Corner of Berkshire & Fairfax Message Board

General Category => Investment Ideas => Topic started by: Gregmal on January 27, 2020, 03:37:06 PM

Title: SPG - Simon Property Group
Post by: Gregmal on January 27, 2020, 03:37:06 PM
Simon Property SPG $141.63

Large cap value hidden in plain sight, buying today at 2012 share prices and a crisis level valuation. Fully liquid shares. Buy it and forget about it.

Completely safe and well covered 5.8% current yield with projected growth

Indisputable industry leader with a top notch management team capable of not only navigating the waves but staying ahead of the competition and establishing new trends

Absurdly low cost of capital, just raised $3,5B of 15+ year notes at 2.6%

Diligent manager of the balance sheet with recent refinancing of sr secured notes and active share repurchase program. Total annual capital returned to shareholders approaching 8%.

Compelling JV structured to mitigate companies expose to pure development risks

Global footprint and in house operations/relationship managers streamline much of the process and creates cost savings relative to peers with piece meal real estate operations.

Malls, Malls, Malls, is valid, just not here. Simon boasts a 95% occupancy rate and is known for the quality of its locations. Baby has largely been thrown out with the bathwater. Simon could lose ALL of it’s top 5 anchor tenants AND have 75% of ‘20+’21 leases expire without renewal with little to no impact on its current profile or ability to repurchase stock or pay out the current dividend.

Essentially the mall Armageddon thesis is playing out and probably somewhere in the 7th or 8th inning. Simon has not only navigated the crisis but grown. They’ve continued to improve SS NOI and FFO, nearly DOUBLING their dividend per share during the 6 year Mall Apocalypse starting in 2013 without the undertaking of an unhealthy payout ratio.

Simon is currently trading at a historically low P/FFO, lower in fact than in did at any point during the GFC

Coronavirus is just latest excuse for people to hit the bid.

I own shares. This is not investment advice. Yada Yada


EDIT: Whoops. Like a lot of threads lately, Sanjeev, you'll need to move this one.
Title: Re: SPG- Simon Property Group
Post by: Spekulatius on January 27, 2020, 03:50:46 PM
TCO is cheap too, their properties seem just as good as SPG, however their balance sheet is worse. Does it matter though - if malls go the way of bowling alleys, they are both screwed.

In my opinion, we are not in 7-8th inning, we are in the 2-3rd. Online sales are growing to 12%+ this year and are just getting started imo. I would not be surprised if we are at 50% we tweet 2030 and 2035. That means they many malls will either have to disappear or will have to fundamentally change. My guess is also they the privet to restaurants may not work, with the pivot to takeout. Some of the malls can be reconfigured to community centers or work life places, but there just too much mLl space to go around to keep everything productive. It is also questionable to me they after all this reinvestment needed, the total rents of the new mLl hybrids will really be higher than they were before the conversion. So all this capital recycling may just be a defensive move may not improve cash flows much.

My vote is that it’s a value trap.
Title: Re: SPG- Simon Property Group
Post by: Gregmal on January 27, 2020, 04:05:05 PM
I dont think everything is going to turn into a bowling alley. There is a clear difference between dust bowl locations with 60% occupancy rates and failing anchors, and top tier locations in high traffic corridors centered around bustling communities and work/residential facilities. Mid-high 90's occupancy rates with the type of tenant diversification SPG has speaks for itself.

Retailers will not all go online and call it a day. They won't all just go sell on Amazon either. If a physical store makes money, they have little to no reason to shut it down. If anything that approach is counter productive. A lot of retailers still make money, you're just seeing a transition period where the mid tier down to the bottom, who lose money get killed. The rest will adjust and rents will have to rerate. But at the same time, much of this has been taking place for years already. As has been noted on some of the calls, if anything, the push out of B and C creates more demand for prime space in A.

Anyone thinking this space is just going to evaporate needs to go check out the new mega mall at the Meadowlands.

People love the SRG's and the HHCs of the world, but frankly, IMO SPG has those same type of opportunities available to it, with a better management team, and lower cost of capital. They have plenty of levers to pull, and at the current valuation really dont need much of anything to go wonderfully right.

I'd also add, that due to Simons market position and expertise, it is possible for most mall companies to fail and still have this thing standing tall. Not to mention that there has been some activity in the space; COBF favorite Brookfield has been making moves here for a few years now. Which is not to say I wholeheartedly agree with them, but I do think some smart folks see avenues to reposition this space, and the narrative that basically every player here will be wiped out is bogus. Simon is hands down the best, and from these levels, should be A-OK if not better.

Title: Re: SPG- Simon Property Group
Post by: cherzeca on January 27, 2020, 05:08:40 PM
6 year low.
Title: Re: SPG- Simon Property Group
Post by: BG2008 on January 28, 2020, 07:45:49 AM
If anyone want my unsolicited opinion, well too late. 

If I were to own a mall, it would be Simon's.  Since having a kid, my wife and I have been spending a lot of time at the mall.  We noticed that there is a lot more "fly by night" operators now.  Yes, the occupancy is high at 95%, but the quality has gone down by quite a bit.  At the Roosevelt Field Mall on Long Island, you are starting to see coin stores, Catholic stores, etc.  What used to be a nice looking Abercrombie (okay, by comparison) with nice corporate designs etc is now just shelves with very little tenant improvement.  It's not as nice of an user experience.  This mall used to have a wait list to get in and now has several locations that are permanently dark.  I second what Spek says about being in the 2-3rd inning of a brick&mortar to e-commerce transition, it is tough.  We are also at sub 4% unemployment and you are seeing these qualitative issues pop up.  What happens in a recession and retailer go out of business en mass?  One of the problems with Malls that is a bit different than multi-family, office, or warehouse.  If you have 20% vacancy in a 10 story building, it is likely confined to 2 floors.  No one else in the building will care.  But if your mall has a 20% vacancy, it is very dreary.  Malls are synergistic animals.  They need energy and a sense of buzz.  Once that is gone, it kind of spirals.  Once a place is not fun/cool to hang out, the retailers take notice and get out and puts the place into a spiral.   

I have noticed that many digital native brands do take on real estate.  They are starting to notice that you need in store experiences to try on products.  Look at Warby Parker and the mattress stores.  Ironically, Best Buy is doing quite well, Apple, Samsung, and Microsoft have all adopted a brick and mortar strategy.  It makes sense to try on a new product in your hands if you are plucking down $999 for a new iPhone.  Ironically, the speed of innovation of electronics actually necessitates brick and mortar interaction.  That was not something that I anticipated.

What about re-development opportunities?  I have come to appreciate malls parcels as great development parcels.  Increasingly, you are seeing Multi-family and hotels being built on Mall outparcels.  This makes a ton of sense as Malls are generally the best located real estate.  My issue with this optionality (a big part of Brookfield's thesis) is that Simon is great at what they do "leasing retail real estate".  It's their DNA just like value investing is in our DNA.  I am trying hard to learn tech and software, but at this moment, I am just okay.  Once in a while, I can spot an obvious bargain.  Development is a whole different game.  You need 15-20% IRR on projects to justify a transition to a mixed use location.  Look at HHC, they have a $110-$120mm G&A that is trending to $75mm after a cost cut.  That's the kind of organization that you need and the NPV will be some figure that is discounted deeply to reflect the development risk.  The problem with Simon is that each location is different and distinct and they only have a mall to work with. Meaning, HHC benefits from having a lot of sites in one town.  SRG and Simon will only have their core 100 acres.  Unless they have been zoned for re-development, it is hard to create that kind of density, local government buy-in, etc.  There is benefit to scale and experience in a local region.  But if your development sites are spread over hundreds of location, you have to "get up to speed" on every single location.  It's too hard for me.  BAM's involvement with malls is actually the main reason why I never invested in BAM.  BPY's acquisition of some NYC retail and some malls made me scratch my head. 

