Simon Says Trust Us: How the Mall Giant Has Navigated the Pandemic

Buffeted by COVID and the rise of e-commerce, America's largest mall owner has been flirting with Amazon and buying up retailers are shoppers trickle back — but is it just buying time?


It’s been an eventful pandemic for Simon Property Group to say the least.

The mall colossus has been duking it out in courts with tenants to pony up the rent and with Taubman Centers over Simon backing out of the $3.6 billion buyout of its rival. Simon’s also had to comply with state reopening guidelines, see its stock drop by nearly 53 percent since the beginning of the year, and face its worst revenue in nearly a decade.

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All this while Simon started buying up bankrupt retailers left and right and is reportedly talking with retail killer Amazon to lease-up empty department stores in Simon malls to turn into distribution centers.

Even with all the troubles the global pandemic has brought combined with an already on-the-ropes sector fighting through what’s been dubbed a “retail apocalypse,” don’t count Simon down for the count. The real estate investment trust’s portfolio includes seven of the 10 most valuable malls in the U.S., and Simon ended the second quarter of 2020 with a cool $3.6 billion cash on hand.

“If anybody’s going to make it through this in a reasonably unscathed manner — I say that because nobody is going to be unscathed — it’s going to be Simon,” Patrick Wilson, a portfolio manager focused on REITs at CenterSquare Investment Management, said. “Their balance sheet and the breadth and quality of their assets, I think, will win the day in the end.”

Still, some expect Simon to feel a lot of pain before that. In March, Moody’s lowered its outlook on Simon to negative after nearly 20 years of giving it positive and stable ratings. One analyst at another firm lowered his estimates for Simon in June — citing a lack of clarity from Simon and the REIT’s decision to slash its dividend payments. Others point to the fact that even though Simon’s portfolio touts many Class A malls, it’s still littered with lower-quality assets expected to struggle the most due to the pandemic.

“There’s a little bit of smoke and mirrors that goes on with that company,” a retail consultant, who did not want to be named for fear of losing business, told Commercial Observer. “For every A-plus mall, they probably got five ones that are crap.”

Haendel St. Juste of Mizuho Securities USA, who covers REITs and was the analyst who lowered his estimate for Simon, said that even with all of its strengths Simon still has “a bloated balance sheet and weak growth prospects.”

“Post-COVID, Simon is the best-positioned, but they have their challenges,” St. Juste said.

David Simon, the company’s chairman and chief executive, did not respond to a request for comment through a spokeswoman, but extolled confidence in the company in his most recent earnings call.

“I’m pleased with the resiliency of our portfolio and the solid profitability and positive cash flow we achieved,” he said. “Our profitability was achieved despite our U.S. portfolio being closed to the public for nearly 10,500 shopping days [excluding holidays when the malls would normally be closed] during the second quarter.”

The Indianapolis-based REIT kicked off the year on a high note. In February, Simon agreed to buy Taubman for $3.6 billion — something it unsuccessfully tried to do in 2003 — which would give it control of even more of the country’s top malls. Analysts previously told CO the move was timed to perfection.

Then the coronavirus started spreading across the globe, and the timing soon looked like a disaster. States across the country started to implement lockdown measures in mid-March to curb the spread of diseases, forcing retailers to temporarily shutter. On March 18, earlier than many states required, Simon closed all of its nearly 200 properties across the U.S. because of COVID-19.

“It’s almost the most inopportune time to be executing a larger public retail merger,” St. Juste said. “The decision to buy more malls this year, even last year, is a head-scratcher. I still don’t understand why he did it.”

Roosevelt Field
Simon’s Roosevelt Field in Garden City, N.Y.

Simon remained mum about the status of the Taubman deal during its first-quarter earnings call but all that changed the next month when it announced it would scrap the acquisition, citing fallout from the pandemic. Taubman has sued Simon to move forward with the purchase.

Analysts told CO that it doubtful Simon will be able to get completely out of the deal and is likely using its attempted exit as a bargaining chip to lower the purchase price.

“I think it’s a negotiating tactic,” Wilson said. “What David is targeting is that he would just like some recognition that this whole thing basically blew up enclosed retail spaces.”

Rescue Me

While Simon seems to be getting cold feet picking up another mall owner, it has no problem dropping cash on its bankrupt tenants.

