\n

While Simon sounded optimistic about emerging from COVID-19 restrictions, analysts and retail experts were concerned about what they weren\u2019t hearing from the company\u2019s chief officer and what that portends for other U.S. retail owners as they also make plans for reopening.<\/p>\n

\u201cThe COVID challenge facing SPG and an already-ailing mall sector is clear and significant. And nothing we heard on SPG\u2019s earning call changed that view,\u201d<\/em> Mizuho REITs analyst Haendel St. Juste wrote in an investors\u2019 report.<\/p>\n

\u201cThe struggle of retail has just been accelerated,\u201d<\/em> Jeff Green, retail consultant and a partner at Hoffman Strategy Group, told Commercial Property Executive.<\/em><\/p>\n

Their comments echo a recent Green Street Advisors report that forecasts more than half of all mall-based stores could close by the end of 2021. The report states \u201crenter profitability and rent-paying ability will be impaired for years due to the COVID crisis.\u201d<\/em> It adds the crisis is \u201cpulling forward several years of retail fallout\u201d<\/em> and estimates many malls will be hit with multiple anchor vacancies that could hasten the demise of many malls.<\/p>\n

Rent collection concerns<\/strong><\/h2>\n

One of the key questions left hanging both in the SPG earnings report and during the analysts\u2019 call was about April and May rent collection. Simon declined to release the percentage of payments that were made stating the company was in discussions with tenants. But some retailers like The Gap, which is the company\u2019s largest tenant by annualized base rental revenue, had announced they had stopped paying rent at temporarily closed properties beginning in April. The clothing retailer is also looking to renegotiate leases and possibly close some stores permanently. Simon has 412 Gap stores in its portfolio, including Banana Republic and Old Navy locations. And retailers filing for bankruptcy protection<\/a> like J. Crew Group and Neiman Marcus Group, which filed for a Chapter 11 restructuring, in recent days are piling up. Also this week, Reuters reported Lord & Taylor is planning to liquidate its inventory once stores are allowed to reopen.<\/p>\n

St. Juste told CPE<\/em> that others mall owners like Macerich, Washington Prime and Brookfield Retail have released percentages of rent collections for April and May, which averaged about 23 percent. He said the expectation for SPG was that it would be about 40 percent.<\/p>\n

He said there is likely a range of conversations going on with tenants and every situation may be different, noting if the position is \u201cwe think we\u2019ll get it eventually, those hopes and dreams may be dashed.\u201d<\/em><\/p>\n

James Sullivan, BTIG managing director and REITs analyst, said he expects there will be \u201csizable deferrals and related increases in straight line rent accruals as a result.\u201d<\/em> He told CPE<\/em> he thought it was \u201ca real disservice\u201d<\/em> to not release more information about the rent collections as other companies had done.<\/p>\n

Taubman trouble?<\/strong><\/h2>\n

Another major issue Simon declined to address is SPG\u2019s pending acquisition<\/a> of an 80 percent interest in Taubman Center Inc.\u2019s The Taubman Realty Group LP, in a $3.6 billion all-cash deal that is expected to be completed around June 30. When the deal for the 25 million-square-foot portfolio of some of the highest-quality malls in the U.S. was announced in February, it was viewed as a vote of confidence in the future of premier malls. Most of the retail centers are in the U.S., with three in Asia.<\/p>\n

Sullivan questioned whether the deal as planned is in jeopardy, with perhaps SPG either looking for a price cut or to break off the deal. \u201cA number of mergers and acquisitions are blowing up,\u201d <\/em>he told CPE. \u201cIt would not be a surprise.\u201d<\/em><\/p>\n

Simon\u2019s cash acquisition of all Taubman common stock amounted to paying $52.50 per share and St. Juste noted Taubman stock is trading well below that number, at about $40 per share. If SPG walked away from the deal, the company may think it\u2019s worth it in the end to pay a judgment rather than take on a new large mall portfolio in a post-pandemic world.<\/p>\n

\u201cThey may want to focus on the malls they have rather than be casting such a wide net,\u201d<\/em> Green said.<\/p>\n

On the other hand, SPG may still be interested in the portfolio, which has some of the top properties for sales per square foot in the nation like The Mall at Short Hills in Short Hills, N.J., which is located in a very affluent area and is considered somewhat recession-proof, Green said.<\/p>\n

More company measures<\/strong><\/h2>\n

With all the uncertainty created by the COVID-19 crisis and the global economic disruption, the company withdrew its full-year 2020 guidance for estimated net income attributable to common stockholders per diluted share, estimated FFO per diluted share and comparable property NOI growth, which had been provided in early February.<\/p>\n

Simon also outlined some other measures the company has taken since the COVID-19 crisis began in the U.S.:<\/p>\n