Anyways, another useless, unsolicited a-hole opinion from me regarding malls.  But Simon is absolutely the best operator in this space and they own the best trophy assets without a doubt. 
Title: Re: SPG- Simon Property Group
Post by: kab60 on January 28, 2020, 09:45:16 AM
Really appreciate you bringing up the topic. I keep looking at these plays, and optically most of these players look cheap, but I'm scared by the combination of high financial leverage and operating leverage. Whenever I'm intriged by the mall carnage I go back to Alliance Data Systems or retailers that I think will do fine despite Amazon etc.

I think lots of retailers will thrive in this environment, but I also don't see online shopping slowing down. ADS is hit by mall exposure but with wayyy less financial leverage and a more variable cost structure - plus, they're sort of good co/bad co and unlike the mall REITS there's little risk they have to spend most of their cash flows just to keep the status quo.
Title: Re: SPG- Simon Property Group
Post by: cherzeca on January 28, 2020, 12:23:00 PM
OT, but relevant imo. I look at bricks and mortar's relationship to digital as morphing into a win/win rather than a zero sum game eventually...meaning that Warby Parker had to go retail because people want to see the glasses on their faces now!, not when they get them in mail.  AMZN selling books in actual stores!  bricks and mortar has to become more "entertainment" oriented...fun to get out of the house to shop, but it will.  the interesting dynamic I see is with AMC.  the one digital killer is streaming, and yet Netflix took over the old Paris theater on 57th st (NYC). I can see DIS/Netflix etc buying AMC (DOJ seeking to kill old settlement decree that prevents downstream movies/theaters consolidation).  whether we are in 3rd inning or 7th inning of mall disintegration, I think there are opportunities to find deep value in bricks and mortar.  unless we are all a simulation, in which case...
Title: Re: SPG- Simon Property Group
Post by: Gregmal on January 28, 2020, 01:40:08 PM
No worries Bill, we love unsolicited a-hole opinions. Disruptive music in the echo chamber is always appreciated.


A few points/comments.

As a real estate junkie, I would challenge anyone to thoroughly scroll through the Simon portfolio. It is stunning and just a truly spectacular collection of premier assets in largely prime location. Something to admire and certain not anything that would fall into the category of "I wouldn't own it at any price"...so theres that.

Balance sheet is robust. Name another RE company capable of raising cash at 2.6%?

There are major differences between Simon and others that came before it. There is also the fact that so many others have come before it and these guys are best in the biz management; surely they have taken note and learned from the Sears and the Macys of the world. But, for comparisons sake..

Sears/Seritage- Simon has better locations, better management, better balance sheet. Profitability is not in question. They also dont have to worry about running a retail business. As for redevelopment? Let me again say, 2.6%/ 15 years. Buffett and many others like Seritage, but for the life of me I can not find an argument to like SRG and not like Simon better.

Macy's- Same arguments as above. Simon doesnt have to worry about running retail. They dont have to worry about winding down and eliminating thousands of jobs. All the locations(generally speaking) with Simon are good, not so for Macy's.

Howard Hughes- HHC is definitely better positioned than the above two, but again, whats their cost of capital?

Regarding specific types of redevelopment? I think this is overblown. If Seritage can reposition old Sears stores into residential than so can Simon, but with more attractive locations and cheaper capital. Howard Hughes will have some reliance on retail, so if retail is a goner, it will hurt them too. They have better layout for office, but who says you cant take a prime location mall and add office? I am also probably more bearish on office than I am retail. Hughes IMO has an edge with residential. But you cant make the argument(after scouring the SPG portfolio) that you couldn't take most of those locations and sell 1/2/3 br condos. Almost all of Simons locations would support high end residential.

Stuff like this is truly exciting:

For example, at Northgate Mall in Seattle, Washington, we are re-imagining this 60-year-old center to include NHL Seattle’s Corporate Headquarters and practice facility, one million square feet of Class A office, over 1,000 residential units
and approximately 375 hotel rooms, all served by a new mass transit solution. This current retail-only shopping mall will be completely transformed upon our completion.


Nobody has better dirt than Simon, nobody has better overall locations, nobody has higher quality tenants and nobody is better managed. Thats the pitch. I mean look, even Brookfield, who has tried to build another Simon, basically ended up only buying Simons junk. Even if, as noted, tenant quality goes down, cash is still cash. Yes, in a market assigning multiples, you'll suffer short term in terms of how you're rated if the tenant quality dampens, but at the same time, you're getting paid(and paid exceptionally well) to wait and the mix of short term or less than 12m leases is like 2-3% of total revenue. Easy come, easy go.


Title: Re: SPG- Simon Property Group
Post by: BG2008 on January 28, 2020, 02:07:31 PM
No worries Bill, we love unsolicited a-hole opinions. Disruptive music in the echo chamber is always appreciated.


A few points/comments.

As a real estate junkie, I would challenge anyone to thoroughly scroll through the Simon portfolio. It is stunning and just a truly spectacular collection of premier assets in largely prime location. Something to admire and certain not anything that would fall into the category of "I wouldn't own it at any price"...so theres that.

Balance sheet is robust. Name another RE company capable of raising cash at 2.6%?

There are major differences between Simon and others that came before it. There is also the fact that so many others have come before it and these guys are best in the biz management; surely they have taken note and learned from the Sears and the Macys of the world. But, for comparisons sake..

Sears/Seritage- Simon has better locations, better management, better balance sheet. Profitability is not in question. They also dont have to worry about running a retail business. As for redevelopment? Let me again say, 2.6%/ 15 years. Buffett and many others like Seritage, but for the life of me I can not find an argument to like SRG and not like Simon better.

Macy's- Same arguments as above. Simon doesnt have to worry about running retail. They dont have to worry about winding down and eliminating thousands of jobs. All the locations(generally speaking) with Simon are good, not so for Macy's.

Howard Hughes- HHC is definitely better positioned than the above two, but again, whats their cost of capital?

Regarding specific types of redevelopment? I think this is overblown. If Seritage can reposition old Sears stores into residential than so can Simon, but with more attractive locations and cheaper capital. Howard Hughes will have some reliance on retail, so if retail is a goner, it will hurt them too. They have better layout for office, but who says you cant take a prime location mall and add office? I am also probably more bearish on office than I am retail. Hughes IMO has an edge with residential. But you cant make the argument(after scouring the SPG portfolio) that you couldn't take most of those locations and sell 1/2/3 br condos. Almost all of Simons locations would support high end residential.

Stuff like this is truly exciting:

For example, at Northgate Mall in Seattle, Washington, we are re-imagining this 60-year-old center to include NHL Seattle’s Corporate Headquarters and practice facility, one million square feet of Class A office, over 1,000 residential units
and approximately 375 hotel rooms, all served by a new mass transit solution. This current retail-only shopping mall will be completely transformed upon our completion.


Nobody has better dirt than Simon, nobody has better overall locations, nobody has higher quality tenants and nobody is better managed. Thats the pitch. I mean look, even Brookfield, who has tried to build another Simon, basically ended up only buying Simons junk. Even if, as noted, tenant quality goes down, cash is still cash. Yes, in a market assigning multiples, you'll suffer short term in terms of how you're rated if the tenant quality dampens, but at the same time, you're getting paid(and paid exceptionally well) to wait and the mix of short term or less than 12m leases is like 2-3% of total revenue. Easy come, easy go.