Simon first dipped its toes in buying a struggling retailer in 2016, when it partnered with Brookfield Property Partners to rescue bankrupt Aéropostale for $243.3 million. It was aimed at easing the blow a liquidated Aéropostale, which had hundreds of stores in Simon properties, could cause the owners. They brought on Authentic Brands Group (ABG), which owns Nautica and Juicy Couture, to run Aéropostale and realized there was more to the deal.

“At the beginning, Simon just wanted ‘get my rent,’” Jamie Salter, the founder and CEO of ABG, told the New York Times. “But we started turning profits very quickly, and it started to be about building a business.”

ABG and Simon then created a 50-50 joint venture, Sparc Group, to do more. Sparc later picked up Nautica and in February bought Forever 21 for $81 million. But the coronavirus pandemic kicked Simon’s retail acquisitions into high gear.

Sparc bought jean purveyor Lucky Brand for $140 million and iconic menswear retailer Brooks Brothers for $325 million. In Simon’s largest retail deal, it partnered with Brookfield earlier this month to buy bankrupt department store JCPenney for a mix of $1.75 billion in cash and loan debt. (ABG is reportedly in talks to join the JCPenney deal.)

“It gives them the ability to control their destiny,” Tom Dobrowski, Newmark (NMRK) Knight Frank’s mall guru, said about the retail acquisitions. “The other big names out there, I think, are pretty hamstrung with respect to taking advantage of performing some of these strategies.”

The move allows Simon to have a seat at the table to decide which stores the brands close, minimizing the impact on its portfolio. In some cases, it’s cheaper for Simon to buy the company than take a loss from a wave of closures, analysts said. With Simon’s large war chest, the acquisitions generally don’t strain its balance sheet either.

To hear David Simon tell it, these deals are a slam dunk. In his second-quarter remarks, before the JCPenney acquisition was announced, Simon said his company only targets “great” brands that are “really cheap” and can expect to see returns within a year. But not every analyst shares Simon’s enthusiasm for these purchases.

“Investors are a little skeptical,” St. Juste said. “Clearly you wouldn’t be buying out these tenants if you didn’t have to.

“For a company this size, that type of investment is not a big deal,” St. Juste added. “But there’s a lot you could do with that money considering the wave of tenant foreclosures.”

Others have called the tactic a temporary measure to buy some time, one that might not be sustainable long-term. Especially in the case of Brooks Brothers, which was struggling pre-pandemic as a greater number of workers ditched suits in the office for jeans and t-shirts and makes even less sense during the era of the round-the-clock PJs and gym shorts pandemic uniform.

“They’re just looking for a Band-Aid,” the retail consultant said. “How many men do you know need to go buy stiff khaki pants, button-down shirts and navy blue blazers, unless they’re prep school students? That model is putting lipstick on a pig.”

And the more these investments increase, the more worries investors have about them.

“At some point, you start to put good money after bad,” Wilson said. “Simon is a thoughtful entity that in the past showed that they’ve been able to structure these things and it does make economic sense. The more you do these things, you start to question if you’re not just trying to hold back the tide.”

In the second-quarter earnings call, Simon asked investors for patience on this strategy and said it wasn’t just about getting the rent from retailers.

“We’re doing it because … we believe in the brand and we think we can make money,” David Simon said. “If we didn’t believe in the brand and we didn’t think we could make money, we wouldn’t do it.”

Yet, Simon can’t save every struggling brand as the number of retailers filing for Chapter 11 in recent months keeps growing. These bankruptcies are likely to lead to a similarly growing number of vacancies in Simon properties.

Retail sales saw historic drops in March and April, but have grown since, while retailers laid off thousands of workers across the country. (Simon itself furloughed 30 percent of its staff in March.)

Dozens of retailers, including J.Crew and Neiman Marcus, filed for bankruptcy while Pier 1 Imports and Lord & Taylor announced they would go out of business.

Landlords across the country have dealt with retailers not paying rent during the pandemic. Simon collected only 51 percent of its rent for April and May combined. However, as malls started to reopen, the numbers improved with the REIT getting 69 percent in June and about 73 percent in July.

Simon also lost about $215 million after giving rent abatements to tenants, but it isn’t sitting idly by while tenants don’t pay up. It sued Gap in August, accusing the company of using COVID-19 as an excuse to skip out on $107 million in rent.

