![]() But the near term isn't going to get much better for a while, because it still has material headwinds to work through, even after the world moves past COVID-19. In other words, Simon looks like it has a bright long-term future based on its strong portfolio of properties. It simply takes time to find the right tenants and upgrade a space so it can open up for business. To look at an extreme example, putting a high-end jewelry store in the same mall as a dollar store would be a disaster for everyone. A mall is a carefully curated list of retailers that have to make sense together or it won't be desirable to tenants or consumers. And it's not a problem that can be fixed overnight. That's not a good thing for the REIT or its other tenants. Simon, as a landlord, has to deal with an increasing number of vacancies in its properties. But that's just one piece of the equation since it only looks at the retailers that fill Simon's malls. Companies that managed to keep struggling through in the hope of adjusting over time often couldn't handle the hit of government-forced closures.Įssentially, the pandemic has sped up what was already a slow-moving industry shift. Those with heavy debt loads were the first to trip up, but the pandemic has only added to the industry's troubles. Effectively, retailers that haven't kept up with consumer trends, including online shopping, have been falling by the wayside. Before the pandemic, malls were dealing with the retail apocalypse. The problem is that the near term is not going well for Simon (or any of its peers for that matter). This paints a fairly bright picture for Simon over the long term. That's something of a reverse network effect. Essentially, shoppers and retailers will have fewer mall options in the future, so more will end up going to the malls that survive. But Simon's malls are in the top echelon, and they should not only survive, but get even more valuable as lesser malls go away. There are more than 1,000 malls in the United States, which is likely too many, and weaker malls are already closing down. Still, the deal will add another 25 or so well-situated malls to Simon's portfolio once it's completed. This deal was first agreed to before the pandemic but has since been reworked, reducing the price given the tough retail backdrop. It's also working to increase the value of its portfolio, agreeing to buy equally well-positioned but smaller peer Taubman Centers ( TCO).
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