Greg,

Agree with most of what you're saying.  I just think time may or may not be your friend and I think I can buy it cheaper when the economy hits the skids.  That's literally my playbook.  So interesting situation, just not tomorrow. 
Title: Re: SPG- Simon Property Group
Post by: BG2008 on January 28, 2020, 02:10:05 PM
BTW, Howard Hughes is selling most of their retail assets except for the Seaport and Downtown Summerlin (outdoor lifestyle center, not enclosed malls).  They are even selling stuff that are brand new that they just built within the last few years. 
Title: Re: SPG- Simon Property Group
Post by: BG2008 on January 28, 2020, 02:14:58 PM
OT, but relevant imo. I look at bricks and mortar's relationship to digital as morphing into a win/win rather than a zero sum game eventually...meaning that Warby Parker had to go retail because people want to see the glasses on their faces now!, not when they get them in mail.  AMZN selling books in actual stores!  bricks and mortar has to become more "entertainment" oriented...fun to get out of the house to shop, but it will.  the interesting dynamic I see is with AMC.  the one digital killer is streaming, and yet Netflix took over the old Paris theater on 57th st (NYC). I can see DIS/Netflix etc buying AMC (DOJ seeking to kill old settlement decree that prevents downstream movies/theaters consolidation).  whether we are in 3rd inning or 7th inning of mall disintegration, I think there are opportunities to find deep value in bricks and mortar.  unless we are all a simulation, in which case...

Warby Parker has 1,000-2,000 sqft locations Abercrombie was likely 8,000-10,000. Not enough to make up for the lost space.  CAC via Google and social media is the new rent.  When you value something at 4-5% cap rate, you are implying growth in rent into perpetuity.

SPG bought Aeropostale to prevent a mass closing of stores. If there was a "jump the shark" moment, this was it

https://www.wsj.com/articles/mall-owners-go-on-defensive-to-rescue-aeropostale-1474968602

Sorry for being an a-hole
Title: Re: SPG- Simon Property Group
Post by: BG2008 on January 28, 2020, 02:15:50 PM
I wish I did software I Banking back in the days and not selling 3 regional malls. 
Title: Re: SPG- Simon Property Group
Post by: Gregmal on January 28, 2020, 02:26:49 PM
No worries Bill, we love unsolicited a-hole opinions. Disruptive music in the echo chamber is always appreciated.


A few points/comments.

As a real estate junkie, I would challenge anyone to thoroughly scroll through the Simon portfolio. It is stunning and just a truly spectacular collection of premier assets in largely prime location. Something to admire and certain not anything that would fall into the category of "I wouldn't own it at any price"...so theres that.

Balance sheet is robust. Name another RE company capable of raising cash at 2.6%?

There are major differences between Simon and others that came before it. There is also the fact that so many others have come before it and these guys are best in the biz management; surely they have taken note and learned from the Sears and the Macys of the world. But, for comparisons sake..

Sears/Seritage- Simon has better locations, better management, better balance sheet. Profitability is not in question. They also dont have to worry about running a retail business. As for redevelopment? Let me again say, 2.6%/ 15 years. Buffett and many others like Seritage, but for the life of me I can not find an argument to like SRG and not like Simon better.

Macy's- Same arguments as above. Simon doesnt have to worry about running retail. They dont have to worry about winding down and eliminating thousands of jobs. All the locations(generally speaking) with Simon are good, not so for Macy's.

Howard Hughes- HHC is definitely better positioned than the above two, but again, whats their cost of capital?

Regarding specific types of redevelopment? I think this is overblown. If Seritage can reposition old Sears stores into residential than so can Simon, but with more attractive locations and cheaper capital. Howard Hughes will have some reliance on retail, so if retail is a goner, it will hurt them too. They have better layout for office, but who says you cant take a prime location mall and add office? I am also probably more bearish on office than I am retail. Hughes IMO has an edge with residential. But you cant make the argument(after scouring the SPG portfolio) that you couldn't take most of those locations and sell 1/2/3 br condos. Almost all of Simons locations would support high end residential.

Stuff like this is truly exciting:

For example, at Northgate Mall in Seattle, Washington, we are re-imagining this 60-year-old center to include NHL Seattle’s Corporate Headquarters and practice facility, one million square feet of Class A office, over 1,000 residential units
and approximately 375 hotel rooms, all served by a new mass transit solution. This current retail-only shopping mall will be completely transformed upon our completion.


Nobody has better dirt than Simon, nobody has better overall locations, nobody has higher quality tenants and nobody is better managed. Thats the pitch. I mean look, even Brookfield, who has tried to build another Simon, basically ended up only buying Simons junk. Even if, as noted, tenant quality goes down, cash is still cash. Yes, in a market assigning multiples, you'll suffer short term in terms of how you're rated if the tenant quality dampens, but at the same time, you're getting paid(and paid exceptionally well) to wait and the mix of short term or less than 12m leases is like 2-3% of total revenue. Easy come, easy go.

Greg,

Agree with most of what you're saying.  I just think time may or may not be your friend and I think I can buy it cheaper when the economy hits the skids.  That's literally my playbook.  So interesting situation, just not tomorrow.

Agree on recession and its probably the main thing I am concerned with.This will get a lot cheaper if we hit the skids. A few dominos fall and yea it'll get cheaper, probably a decent bit. But isn't that what folks like us do? Buy cheap and then, often, a bunch cheaper lol

I'm certainly going to be early but I figure the $5-6 Corona discount(sadly not a beer special) is at least a reasonable starting point for a position. I just get excited about real estate like this and the contrarian nature of the investment. Say "malls" to people and look at the reactions. But malls dont have to be malls forever. And its rare to have the chance to buy companies and assets of this caliber at these kind of prices. It often takes an exceptional situation, and what is happening to malls and retail is certainly quite exceptional, even historic. So its a pain trade Im willing to make. Hopefully, Ive got a few decades.
Title: Re: SPG- Simon Property Group
Post by: Cigarbutt on January 28, 2020, 05:35:39 PM
^I would say committing capital to SPG now requires balls of steel and a true long-term outlook given the secular (slowly happening) and cyclical pressures (to come).  The long (very long?) thesis can be defended as SPG is selling at 11x 2020 FFO estimate.

SPG is a solid operator with a solid balance sheet (some margin of safety and capacity to redeploy free cash flows) and the thesis revolves around class-A malls which means more pain (to which degree who knows) but eventually a benefit related to repurposed malls. 

{Not too far from where I live, some years ago, there was a GM plant that closed over contaminated land and there was a feeling that the area would become desolate. It took a while but the whole area has been repurposed (stores, large and small, restaurants, real estate etc) and now the traffic is very favorable and the only people who remember the GM plant are people who used to work there. The location of the land was the key ingredient; it just took a while to happen.}

Within the next 10 years, interestingly, putting BPY and SPG side by side, on a weighted probability basis, I think that SPG is more likely to relatively outperform in a quiet new normal environment and more likely to outperform if things go south, which means that an interesting trade would involve a balanced long-short trade: shorting BPY and going long SPG. Today’s SPG dividend yield is at 5.8% and would almost compensate for the BPY dividend (for now) at 6.9%. In the event of a significant downturn and a true buy-and-hold perspective, one could cover the BPY position and transfer the funds into SPG.
Title: Re: SPG- Simon Property Group
Post by: CorpRaider on January 28, 2020, 05:43:52 PM
Interesting stuff.  Don't love their moves to try and bail out/prop up retailers...see reports they are going to bid for forever 21.  Maybe not as dumb as the VNO toys r us 1/3 deal.  I get the idea though, why not go with the strong horse if it is just as cheap, kinda' thought that about KIM versus SRG last year or so. 

It seems to me that malls blow more than other retail RE for omni-channel and one day delivery (like it takes ~50% of the time it takes for amazon to get me a TV from China to drive all around the parking decks and walk to the store you want), but like you said it is about the dirt really.  Also kind of hate the fake outlets in a world of the internet....maybe real outlets would work but ones where they make goods specifically for the outlet...I don't know.

