Simon continues to make distressed shopping centers

As Simon Real Estate Group From the punch of the coronavirus pandemic to retail, the REIT continues to ditch smaller, underperforming malls.

Wikimedia Commons / John Phelan

The Square One Mall in Saugus, Massachusetts.

Last week Simon relinquished ownership of an Atlanta mall in a foreclosure auction that saw no bids. In November, the FPI ceded control of at least four other properties in the mall she controlled. This week, according to Fitch Ratings, the mall operator is over 60 days behind on an $ 85.6 million loan supporting a Boston-area mall for the second time in four months.

The news comes after a weak earnings report on Monday, in which Simon reported a $ 1 billion drop in revenue and revenue from 2019 to 2020. During the company’s earnings call Monday night, the chairman- Managing Director David Simon has acknowledged that he will work with open lenders. to take over some of the REIT’s worst performing shopping centers.

“In some cases, they will be restructured, mutually agreed upon; and if not, and the special duty agent would like to own the real estate, we are more than happy to cooperate and do so in a professional manner, ”Simon said on Monday, according to a transcript of the call. “It is absolutely in the best interests of Simon Property Group shareholders that the decisions we make on this front … [We] hope to make deals in some cases, otherwise they will no longer be part of our portfolio, and we wish this new owner the best of luck. “

Simon is once again in default of interest payments on his part of the Square One shopping center in Saugus, according to special service memos. Simon lists the mall in a section of his results report titled “Other Properties.”

Also on this list are many shopping malls that Simon has returned to lenders in recent months, such as the 1.2M SF Town Center in Cobb near Atlanta, The Mall at Tuttle Crossing in Ohio, Crystal Mall in Waterford, Connecticut, and the Southridge Shopping Center in Wisconsin.

Simon also included the Emerald Square shopping center in North Attleboro, Massachusetts, on the list, which went into receivership in November, The Sun Chronicle reported. A manager appointed by the court is currently looking for a new owner.

It is unclear what purpose to list on Simon’s balance sheet is, but the combined properties represent over 14 million square feet of Simon’s 180 million square foot US portfolio, or 7.9%. Simon owed a combined $ 714 million on those properties at the end of 2020.

The other shopping centers included in the “other properties” list are:

  • Calhoun Outlet Market in Calhoun, Georgia.
  • Circle Center shopping mall in Indianapolis.
  • Dover Mall in Dover, Delaware.
  • Florida Keys Outlet Marketplace in Florida City, Florida.
  • Gaffney Outlet Marketplace in Gaffney, South Carolina.
  • Liberty Tree Mall in Danvers, Massachusetts.
  • The Orlando Outlet Marketplace in Orlando, Florida.
  • Osage Beach Factory Market in Osage Beach, Missouri.
  • Philadelphia Mills in Pennsylvania.
  • Sugarloaf Mills in Lawrenceville, Georgia.
  • The Avenues in Jacksonville, Florida.
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The Square One Mall in Saugus, Massachusetts.

The 542K SF Square One Mall located at 1201 Broadway off Route 1 went into special service in July. The loan was amended in September after being past due for more than 60 days, but special service Rialto Capital Advisors noted that Simon is more than 60 days past due for the second time in four months.

The Simon-owned portion of the mall is 81.1% leased, according to Fitch Ratings, but the mall as a whole is only 66% occupied after leaving. Sears in September. Its revenue and cash flow have declined significantly this year due to the pandemic, despite the continued performance of leased anchors Dick’s Sporting Goods and TJ Maxx. Vacant Sears and Macy’s still open in the mall are not part of the loan collateral.

Fitch projected an expectation of loss of about 49% of the appraised value of the property, which was subscribed at $ 201m when the CMBS loan was issued in 2011. Simon is 12 months before the loan matures, with an outstanding balance of 85, $ 6 million.

While the small malls in Simon’s portfolio generate net operating income of a few million dollars, the REIT’s high-end assets such as Copley, South Shore and North Shore malls near Boston are the driving forces. that will fuel its recovery, said Piper Sandler Equity Research Managing Director Alexander Goldfarb, an analyst who covers the REIT.

“From our perspective, from an investor perspective, it’s the malls that rely on that you really focus on,” Goldfarb said. “Copley, Rive-Sud, Rive-Nord, these are the power plants. I’m sure Saugus Mall is a nice mall, but there is [other] production centers in the Boston subway. “

Goldfarb referred to David Simon’s comments following Monday’s fourth quarter earnings report, in which the REIT reported a 17.1% drop in NOI in 2020 due to reduced revenue from cuts. rent, rising irrecoverable rents and a reduction in property income. Simon’s earnings beat analyst estimates and it anticipates a comeback for most of its properties.

“Their major centers generate over $ 50 million in NOI,” Goldfarb said. “If you have a few centers, and I’m not trying to blame a few, but if you have a few where the NOI contribution is a few million dollars, it really doesn’t matter. importance, doesn’t it? Heck, one of their best malls could easily do this on vacation, a temporary income. “

Simon reported a down nearly $ 1 billion rental income in 2020, attributing the decline in income to a loss of approximately 13,500 days of shopping at Simon’s portfolio properties. The mall operator also had $ 331 million in deferral agreements and $ 410 million in allowances.

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