Despite David Simon publicly saying he’s been working with tenants, especially smaller companies, CenterSquare’s Wilson said he’s heard from some that Simon has been the most aggressive about rent collection.

“Simon just told them to go pound sand if you don’t want to pay rent,” Wilson said. “Simon has been incredibly forceful and hasn’t shown too much compassion.”

A Fox in the Hen House

To deal with the potential of large swaths of empty stores, Simon has turned to an unlikely savior, Amazon.

The mall giant has reportedly been in talks with the e-commerce behemoth to turn some vacant anchor stores in its malls into fulfillment centers, the Wall Street Journal reported. Both companies have not publicly confirmed the rumors.

Analysts said a deal would make perfect sense as industrial-to-retail conversions have been growing in popularity in the past few years while the industrial sector itself has been a bright spot in recent months.

“It’s an interesting proposition, one that I wouldn’t be surprised to see more mall REITs doing,” Mizuho’s St. Juste said. “It could potentially solve one of the many problems.”

Amazon’s revenues have surged during the pandemic, making it unlikely to have rent payment problems, while it’s hungry to plant fulfillment centers closer to customers to speed up delivery times. But Dobrowski warned that an Amazon warehouse won’t make sense in every mall.

“It’s not a silver bullet strategy by any means,” he said. “It’s more of a concept, it obviously leads to a lot of people getting very excited, but it’s not proven out yet how that’s going to actually improve the overall mall itself.”

It could bring some other issues to the table as well. Similar companies that have opened fulfillment centers in malls do it on a much smaller scale, only taking 2,000 to 10,000 square feet, and require less equipment, trucks and workers than a traditional Amazon warehouse does. Some also offer existing tenants the ability to use their services.

Most mall leases also carry provisions on the makeup of other tenants in the property, which swapping Amazon for a traditional anchor could trigger. This could lead to renegotiations or retailers being able to walk away from spaces scot-free, Dobrowski said.

“It’s not easy to do that,” Dobrowski said. “Your inline tenants could say ‘Why are you bringing a warehouse operation, let along one that’s run by one of our biggest competitors? How is this going to help us out long-term?’ I’m not sure how that gets ironed out at this point.”

Yet the Amazon deal could be another life preserver to help Simon ride out the pandemic and it’s got plenty of reasons to be confident it will come out on the other side.

While Simon did face its worst quarter on record in August, the mall giant still pulled in $1.06 billion in revenue.

Its third quarter could see improvements as Simon was able to reopen most of its portfolio — except for some malls in California — to shoppers for the full quarter. And shoppers are starting to return to Simon’s properties.

Woodbury Common
Woodbury Common.

Foot traffic in the country’s top 10 malls — of which Simon owns seven — have increased in recent months with no signs of stopping in September, according to data location analysis firm provided to CO.

Simon’s Roosevelt Field mall in Garden City, Long Island, saw a 99 percent decrease in foot traffic year over year in May, but in August saw only a 32.6 percent decrease compared to the previous year, according to And outdoor malls are doing even better.

Woodbury Common in Orange County, N.Y., also owned by Simon, only had a 25.9 percent decrease in foot traffic from August 2019 to August 2020 and for the week ending on Sept. 7 actually saw an increase of 28.9 percent year over year,’s data shows.

“We’ve been generally encouraged by the shopper response to our reopening, particularly in a certain location where there’s been a steady improvement in traffic,” David Simon said during the last earnings call. “Many tenants report[ed] sales better than their initial expectations.”

And said the foot traffic data shows “real reason for optimism that the wider retail sector could see a very significant boost to the recovery” in the coming months. The largest mall operator might have made it through the greatest retail and health calamity the country has known bloodied, but unbowed — as long as the U.S. gets COVID under control.

On Sept. 15, the U.S. had 1,293 deaths linked to COVID-19, the highest one-day total since Aug. 19, while nearly 22 states reported higher infection rates compared to the prior week. Yet the country also saw a decrease in the number of total cases.

It’s not just COVID-19 infections that could keep shoppers away from Simon’s malls. August’s retail sales slowed as the extra federal unemployment relief ran out — with a second stimulus package stalling in Congress — while wildfires have ravaged a lot of the West Coast. With nearly four months left in 2020, there could be a lot more hurdles to clear before David Simon can really celebrate his firm’s resiliency.