David Simon said they would have made a bid for the GGP assets or some of them but BAM was already in control of the process.  Easy to say that when you didn't pull the trigger I suppose.  I've watched a number of his talks/appearances...well I suppose I've nothing to say about them. 

Title: Re: SPG- Simon Property Group
Post by: Gregmal on January 28, 2020, 06:01:49 PM
Here's another angle Ive been grappling with, that may perhaps be a hidden area of safety. Anchor tenant rolloff.

Historically, right, your anchor has been the draw and everything else kind of flows through that. However I dont really think that is the case anymore, and if anything its probably the opposite. People tend to come for "everything else"(whatever that entails...ie restaurants, entertainment etc), not because of the large box anchors. Nevertheless, they've got these deadbeat, hanging on by a thread, anchor stores priced at like $5/sf and representing a negligible total percentage of revenues. Thesis kind of jumps off the Seritage page, but are these things going away really a headwind? I think it could be a tailwind. Replace them with a hotel, flex office, or residential, and boom, in those locations, you're probably getting a 10x increase in revenues. Heck, you can even take a page from Righteous Gemstones and open a mega church!
Title: Re: SPG- Simon Property Group
Post by: BG2008 on January 28, 2020, 07:06:22 PM
Here's another angle Ive been grappling with, that may perhaps be a hidden area of safety. Anchor tenant rolloff.

Historically, right, your anchor has been the draw and everything else kind of flows through that. However I dont really think that is the case anymore, and if anything its probably the opposite. People tend to come for "everything else"(whatever that entails...ie restaurants, entertainment etc), not because of the large box anchors. Nevertheless, they've got these deadbeat, hanging on by a thread, anchor stores priced at like $5/sf and representing a negligible total percentage of revenues. Thesis kind of jumps off the Seritage page, but are these things going away really a headwind? I think it could be a tailwind. Replace them with a hotel, flex office, or residential, and boom, in those locations, you're probably getting a 10x increase in revenues. Heck, you can even take a page from Righteous Gemstones and open a mega church!

You know I am too snobby for a mega church in my high end Simon Mall!
Title: Re: SPG- Simon Property Group
Post by: Jurgis on January 28, 2020, 09:45:16 PM
For serious mall investors only: https://www.bloomberg.com/features/american-mall-game/
Title: Re: SPG- Simon Property Group
Post by: Gregmal on January 29, 2020, 08:54:28 AM
I also really like the juice on the options here. A lot of different setups where you can collect some pretty fat premiums to own the stock at big discounts to current prices.
Title: Re: SPG- Simon Property Group
Post by: no_free_lunch on February 01, 2020, 01:41:36 PM
I am in on this one.  Bought a bit higher but it seems quite appealing now.

FCF is somewhere around $3B.  So p / fcf of 13-14x, cheap on that basis.  Debt to fcf is around 8x, not too bad for real estate.  It has been a few months but I believe they significantly decreased their leverage from 2007-08 era.

Yes, it is probably dead money for awhile but then it has a 6%+ yield.   I don't have confidence that the market will exceed that over the next 5 to 10 years, so this seems reasonable.

Even as the malls slowly die, I think they will be able to find new revenue streams.  They can convert to condo's, put in gyms / movie theatres, auto dealerships.  There are a lot of options if you have a good location.  They are leveraged low enough that they should survive the transition.

Gregmal, do you mean selling calls?
Title: Re: SPG- Simon Property Group
Post by: Gregmal on February 01, 2020, 01:51:03 PM
I was referring to all the options, however I personally wouldn't sell calls against this. I dont like screwing with my upside on what are deemed to be high risk high reward investments.

I was more so referring to the at what price is this investable? question. You can get over $3 per share selling $100 puts due Jan 2021. I certainly wouldn't mind getting $3+ a share in exchange for maybe owning share with a $97 cost basis. I started buying this week and have a cost around 141 so if nothing else its a reminder that you can certainly get swept under really quick, but if you're fine with that its an easy investment. I was again looking at stuff like Seritage and it just reinforces what a bargain SPG is if you are ok investing in that space.
Title: Re: SPG- Simon Property Group
Post by: Gregmal on February 02, 2020, 08:35:04 AM
How strong are Simons locations?

https://www.cnbc.com/2019/10/01/heres-a-map-of-the-forever-21-stores-set-to-close.html

The store closure list released on Tuesday includes the Forever 21 store at the World Trade Center, owned by Unibail-Rodamco-Westfield, in New York. It has 18 locations owned by Westfield in total.

There are 16 Macerich locations on the list.

The list has 10 locations owned by Taubman, including its store at Beverly Center in Los Angeles. It has nine Tanger locations, which are in outlet centers, and eight from Washington Prime Group. It has seven CBL locations and six Pennsylvania REIT locations.

None of these landlords were immediately available to respond to CNBC’s requests for comment.


Notably with only one location on this list is Simon Property Group, the largest mall owner in the U.S. and also one of Forever 21′s biggest unsecured creditors, along with Brookfield Retail Partners. There are eight Brookfield stores on the list.

Also on the store closure list are Forever 21′s stores in SoHo in New York and at the Mall of America.
Title: Re: SPG- Simon Property Group
Post by: rogermunibond on February 02, 2020, 09:38:12 AM
Sounds like SPG and BAM are providing DIP funding for F21 operations in their malls.
Title: Re: SPG- Simon Property Group
Post by: Gregmal on February 03, 2020, 05:29:57 AM
Simon + a few buys Forever 21

The playbook?

https://www.cnbc.com/2019/07/31/simon-property-could-save-retailers-from-going-out-of-business.html

Simon added the mall owner “made a ton of money” in its Aeropostale deal.

We're certainly as good as the private-equity guys when it comes to retail
- David Simon


Title: Re: SPG- Simon Property Group
Post by: RAFA1989 on February 04, 2020, 08:51:22 AM
Interesting news out today.

During the earnings call Bloomberg put out a piece mentioning merger talks between Simon and Taubman (another high quality mall owner).

https://www.bloomberg.com/news/articles/2020-02-04/simon-property-is-said-to-have-held-merger-talks-with-taubman

Title: Re: SPG- Simon Property Group
Post by: Gregmal on February 10, 2020, 04:47:21 AM
TCO is cheap too, their properties seem just as good as SPG, however their balance sheet is worse. Does it matter though - if malls go the way of bowling alleys, they are both screwed.

In my opinion, we are not in 7-8th inning, we are in the 2-3rd. Online sales are growing to 12%+ this year and are just getting started imo. I would not be surprised if we are at 50% we tweet 2030 and 2035. That means they many malls will either have to disappear or will have to fundamentally change. My guess is also they the privet to restaurants may not work, with the pivot to takeout. Some of the malls can be reconfigured to community centers or work life places, but there just too much mLl space to go around to keep everything productive. It is also questionable to me they after all this reinvestment needed, the total rents of the new mLl hybrids will really be higher than they were before the conversion. So all this capital recycling may just be a defensive move may not improve cash flows much.

My vote is that it’s a value trap.

Well Spek, I guess they agreed with you!

https://seekingalpha.com/news/3539970-simon-property-to-buy-controlling-stake-in-taubman-for-3_6b-in-cash
Title: Re: SPG- Simon Property Group
Post by: rogermunibond on February 10, 2020, 06:10:17 AM
If you're a luxury brand name looking for exposure to high end US retail, SPG has a near monopoly on the best malls.

