Most stocks have recovered from the March crash caused by COVID-19. Simon Property Group’s (NYSE:SPG) SPG stock, the largest U.S. operator of shopping malls, has not.
Simon opened for trade August 12 at about $68 per share, a market cap of $20.3 billion. At the start of the year it traded near $150. The company’s malls were hit hard by the virus, and so were its tenants. Some of the biggest, like J.C. Penney (NYSE:JCP), have declared bankruptcy.
Before the virus Simon had a long-term vision of turning some suburban malls into mixed-use developments, with outdoor shopping, lots of restaurants, even residences. The model for what’s possible is Prudential Financial’s (NYSE:PRU) in Georgia, with a Whole Foods, Tesla (NASDAQ:TSLA) showroom, and 200 luxury apartments.
But the crisis has put Simon into a more desperate situation with two different paths for the future.
Amazon and SPG Stock
One path, which has given the stock a quick 10% boost since it was leaked, is to lease anchor stores to Amazon (NASDAQ:AMZN) as
Analysts call this , and it is. Small warehouses, stocked with staples, can let Amazon fulfill its desire for one-day delivery. Empty parking lots could handle semi-trailers at night and delivery vans during the day. Store roofs could become drone launching pads.
CEO David Simon at the company’s earnings call. The question came up after Simon of $254 million, 83 cents per share, on revenue of $1.06 billion for the June quarter.
Revenue was down 24% from a year ago and profits were cut in half. They weren’t enough to justify its normal dividend of $1.30 per quarter, a yield of 7.76%. But it’s remarkable that, given how many of its malls were forced to close by the pandemic, .
Owning the Stores
More material for Simon is its other path, to
The company has partnered with privately-held , a licensing outfit that already owned Simon tenants like Nine West, Forever 21, and Jones New York, to buy Brooks Brothers
. The deal will keep 125 of 200 Brooks’ stores open.
The bid was originally a “stalking horse,” Simon hoped others might top. But the deadline for bids passed with no one offering more.
Simon has been forced to sue major tenants , including Gap (NYSE:GPS).
Creative deals like the Authentic Brands tie-up have some Simon bulls valuing the company . But the new model is unproven.
Real estate analysts think “Class A” mall owners like Simon , but my pre-pandemic visits told a different story. The malls I saw early in 2020 were nearly empty, a Potemkin Village or western studio set.
Legal Troubles
There’s a third leg to the trouble triad.
In February Simon said it would buy rival mall owner Taubman Centers (NYSE:TCO) for $3.6 billion. Simon revealed in June it was over Taubman’s response to the virus.
could mean a trial on the merits Since the deal collapsed Taubman stock is down 29%, Simon 16%.
The Bottom Line
The pandemic has compressed a decade of change into a year. One of those changes is the switch from “shopping” at stores to buying. Stocks in companies doing fashion online, like Stitch Fix (NASDAQ:SFIX), have stayed strong.
Fashion may come back after the pandemic, but likely in a very different way. For Simon to have a future, it must find a way onto that new bandwagon, either through redevelopment or liquidation.
has been a financial and technology journalist since 1978. His latest book is , essays on technology available at the Amazon Kindle store. Write him at or follow him on Twitter at . As of this writing he owned shares in AMZN.
