Simon sees a big and profitable upside in acquiring retail tenants
Simon Property Group CEO David Simon said his company is looking for opportunities to acquire once-successful retailers on the cheap as the effects of the novel coronavirus pandemic continue to force a record number of chains (AKA as tenants) to file for bankruptcy.
Speaking on his company’s second quarter earnings call yesterday, Mr. Simon said that Sparc Group, a 50/50 joint venture with Authentic Brands Group (ABG), has submitted stalking horse bids for Brooks Brothers and Lucky Jeans. Those two, along with Brookfield Property Partners, another mall owner, have also made a bid to acquire the bankrupt J.C. Penney business. Simon, ABG and Brookfield previously came together to jointly acquire the Aeropostale and Forever 21 chains.
Mr. Simon said his company’s investments in the three deals, should they prove successful, would be significantly lower than is usually speculated on by analysts and pundits in the press. He also pointed out that merchandise is purchased at or below cost by Simon and its partner(s) when a bankrupt chain is acquired.
“I don’t buy into this … that we’re buying into these retailers to pay us rent,” said Mr. Simon. “We’re doing it because we, for one reason only, we believe in the brand and we think we can make money. If we didn’t believe in the brand and we didn’t think we could make money, we wouldn’t do it …”
“Those same people [questioning Simon] are probably the same people that told Amazon to stay just in the book business, okay? So, let’s just think a little bit — there’s just nothing out there that says you can’t make smart investments outside of your core businesses, which is what we do all the time. And, look, Kimco did it with Albertsons. They did a pretty damn good job, and kudos to them.”
Mr. Simon declined to respond to a Wall Street Journal report this weekend that the mall operator was in discussions to lease current or former Penney and Sears stores to Amazon.com to set up local distribution hubs. Simon, the largest owner of malls in the U.S., has 63 Penney stores and 11 Sears on its properties.
Simon’s net income for the second quarter was $254.2 million, down from $495.3 million the year before. Comparable property net operating income was down 18.5 percent for the three months ending June 30. The mall owner collected 51 percent of its contracted rents for April and May combined, 69 percent for June and roughly 73 percent for July.
- Simon Property Group Q2 2020 Results (Earnings Call Transcript) – Seeking Alpha
- Simon Property Group Reports Second Quarter 2020 Results – Simon Property Group
- Will Amazon install distribution hubs in malls across America? – RetailWire
- Who will come to J.C. Penney’s rescue? – RetailWire
- Is Forever 21 a wise investment for its new mall landlord owners? – RetailWire
- Should Simon Property Group bail out (invest in) more retail tenants? – RetailWire
- Why did mall landlords step in to save Aeropostale? – RetailWire
DISCUSSION QUESTIONS: What is your reaction to David Simon’s explanation as to why his company is acquiring troubled retail chains that are also tenants? What do you think about retailers and other companies making investments outside of their core businesses?