Title: Re: SPG- Simon Property Group
Post by: Gregmal on February 10, 2020, 03:30:17 PM
Good piece on the deal

https://seekingalpha.com/article/4322883-simon-property-group-acquires-taubman-why-this-is-game-changer
Title: Re: SPG- Simon Property Group
Post by: Gregmal on April 08, 2020, 08:35:11 AM
So this one has been smoked but I'm beginning to get more comfort with perhaps where things go in a "bad" scenario. Given a little bit of an assumption based on prior actions, is it theoretically more than a little likely that should many retailers get severely distressed, that Simon ends up owning a good chunk of retail businesses? So the hit to rent happens, but you also have a royalty/equity stake in the future of these businesses. Not dissimilar to Amazon/Ebay take chunks of fees down from any seller using their platform. The future or retail, whatever it may be, is impossible to exist, without Simon. Lenders will have to work with them, they are almost too big to fail. Should be interesting. Ive been adding reasonably last couple weeks.
Title: Re: SPG- Simon Property Group
Post by: BG2008 on April 08, 2020, 08:39:42 AM
Greg,

I hope you're right.  I haven't touched malls since I tried to sell 3 of them during 2008.  My life and my bank accounts have thanked me for not getting involved. 
Title: Re: SPG- Simon Property Group
Post by: Gregmal on June 10, 2020, 08:44:27 AM
https://seekingalpha.com/news/3581908-simon-property-pulls-plug-on-taubman-deal

Dodging a bullet. The acquisition itself, in a vacuum, was probably a good move. However you dont often get a mulligan like this, so I'll take it, even though I dont like companies that typically do shit like this. Interesting though that TCO apparently took no precautions or made efforts to stem financial bleeding. Now that will cost them.
Title: Re: SPG- Simon Property Group
Post by: cherzeca on June 10, 2020, 09:03:21 AM
 bad Taubman lawyering to agree to disproportionate impact in the MAC
Title: Re: SPG- Simon Property Group
Post by: Spekulatius on June 10, 2020, 04:31:47 PM
Isn’t TCO a short here? They have tons of debt. Also some of their assets are in JV in South Korea, which probably limits their cash flow access.
Title: Re: SPG- Simon Property Group
Post by: fareastwarriors on June 24, 2020, 11:18:56 AM
Property Owner Simon Sees Buying Tenants as a Way to Boost Malls

Biggest U.S. shopping-center owner joins Brookfield Property Partners in exploring a bid for J.C. Penney

https://www.wsj.com/articles/property-owner-simon-sees-buying-tenants-as-a-way-to-boost-malls-11592913601 (https://www.wsj.com/articles/property-owner-simon-sees-buying-tenants-as-a-way-to-boost-malls-11592913601)
Title: Re: SPG- Simon Property Group
Post by: rb on June 24, 2020, 11:56:50 AM
First the retailers are spinning out their real estate into REITs to "unlock" value, now you have REITS buying retailers? This is mad.
Title: Re: SPG- Simon Property Group
Post by: Gregmal on June 24, 2020, 12:27:07 PM
I think the spinning out of RE is obviously operating from weakness. On the other end, the beauty of owning real estate, especially high quality dirt like Simon does, is the optionality of its usages. These guys, mainly SPG and BAM will now likely just do the PE thing and buy out the business operations for peanuts, squeeze every dime they can out of them, and in doing so, buy themselves much needed time to repurpose a lot of the locations. Will be interesting to watch unfold.
Title: Re: SPG- Simon Property Group
Post by: Haasje on June 24, 2020, 12:34:04 PM
I just had the pleasure of interviewing Andrew Walker (Yet Another Value Blog) and he gets into the merger agreement. Thought it's probably appropriate to post a link

video:
https://www.youtube.com/watch?v=WrBmzgVm_1w&t=1s

podcast:
https://specialsituations.libsyn.com/

Title: Re: SPG- Simon Property Group
Post by: lnofeisone on June 25, 2020, 03:37:57 AM
First the retailers are spinning out their real estate into REITs to "unlock" value, now you have REITS buying retailers? This is mad.

I think they are doing anything and everything from letting leases lapse and use that time to repurpose. Per WSJ - "For malls that have already lost an anchor tenant, losing another one could trigger cotenancy clauses. These clauses allow smaller tenants in the mall to pay a reduced rent if, for example, two anchor tenants close their stores. If these spaces aren’t occupied within a set period, say 18 months, other tenants may also be allowed to terminate their lease without penalty."

Standard PE book hasn't worked out well for Sears, Toys R Us, etc. I'd have to see more out of SPG/BAM that would really differentiate them and make them successful in this game.
Title: Re: SPG- Simon Property Group
Post by: Gregmal on June 29, 2020, 03:08:01 PM
https://seekingalpha.com/news/3587147-simon-property-gains-6_7-after-resuming-quarterly-dividend

$1.30 per share for Q2. Expects to pay out AT LEAST $6 for FY 2020.
Title: Re: SPG- Simon Property Group
Post by: Gregmal on June 30, 2020, 12:36:49 PM
https://seekingalpha.com/news/3587491-simon-may-see-redevelopment-opportunity-in-j-c-penney-analyst-says

On the money.
Title: Re: SPG- Simon Property Group
Post by: ratiman on July 08, 2020, 06:28:00 AM
I just had the pleasure of interviewing Andrew Walker (Yet Another Value Blog) and he gets into the merger agreement. Thought it's probably appropriate to post a link

video:
https://www.youtube.com/watch?v=WrBmzgVm_1w&t=1s

podcast:
https://specialsituations.libsyn.com/
That was a good conversation. He's a good guest.
Title: Re: SPG- Simon Property Group
Post by: ratiman on July 08, 2020, 06:33:38 AM
I don't know if this is the right place to post this but has CV been a huge benefit to struggling retailers? Before CV, the mall or landlord said "pay your rent, no negotiating." After CV the landlords are in a weak negotiating position and are forced to negotiate with even the weakest tenants unless they want  a half empty mall. I'm thinking of retailers like DXL Group (DXLG) that before CV were struggling but after CV have some room to negotiate with landlords. Companies like Starbucks, on the other hand, aren't in a great negotiating position because Starbucks can't legitimately threaten to shut down locations that are still highly profitable. Landlords are in a better position to demand full rent from Starbucks, especially if the location is easy to rent. Harder to release a strip mall location if half the current tenants are forced out.
Title: Re: SPG- Simon Property Group
Post by: Gregmal on July 08, 2020, 05:08:17 PM
Just took down $2B, including a tranche of 2050 notes @3.8% and 2030s @2.65. Also supposedly making a bid for Lucky.
Title: Re: SPG- Simon Property Group
Post by: Gregmal on July 09, 2020, 04:23:27 PM
LOL now going after Brooks Brothers. A personal favorite brand. Say what you will about the sector, but these guys definitely seem to be playing offense.

I'd also add, that while there are plenty of Pier 1's out there, the issue with a lot of these retailers isn't sales or profitability, its waayyyy tooo much debt, usually the result of being private equitied a few too many times.
Title: Re: SPG- Simon Property Group
Post by: Spekulatius on July 09, 2020, 06:03:12 PM
LOL now going after Brooks Brothers. A personal favorite brand. Say what you will about the sector, but these guys definitely seem to be playing offense.

I'd also add, that while there are plenty of Pier 1's out there, the issue with a lot of these retailers isn't sales or profitability, its waayyyy tooo much debt, usually the result of being private equitied a few too many times.

They are not playing offense, they kick the cans down the road. A lot this retailers like Brooks won’t exist 10 years from now, but SPG can’t afford to have vacant spaces in their malls so they have to keep zombies alive.

The whole thesis that malls can become office spaces, experience Locations and Restaurant rows get covitzt. They are screwed, imo.

I think I will see the Roosevelt mall in LI getting gutted out in the next 20 years, just to name one example.
Title: Re: SPG- Simon Property Group
Post by: Gregmal on July 10, 2020, 12:26:15 AM
LOL now going after Brooks Brothers. A personal favorite brand. Say what you will about the sector, but these guys definitely seem to be playing offense.

