By Uday Sampath Kumar and Lisa Baertlein
(Reuters) – Surging COVID-19 infections in major states such as California, Texas and Florida scare shoppers away from newly opened shopping malls, hitting a blow to an industry that was on its knees even before the pandemic began.
Simon Property Group, the No. 1 U.S. mall owner, is expected to post its smallest quarterly profit in nearly six years on Monday, as the decline in foot traffic and early closures by government resulted in tenants who were unwilling or unwilling to pay full here.
“The upcoming earnings for mall owners could be one of the worst quarters ever,” said Floris van Dijkum, analyst at Compass Point Research & Trading.
The pain of many major retail failures, including Neiman Marcus and Brooks Brothers, and hundreds of department store closures by Macy’s and Nordstrom and others is far beyond shopping centers as the coronavirus pandemic takes a toll on brick-and-mortar and mortar merchants who have already lost outlets to online competitors.
Simon is wholly or partly owned in seven of the nation’s top 10 stores, as measured by mall sales. The indoor centers in pandemic destroyed states have been particularly hard hit. Foot traffic was down more than 50% at Houston’s upscale Galleria and at Miami’s Aventura Mall in mid-July, according to mobile tracking data provided by Unacast.
Even Simon’s Sawgrass Mills Outdoor Center in Florida, the no. 1 U.S. mall, was not immune, with traffic spiked off 37% mid-July as COVID-19 infections spiked. But at Woodbury Common Premium Outlets, an open-air shopping center in New York where infections are under control, the decline was only 8%.
For an interactive graph of weekly pedestrian traffic at the 10 largest U.S. malls, click here: (https://tmsnrt.rs/3ilZ2KS)
Simon’s strong liquidity position, helped by its decision in June to abandon a $ 3.6 billion deal to buy Taubman Centers, is expected to help warm the worst of the pandemic. It had nearly $ 4 billion in cash as cash equivalents at the end of March.
But analysts say it has a powerful battle ahead as its retail tenants fight for their lives.
Simon did not respond to a request for comment.
Reuters reported in June that Indianapolis-based Simon and peer Brookfield Property Partners were in joint talks to bid on JC Penney, a major anchor for department stores for malls that filed for bankruptcy in May and whose survival depends on urgent sales negotiations.
“If you have to start buying your buyers, you’re in big trouble,” said Scott Crowe, chief investment strategist at CenterSquare Investment Management.
“It’s the complete antithesis of being a landlord. The only reason one would buy a retailer is because it’s the worst option and they know they can not lease that space to anyone else,” he said.
However, this is not Simon’s first point when buying from a retailer. Simon and Brookfield teamed up with a third-party teen apartment chain chain to acquire Forever 21 last February, and Simon in 2016 was part of a consortium that owned another teen apparel retailer, Aeropostale https://www.reuters.com/article/us – bought aeropostale-ma-authenticbrands-idUSKCN1180AC.
On Sunday, The Wall Street Journal, cited sources, reported that Simon and Amazon.com Inc are investigating the conversion of mall space that was once occupied by JC Penney and Sears Holding Corp into Amazon distribution centers. Simon did not respond to a Reuters request for comment. An Amazon spokeswoman said the company has a policy of not commenting on rumors or speculation. Sears and JC Penney both declined to comment.
The challenges now are intense. Companies like Coach handbag maker Tapestry Inc. smarting down declining store traffic say retailers need rent rebates to survive.
Mall rentals, which have grown 2.5% annually over the past four years, could fall as much as 4.3% by 2020, according to real estate analytics firm CoStar Group.
However, experts predict that shopping malls will have a place, albeit much smaller, in the post-pandemic world, as many shoppers prefer to still see, touch and visit before making a purchase. “At a time when enough malls are running out, those who survive – the Simons and Maceriches of the world – will come out stronger,” said Michael Jerbich, president of B. Riley Real Estate.
(Report by Uday Sampath in Bengaluru and Lisa Baertlein in Los Angeles; Edited by Leslie Adler)
