Simon Property earnings could mean more mall store closures in 2023

Yahoo Finance Live’s Brian Sozzi provides his take on the state of the mall industry despite the economic slowdown.

Video Transcript


US mall landlord Simon Property Group touting that the mall business is still strong in its latest earnings report. It did, though, concede inflation is hitting some of its retail holdings. Sozz, of course, has a hot take on this.

Now, Simon is what they call an A mall owner. Right?

BRIAN SOZZI: Yes, an A mall.

It’s true. They own the most premium properties.

BRIAN SOZZI: That’s true. And I was looking for some doom and gloom from Simon Property Group. That’s why I did it as my take. Didn’t really find it, per se. But did have some red flags.

First up, despite the economic slowdown, Simon noting that occupancy in its malls, as Julie mentioned correctly, A malls, some of the best malls in the country, 93.9% in the second quarter, up from 91.8% year over year.

So basically, what does that mean? More retailers are taking on leases. And they’re going to the mall, despite the consumer spending slowdown.

Then you look at rent per square foot. Didn’t fall off the map. Despite a lot of retailers continuing to close stores, rent per square foot $54.58, about $55 last year. So I would just say that is flat, year over year.

But there were some red flags here. First, you look at the exposures for Simon Property to what I would say some very struggling retailers.

You look at Gap. Gap has about 284 stores inside various Simon malls. Of course, comes as Gap is still looking for a permanent CEO, just canned their CEO after a very disappointing second quarter.

JCPenney which Simon bought at a bankruptcy in 2020 with Brookfield, there’s 54 JC Penney stores inside of various Simon malls. And then American Eagle Outfitters, probably the least concerning retailers of this group, but again, they have been performing not up to their historical standards over the past two quarters. 220 stores in them.

Now, why does this all matter? You had David Simon, who really gives some of the most interesting– He’s a hoot. I encourage everyone to go listen to this guy’s conference calls. He’s just hilarious to listen to.

But a very well respected person in retail, noting some softness in the value side of Simon Properties business. So for them, that is some weakness in JCPenney which they have a stake in, and perhaps a weakness in Eddie Bauer. They also have a stake in that.

Perhaps some weakness in Reebok. They just did that deal with Authentic Brands a little while ago. Forever 21, Aeropostale, so some weakness in some of those value focused brands, which brings me to my take over here.

It is likely you’re going to see a new wave of store closures. And there I am. Maybe I’m in a Simon A mall. Maybe it’s Roosevelt Field which is owned by Simon Property, my local favorite mall.

You’re probably going to see a good wave of a store closures in the first half of 2023 given the economic slowdown even if we are in a recession. One takeaway for me from the Simon Property earnings, retailers are still sitting on too much real estate in this world of online shopping and compressed profit margins. They need to shrink these stores.

And as a bonus take, Simon–

Oh, bonus takes.

BRIAN SOZZI: Simon did note that JCPenney ended the quarter with $1.3 billion in total liquidity, which surprised me because it’s JC Penney that’s struggling. And it’s J.C. Penney.

But on the flip side of the value stuff, it’s interesting that the implication then, by contrast, is that the higher end stuff is holding up pretty well.

BRIAN SOZZI: Yes. Correct.

Has an employment implication as well for a lot of the retail. A lot of people’s first jobs was working at the local mall in retail.

Folding clothes.

Bagel shop.

Brings back nostalgia. Yes. Bagel shop?

Bagel shop.

In the mall. There you go.