I'd also add, that while there are plenty of Pier 1's out there, the issue with a lot of these retailers isn't sales or profitability, its waayyyy tooo much debt, usually the result of being private equitied a few too many times.

They are not playing offense, they kick the cans down the road. A lot this retailers like Brooks won’t exist 10 years from now, but SPG can’t afford to have vacant spaces in their malls so they have to keep zombies alive.

The whole thesis that malls can become office spaces, experience Locations and Restaurant rows get covitzt. They are screwed, imo.

I think I will see the Roosevelt mall in LI getting gutted out in the next 20 years, just to name one example.

How arent they operating from a position of strength? Name one other landlord currently making acquisitions? Name another landlord currently raising capital, at will, at 2-4% rates going out to 2050? What should they be doing, buying companies pre-bankruptcy or propping shit up like BAM is doing?

While the narrative you mention is popular, and currently whats driving the share price, its already been debunked, not only by the above, but by the clear and unmistakable fact that we've already seen what happened once they government gets out of the way. Restaurants and experience oriented operations and not dead, or "covitzed". Not even close, once people are allowed to go back they flock there in droves. Which is why you are seeing, even still now, post Covid, quality restaurants trading hands at sub 5 cap rates. The biggest short term risk is the government forcing shutdowns. The largest mistake in fact was shutting things down, because it gave everyone from Joe Schmoe to Gap a semi legitimate excuse to stop paying their bills. But Simon, as they've shown, can weather that. Q2 payout was $1.30, with that being the minimum for 3&4.
Title: Re: SPG- Simon Property Group
Post by: K2SO on July 10, 2020, 06:11:48 AM

They are not playing offense, they kick the cans down the road.

Bingo.

This strategy might work. I actually think there's a good chance it will because I'm an old school guy and I think that physical retail will hang around a lot longer than people expect (still need to get fitted in person for that Brooks Brothers shirt and suit).

BUT with landlords entering the space, they are introducing a whole new element of risk into their business model, and it's risk that I don't want if I'm a real estate investor (hard to argue that a company that owns a bunch of retailers is still a fixed income proxy).

They might get lucky and flip these companies coming out of a shallow recession but they are introducing a whole new element of downside risk that I don't want to be a part of. This reminds me of Nortel lending money to customers in the late 90's in order to keep showing sales growth. It's a move made out of desperation and could go horribly wrong.
Title: Re: SPG- Simon Property Group
Post by: shhughes1116 on July 10, 2020, 07:58:13 AM
LOL now going after Brooks Brothers. A personal favorite brand. Say what you will about the sector, but these guys definitely seem to be playing offense.

I'd also add, that while there are plenty of Pier 1's out there, the issue with a lot of these retailers isn't sales or profitability, its waayyyy tooo much debt, usually the result of being private equitied a few too many times.

They are not playing offense, they kick the cans down the road. A lot this retailers like Brooks won’t exist 10 years from now, but SPG can’t afford to have vacant spaces in their malls so they have to keep zombies alive.

The whole thesis that malls can become office spaces, experience Locations and Restaurant rows get covitzt. They are screwed, imo.

I think I will see the Roosevelt mall in LI getting gutted out in the next 20 years, just to name one example.

How arent they operating from a position of strength? Name one other landlord currently making acquisitions? Name another landlord currently raising capital, at will, at 2-4% rates going out to 2050? What should they be doing, buying companies pre-bankruptcy or propping shit up like BAM is doing?

While the narrative you mention is popular, and currently whats driving the share price, its already been debunked, not only by the above, but by the clear and unmistakable fact that we've already seen what happened once they government gets out of the way. Restaurants and experience oriented operations and not dead, or "covitzed". Not even close, once people are allowed to go back they flock there in droves. Which is why you are seeing, even still now, post Covid, quality restaurants trading hands at sub 5 cap rates. The biggest short term risk is the government forcing shutdowns. The largest mistake in fact was shutting things down, because it gave everyone from Joe Schmoe to Gap a semi legitimate excuse to stop paying their bills. But Simon, as they've shown, can weather that. Q2 payout was $1.30, with that being the minimum for 3&4.

I think Gregmal is right on target here. 

Don't get me wrong, I think SPG is playing some defense here.  If these retailers stop paying rent and vacate their stores, SPG is going to have some co-tenancy issues, in addition to not collecting rent from the vacant space.  I suspect the cost of these potential/future co-tenancy issues is far greater than the cost of picking up these retailers from bankruptcy.  Apparel and soft goods are not sexy businesses, and they certainly aren't lucrative.  But, after stripping out the debt through bankruptcy, most of these retailers are break-even or slightly profitable, after paying their rent.  So SPG picks them up from bankruptcy, keeps them in operation (likely at break-even or slightly profitable, after the rent is paid), keeps the space occupied so SPG can collect rent AND prevent co-tenancy issues.  And in the future, when the economy is in better shape, I'll bet SPG spins them off or sells them to recoup their investment. 

I think think there is one other overlooked benefit here.  When SPG takes over the retailers and their distribution operations, there is the opportunity to restructure the distribution operations to better leverage mall space as a "last-mile distribution hub".  Using some mall space as a "last-mile distribution hub" will speed up delivery to home, occupy additional space at the mall (generating additional rent) and possibly reduce the amount of space currently needed at larger distribution centers.  I see this as a way for malls to fight back against Amazon, using their centrally-located A and B malls to provide last-mile distribution points.  Existing space, existing loading docks, and prime locations puts them in a great position to do this.   

I'll add one underlying thought/assumption, which informs my thoughts above.  I have used Amazon (and Amazon Prime) for a long time.  I like it.  But even after many years of using it, it still only occupies a very small percentage of my retail spending, and that percentage is not growing.  Most of the retail spending I do is in-person.  This is approach is typical amongst my friends and colleagues.  In light of this, I tend to think that malls and Amazon will co-exist long into the future, with certain purchases more likely on Amazon, and certain purchases more likely in malls.     

   
Title: Re: SPG- Simon Property Group
Post by: Gregmal on July 10, 2020, 09:49:15 AM
Yes, exactly. Further, I think folks are greatly overestimating their focus and concerns with respect to buying these retailers. You're talking about a $50B EV juggernaut who can raise capital at 3% spending 8 to low 9 figures, almost always with a JV partner(s), through an SPE. Even if Simon was taking these companies down themselves, the figures are rounding errors.

I can also see this eventually resulting in "Simon exclusive" brands, either only available at Simon locations, possibly driving traffic growth, or giving optionality on the licensing. And to a degree, yes, if they kick the can down the road, while, mind you, continuing to make money, for 10 years, this is a home run because thats more than enough time to continue to gradually reposition and redevelop a good chunk of their locations.

And another point, the "death of brick and mortar" is just the latest infatuation. PCs were supposed to be goners following the GFC; Dell and HP were going bust. Heck even Eastman Kodak is still around. People just like stories and narratives. But the businesses hang around quite a long time, and the top performing locations(heck even Blockbuster) will stay around even longer. In fact they rely more and more on their best locations to stay afloat. If all or most of those locations happen to be at Simon locations, well, the "death of retail" doesnt really matter very much.
Title: Re: SPG- Simon Property Group
Post by: fareastwarriors on July 23, 2020, 05:44:07 PM

Mall owner Simon and Authentic Brands make $305 million bid for bankrupt Brooks Brothers, aiming to keep over 125 stores open


https://www.cnbc.com/2020/07/23/mall-owner-simon-and-authentic-brands-bid-305-million-for-brooks-brothers.html (https://www.cnbc.com/2020/07/23/mall-owner-simon-and-authentic-brands-bid-305-million-for-brooks-brothers.html)

A company known as Sparc LLC, which is comprised of the U.S. mall owner Simon Property Group and the apparel-licensing firm Authentic Brands Group, is making a $305 million bid for bankrupted Brooks Brothers.

