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Simon Unveils $4B Investment for Transformational Projects


When store closures and retailer bankruptcies are creating a wreck for retail REITs, industry leader, Simon Property Group Inc. SPG, surely knows how to turn around. The company has now launched a $4+ billion of investment plan to transform its properties aimed at creating value and drive footfall at its properties.

Specifically, for Phipps Plaza in Buckhead (Atlanta), Georgia, its transformational efforts comprise inclusion of a boutique hotel and a restaurant from the luxury brand Nobu, a LifeTime wellness center, a Class-A office building and a dining experience. Moreover, enhancements at the King of Prussia (Greater Philadelphia), Pennsylvania property will include outdoor plaza, residences, a hotel and Class A office building.

In the thriving Denver market, the company will open its latest Premium Outlets center — Denver Premium Outlets — in Thornton, CO, this fall. The company has also announced transformative measures at The Colonnade Outlets in Sawgrass Mills, Sunrise, FL, and The Edit@Roosevelt Field, Long Island, NY. Moreover, the prior pure-play e-tailers, including Casper, UNTUCKit, Bonobos, and Blue Nile are seeking to bring their brands in new ways at Simon centers. In fact, the experiential concepts are gaining traction and Simon is banking on it while transforming its properties.

Moreover, in April, Simon Property announced the company’s transformational redevelopment plans for the former Sears stores, at five major locations. This move will help the retail REIT draw more traffic to these malls in order to benefit the existing retailers. The properties included in the refurbishment plan are Brea Mall (Brea, CA), Burlington Mall (Burlington, MA), Midland Park Mall (Midland, TX), Ocean County Mall (Toms River, NJ), and Ross Park Mall (Pittsburgh, PA). Enhancements to the properties include entertainment, fitness, restaurants and dining pavilions, residential, hotel and office, as well as new retail brands.

Admittedly, mall traffic continues to suffer due to the rapid shift in customers' shopping preferences, with e-retail taking precedence. In fact, with e-commerce gaining market share from the brick-and-mortar stores, retailers are compelled to reconsider their footprint and eventually opt for store closures, while others unable to cope with competition have been filing bankruptcies.

This has also resulted in tenants demanding substantial lease concessions, which, however, mall landlords find unjustified. As such, retail REITs like Simon Property, GGP Inc. GGP, Kimco Realty Corp. KIM, Macerich Company MAC, and others have felt the heat, and the companies’ share prices have been suffering for the past 12 months.

Amid these, Simon is making heavy investments not only to elevate the value of its retail properties but also for exploring mixed-use development option which has gained immense popularity in recent years. Such developments lower the distance between housing, workplaces, retail businesses, and other amenities and destinations. Hence, such developments enable companies to grab the attention of people who prefer to live, work and play in the same area — a trend that drove development in several other cities in the United States.

However, the implementation of such measures requires a decent upfront cost and therefore, would limit any robust growth in its profit margins in the near term. Also, rate hike has added to its woes.

Simon Property has a Zacks Rank #3 (Hold). The stock has gained 1.2% in a month’s time, while the industry has declined 1.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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