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Buy in on Simon Property Group (NYSE:SPG) and its Own Buying Spree

Thursday, August 13, 2020 | Steve Anderson
Buy in on Simon Property Group (NYSE:SPG) and its Own Buying Spree

These are dark times for mall owners. With malls coming off coronavirus closures that left them shuttered for weeks even as big-box stores like Costco (NASDAQ:COST) were allowed to carry on operating, the current environment is nothing short of cataclysmic. It shouldn't surprise, however, that mall owners aren't taking this development lying down, and are looking to make moves to preserve their way of life in at least some fashion. Simon Property Group (NYSE:SPG) is perhaps the biggest example of this, as new reports put it in an acquisitive mood.

They Want to do What With JCPenney?

The latest move Simon has made in what amounts to a string of recent moves features Simon, backed up by fellow mall owner Brookfield Property Partners (NASDAQ:BPY) to buy up JCPenney (NYSE:JCP). Current reports suggest that Simon / Brookfield has an edge over other offers; while Simon / Brookfield's offer isn't the highest, the duo is sweetening their pot with a slate of concessions about lease agreements. It's not out of line to suggest that JCPenney owes some outstanding rent at both Simon and Brookfield malls, so even if other offers are higher, the duo would end up taking a bite out of that payout anyway.

None of the parties involved were commenting on the deal right now, though, so this does edge a bit into the speculative. Still, it's actually part of a larger pattern that seems to be developing even now.

Not the First Time Simon's Bought a Retailer

The move to buy JCPenney, assuming it goes through, is actually part of a trend for Simon, and for a lesser extent, for Brookfield too. Reports noted that, recently, Simon and Authentic Brands Group dropped $325 million for Brooks Brothers, though this deal is subject to regulatory approval at last report. Simon now owns several bankrupt retailers, including Aeropostale and Forever 21, though jointly with Brookfield.

Thus, Simon likely owns outright several chunks of its own mall operations. The question, however, is just what Simon is planning to do with these properties. Some reports suggest that the mall we once knew may be on a path to become what the mall we will know will ultimately look like.

A Mall That's More Than Just Clothing Stores

Interestingly, it's looking like the mall of the future is pivoting to take a few lessons from the mall of the past. The notion of a mall that offers less clothing stores and more “experiences” is starting to come into vogue; just look at major mall constructions of the last several years. The American Dream Mall in East Rutherford, New Jersey, for example, contains an indoor amusement park with Dreamworks (NASDAQ:DWA) branding as well as its own indoor ski slope. While its opening has been sluggish at best—and now hampered almost completely by coronavirus—it was looking to take a page out of the Mall of America's book.

It's not just indoor amusement parks, though; there are reports that shopping malls are looking to branch off in multiple directions. Simon has been spotted just recently discussing the notion of bringing grocery stores to shopping malls, with its CEO, David Simon, saying he was “hopeful” that grocery stores could be a larger part of operations than they are currently. Other suggested moves have included residential apartment space and office space.

Then, of course, there's the issue of fulfillment centers for online operations. There was talk, not so long ago, that Simon was looking to lease out some space—particularly empty space formerly occupied by Sears, but now potentially also JCPenney—as fulfillment centers for Amazon (NASDAQ:AMZN). Amazon's foothold in the brick-and-mortar space has always been a bit tenuous, but expanding, especially after the Whole Foods deal. By putting a fulfillment center in every former Sears store that hasn't already been occupied by now—which likely isn't many—Amazon would be able to ratchet up its delivery speed and potentially even bring same-day delivery to nearly everyone.

Ultimately, something has to be done. Simon's recent move to cut its dividend makes it clear that malls can't just sell clothes and overpriced pizza slices. They need to branch out into other, profitable lines and give customers a reason to get out from behind their computer screens and into their cars and back to mall parking lots.

Selling clothes that can be bought less expensively online, and are delivered to customers' homes, just won't do the job, and it's clear Simon is out to do whatever it can to make sure it doesn't become the latest retail casualty itself. Getting in on the action yourself, meanwhile, helps ensure that your investment is protected as it syncs up with Simon's own vested interest in protecting itself.

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Simon Property Group (SPG)2.7$62.83-0.1%8.28%11.04Hold$93.88
Amazon.com (AMZN)1.7$3,019.79+0.7%N/A116.10Buy$3,358.77
DreamWorks Animation (DWA)0.3$40.97flatN/AN/AN/AN/A
J C Penney (JCP)0.9$0.26-5.1%N/A-0.30HoldN/A
Brookfield Property Partners (BPY)1.9$10.99+2.7%12.10%-37.90Buy$16.45
Costco Wholesale (COST)2.0$347.00+0.7%0.81%41.51Buy$356.82
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Top 8 Companies That Are Adapting to a Post-Coronavirus World

The unintended consequences of the coronavirus pandemic are being played out in homes and apartments throughout the world. More and more employees are working from home, that’s if they have a job to go to. Entire industries are effectively shut down as the world attempts to slow the spread of the virus.

At some point, however, things will return to normal. But it will be a new normal. There are many businesses that won’t reopen, and many industries that will forever be changed. As an investor, now is the time to get out your crystal ball. Timing the market is a fool’s errand. But looking at what industries are positioned to thrive in a world that will be changed by the coronavirus is a prudent strategy.

We’ve identified 8 companies that are adapting to what the economy will be like in a post-coronavirus world. It will undoubtedly be more digital than it already is. Supply chains may become more vertically integrated as “Made in America” may take on a whole new meaning. As will the idea of working from home, going to a concert, or even preparing a meal.

View the "Top 8 Companies That Are Adapting to a Post-Coronavirus World".

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