The offer, still subject to better and higher bids and court approval, is to keep at least 125 of Brooks Brothers’ stores open for business.
Title: Re: SPG- Simon Property Group
Post by: Spekulatius on July 23, 2020, 06:12:00 PM

Mall owner Simon and Authentic Brands make $305 million bid for bankrupt Brooks Brothers, aiming to keep over 125 stores open


https://www.cnbc.com/2020/07/23/mall-owner-simon-and-authentic-brands-bid-305-million-for-brooks-brothers.html (https://www.cnbc.com/2020/07/23/mall-owner-simon-and-authentic-brands-bid-305-million-for-brooks-brothers.html)

A company known as Sparc LLC, which is comprised of the U.S. mall owner Simon Property Group and the apparel-licensing firm Authentic Brands Group, is making a $305 million bid for bankrupted Brooks Brothers.

The offer, still subject to better and higher bids and court approval, is to keep at least 125 of Brooks Brothers’ stores open for business.

Ascena has ~2800 stores and just went bankrupt too. There are plenty more opportunity for SPG to roll up the complete B&M retail sector.
Title: Re: SPG- Simon Property Group
Post by: glorysk87 on July 24, 2020, 07:29:33 AM
LOL now going after Brooks Brothers. A personal favorite brand. Say what you will about the sector, but these guys definitely seem to be playing offense.

I'd also add, that while there are plenty of Pier 1's out there, the issue with a lot of these retailers isn't sales or profitability, its waayyyy tooo much debt, usually the result of being private equitied a few too many times.

They are not playing offense, they kick the cans down the road. A lot this retailers like Brooks won’t exist 10 years from now, but SPG can’t afford to have vacant spaces in their malls so they have to keep zombies alive.

The whole thesis that malls can become office spaces, experience Locations and Restaurant rows get covitzt. They are screwed, imo.

I think I will see the Roosevelt mall in LI getting gutted out in the next 20 years, just to name one example.

Not sure I follow this train of thought. SPG has worked with Authentic Brands Group in the past to acquire particular assets of bankrupt retailers. To me this is just smart management of the business. Take ownership of a bankrupt tenant, provide them with capital to reorganize and maintain operations - maintains occupancy and rent for SPG, and provides them with a very cheap option on the value of the brand (and Brooks Brothers is a high quality brand). More likely than not they'll see a nice gain on investment, similar to the play they ran with Aeropostale.

Also, it's not just SPG that does this...this is a pretty tried and true exercise for the REITs. Plenty of others have done the same. It's just smart business, especially for the minimal amount of capital they need to invest.
Title: Re: SPG- Simon Property Group
Post by: Gregmal on July 24, 2020, 07:46:18 AM
I posted in another thread some time ago but think its relevant here too.. but imagine if WEB invested based on narratives or where consensus about the stock price a week or quarter down the road would be?


WEB: Hey Charlie, what do you think about Amex here?

Charlie: Nah bro, its got problems. Fraud. probably going lower

WEB: Good point, Ill pass



WEB: Charlie, the S&L crisis seems to be taking even the best banks with it, but doesnt Wells look great here?

Charlie: Nah bro, banks are in trouble. You'll probably lose money on it this year...

WEB: Very true, pass


Goldman banker: Hey Warren, we need capital, name your terms. Whatever you want

WEB: No thanks. Scary times ahead of us. Did you see what happened to Lehman and Bear?







Title: Re: SPG- Simon Property Group
Post by: petec on July 26, 2020, 10:35:29 PM
propping shit up like BAM is doing?

Greg what are you referencing here?
Title: Re: SPG- Simon Property Group
Post by: Gregmal on July 27, 2020, 12:16:46 AM
propping shit up like BAM is doing?

Greg what are you referencing here?

The BPY tender offer.
Title: Re: SPG- Simon Property Group
Post by: Gregmal on July 27, 2020, 07:51:21 AM
https://shoppingcenterbusiness.com/parkway-kkr-complete-10-million-renovation-of-brickell-miami-office-tower-sign-three-retail-tenants/

Retail leases being signed in Miami? No way bro.
Title: Re: SPG- Simon Property Group
Post by: petec on July 28, 2020, 05:58:29 AM
propping shit up like BAM is doing?

Greg what are you referencing here?

The BPY tender offer.

Ah ok.
Title: Re: SPG - Simon Property Group
Post by: Gregmal on August 09, 2020, 02:02:16 PM
https://www.wsj.com/articles/amazon-and-giant-mall-operator-look-at-turning-sears-j-c-penney-stores-into-fulfillment-centers-11596992863?mod=hp_lead_pos1

Owning the dirt gives you plenty of options....looks like they may not even need to demo the whole mall to go the "industrial/warehouse" route.
Title: Re: SPG - Simon Property Group
Post by: Spekulatius on August 09, 2020, 02:13:16 PM
https://www.wsj.com/articles/amazon-and-giant-mall-operator-look-at-turning-sears-j-c-penney-stores-into-fulfillment-centers-11596992863?mod=hp_lead_pos1

Owning the dirt gives you plenty of options....looks like they may not even need to demo the whole mall to go the "industrial/warehouse" route.

How much can they charge /sqft renting part of the mall as warehouse? It’s a lesser use for sure. It also rounds counter network effects of a mall, if you rent out part of it for other purposes.
Title: Re: SPG - Simon Property Group
Post by: Mephistopheles on August 09, 2020, 02:33:38 PM
https://www.wsj.com/articles/amazon-and-giant-mall-operator-look-at-turning-sears-j-c-penney-stores-into-fulfillment-centers-11596992863?mod=hp_lead_pos1

Owning the dirt gives you plenty of options....looks like they may not even need to demo the whole mall to go the "industrial/warehouse" route.

How much can they charge /sqft renting part of the mall as warehouse? It’s a lesser use for sure. It also rounds counter network effects of a mall, if you rent out part of it for other purposes.

I'm sure they can't charge much but even for department stores they were never able to charge much. This is probably even better in that it is lower capex than dept stores. It does take away from the network effects to some degree if the mall is thought of in a traditional sense. But the mall of the future is mixed uses - gyms, restaurant, bars, entertainment, office/hotel (maybe not anytime soon).

I think the best value for the dirt is in that malls are strategically located near major highways which incidentally is exactly what you need for warehouses. Additionally thanks to NIMBYism, there might not be many other options in some communities. Not to mention lower construction costs since the plumbing, electric, walls, etc. are already there.
Title: Re: SPG - Simon Property Group
Post by: Gregmal on August 09, 2020, 02:42:00 PM
Not really. I'd guarantee theyre getting more than the $5 sq/ft Sears and JCP are currently paying. The future of any mall is not going to be 100% retail. As we continue to see, they have many, many different options here. Location is key. SPG has it.

EDIT: Further, if the thesis was that they'd get $5 a sq ft for their anchors and their anchors were all going out of business in the next 5 years....getting anything kind of debunks that and automatically improves the profile... These guys are world class operators.
Title: Re: SPG - Simon Property Group
Post by: Gregmal on August 09, 2020, 03:08:22 PM
https://www.wsj.com/articles/amazon-and-giant-mall-operator-look-at-turning-sears-j-c-penney-stores-into-fulfillment-centers-11596992863?mod=hp_lead_pos1

Owning the dirt gives you plenty of options....looks like they may not even need to demo the whole mall to go the "industrial/warehouse" route.

How much can they charge /sqft renting part of the mall as warehouse? It’s a lesser use for sure. It also rounds counter network effects of a mall, if you rent out part of it for other purposes.

I'm sure they can't charge much but even for department stores they were never able to charge much. This is probably even better in that it is lower capex than dept stores. It does take away from the network effects to some degree if the mall is thought of in a traditional sense. But the mall of the future is mixed uses - gyms, restaurant, bars, entertainment, office/hotel (maybe not anytime soon).

I think the best value for the dirt is in that malls are strategically located near major highways which incidentally is exactly what you need for warehouses. Additionally thanks to NIMBYism, there might not be many other options in some communities. Not to mention lower construction costs since the plumbing, electric, walls, etc. are already there.

This is already happening.

https://www.bizjournals.com/washington/news/2018/05/18/stay-shop-marriott-expands-its-partnership-with.html

https://www.bizjournals.com/seattle/news/2019/02/25/simon-property-group-nhl-northgate-hocky-leiweke.html

People are just blinded by the narrative.
Title: Re: SPG - Simon Property Group
Post by: Mephistopheles on August 09, 2020, 03:16:56 PM
Not really. I'd guarantee theyre getting more than the $5 sq/ft Sears and JCP are currently paying.

Depends on location. The avg nationawide rent/ft for a pure play warehouses is right around that number. I think GRIF charges that in Lehigh Valley. If you're talking about say NYC, then it's 4x as much. Idk how much SHLD or JCP paid in NYC.
Title: Re: SPG - Simon Property Group
Post by: Gregmal on August 09, 2020, 03:34:22 PM
True, but in any event, one narrative after another continues to fall and this, if accurate, seems consistent with what has been hinted at for a while and scoffed at by many.

Every time there is a retail bankruptcy, its like "OMG see!", but most dont understand how a bankruptcy works and if you look at the figures, who cares? Its not as though the leases are being rejected(by and large) in BK court. I'd further argue that a bankruptcy just further makes those companies reliant on their top grossing locations...another advantage to Simon.

They are the only company I am aware of who isn't viewed as savvy when they buy out other companies at pennies on the dollar with JV partners; in fact, its skewed as a negative despite already demonstrating the ability to turn this into a windfall. Further, bankruptcy, especially in retail, does not equal failure if you have any familiarity with the way private equity bleeds these things. But the perception remains...brand goes BK= worthless, SPG buys it = desperate.

The model is already out there. Look at the high end casino buildups. Entertain, living, convenience, except these will be just outside/in major cities. COVID significantly accelerated this. Trough earnings should be now through the next 18-24 months IMO. And its not like we're going to have to worry about profitability.

This was just written up on VIC last week as well FYI.
Title: Re: SPG - Simon Property Group
Post by: Gregmal on August 10, 2020, 01:24:19 PM
$2+ FFO during Q2, US mall occupancy 93%, Base minimum rent per square foot was $56.02 at June 30, 2020, an increase of 2.8% year-over-year(certainly not driven by JCP or SHLD)


The Company has collected from its U.S. retail portfolio, including some level of rent deferrals, approximately 51% of its contractual rent billed for April and May combined, approximately 69% for June and approximately 73% for July with only de minimis deferrals.  These percentages have not been adjusted for any rent abatements granted.     

Massive contrast to BPY

#retailislikesuperdead
Title: Re: SPG - Simon Property Group
Post by: racemize on August 10, 2020, 02:37:12 PM
$2+ FFO during Q2, US mall occupancy 93%, Base minimum rent per square foot was $56.02 at June 30, 2020, an increase of 2.8% year-over-year(certainly not driven by JCP or SHLD)


The Company has collected from its U.S. retail portfolio, including some level of rent deferrals, approximately 51% of its contractual rent billed for April and May combined, approximately 69% for June and approximately 73% for July with only de minimis deferrals.  These percentages have not been adjusted for any rent abatements granted.     

Massive contrast to BPY

#retailislikesuperdead

BPY said this:
Quote
Rent collections in this portfolio in the second
quarter were approximately 34%, with July collections trending significantly stronger.

Looks like SPG is counting rent deferrals as part of collection.  Unclear if BPY did.
Title: Re: SPG - Simon Property Group
Post by: Spekulatius on August 10, 2020, 03:46:45 PM
Watch the tenant receivables in the cash flow statement  -623M (or ~60% of the Q2 “revenues”). This number was positive by 48M last year.
Those revenues And FFO’s are all hot air.
Title: Re: SPG - Simon Property Group
Post by: Gregmal on August 10, 2020, 04:44:20 PM
Call was decent. Muted on the Amazon stuff but indicated worst was seemingly behind it(duh), although still will be issues with certain tenants. See Gap... but thats a case of scumCo trying to milk the situation rather than inability to pay. Frankly if I was DS I would just lock all the doors at Gap, Old Navy and Banana. Take a hike chumps. Otherwise seemed pretty honest about the challenges ahead and also the opportunities. Expecting to have the original capital outlay from JV's returned within a year. Only malls not open are predictably in CA.

Deferrals and abatements are largely par for the course/industry standard, and at least at face value, came in better than most peers. If this was the doomsday quarter....yea. Sign me up.
Title: Re: SPG - Simon Property Group
Post by: Spekulatius on August 10, 2020, 05:11:58 PM
The quarter wasn’t good at all. I read the transcript and can’t really follow Simon’s disclosure. He is not giving out straightforward numbers. They were also drilled on the receivables issue that caught my attention and the answer was evasive, Imo

Excerpt:
Quote
Nicholas Yulico

I'm just trying to reconcile a couple of numbers here. I know you gave the collection data, which is inclusive of deferrals for April, May, June. They ran between 50% of contractual rent to 70%. And in those months yet, if we look at your cash flow statement in the 10-Q, it's showing that your quarterly cash flow from operations were down over 90% if you just try and figure out what the quarter number is, not the 6-month number. So I mean that would presumably mean a pretty low cash collections number.
Title: Re: SPG - Simon Property Group
Post by: Gregmal on August 10, 2020, 05:36:56 PM
The quarter wasn’t good at all. I read the transcript and can’t really follow Simon’s disclosure. He is not giving out straightforward numbers. They were also drilled on the receivables issue that caught my attention and the as wer was evasive, I o

Excerpt:
Quote
Nicholas Yulico

I'm just trying to reconcile a couple of numbers here. I know you gave the collection data, which is inclusive of deferrals for April, May, June. They ran between 50% of contractual rent to 70%. And in those months yet, if we look at your cash flow statement in the 10-Q, it's showing that your quarterly cash flow from operations were down over 90% if you just try and figure out what the quarter number is, not the 6-month number. So I mean that would presumably mean a pretty low cash collections number.

I mean I dont think anyone is going into the Q expecting dazzling, tailwind driven numbers. Certainly wasn't the expectation a few months ago, nor the expectation at a $6x.00 print. But the numbers being reporting arent different than whats reported across the board. Everyone was government mandated shut for April, most May as well, and many March. So Q1 you got a hint of the impairments coming as far as rent checks being received. Q2, at best half the Q was nil. What you and the analyst are referring to, correctly, is indeed "hot air", but its also industry standard for reporting. Why would they be reporting differently than everyone else has to date? You come to an agreement on deferrals, or lease extensions, or in some cases amendments that make the lease non rejectable, it gets thrown into the column of "received". So its accounted for in some cases upfront when yea, there is an extending risk that paying back 2 months in the back half of the year never happens...but this is much less a concern with a normal store than it likely is for a movie theatre, gym or bar. Is this bs accounting across the board? Probably, but its the same exact terms the banks/lenders use/have used, even pre COVID for most covenant related issues. A LOC with a XX day delinquency trigger is not tripped despite non cash payment if there are renegotiations, abatements, or modifications related to a lease extension. The same type of stuff we're talking about here.

So "good"? OK, sure whatever. Same way VNO, SLG, BAM, every single other company didnt report an aesthetically "good" quarter. If this is the "disaster"/kitchen sink/end of world Q....The sky isn't falling after all. Thats good.