Simon Property Group Maybe you want the bankrupt J.C. Penney own to redevelop some of his best real estate and make it even better, according to an analyst.
“We believe Simon wants to control the J.C. Penney boxes and the country so that ultimately many of them can be redeveloped to compress and introduce mixed-use items,” said Floris van Dijkum, real estate analyst at Compass Point. “Redevelopment (which would require permits, capital and time to zoning) could add significantly more value while increasing retail traffic.”
Simon is considering teaming up with him Brookfield properties and the parent company of Barneys New York, Authentic Brands Group, to bid for J.C. Penney, a person who is familiar with the talks, told CNBC. The person asked for anonymity because the discussions are private and still ongoing.
Simon, the country’s largest mall owner, has a Penney store in about 50% of his U.S. malls, according to van Dijkum’s analysis. There were 63 Penney stores at the end of the first quarter. The property’s value for Penney’s own stores, not for the leased locations, is estimated to be over $ 1 billion, he said.
Struck by the coronavirus pandemic Penney suffered from excessive debt and applied for Chapter 11 bankruptcy protection in May, at which point the company had around 850 locations, but has already started to downsize its portfolio of businesses. The addresses of more than 100 locations have recently been announced closed in summer.
Still, even after these closures, Penney will have hundreds of stores and will remain one of Simon’s largest anchor tenants, just behind the department store chain Macy’saccording to documents filed with the Securities and Exchange Commission.
Representatives from Simon, Brookfield and ABG were not immediately available to comment on this story. Penney declined to comment.
Before the Covid-19 crisis temporarily closed American malls, according to Compass Point, Simon had an average of $ 673 in sales per square foot. A Penney store typically occupies 12% of the total area of a mall, but is very low in productivity and has sales of around USD 114 per square foot, said van Dijkum.
Penney is still open in some of Simon’s top-selling A-rated malls, including Roosevelt Field in East Garden City, New York; Fashion Valley in San Diego; Aventura Mall in Aventura, Florida; and Woodfield Mall in Schaumburg, Illinois.
“The expected joint offer from Simon and Brookfield Retail, the second largest US mall owner, with Authentic Brands for JC Penney makes strategic sense … as these two rental companies could control the redevelopment of some of their best assets.” van Dijkum explained to the customer in a Tuesday note.
“We currently have little insight into the financial aspects, but we could see significant potential for added value if mall owners should improve control over their most valuable assets and land.”
If this deal were done, Simon would take over a retailer for the third time recently. The company bought the youth clothing retailer Aeropostale 2016 from bankruptcy. With Brookfield and ABG, Forever 21 bought it out of bankruptcy in February at a price of $ 81 million.
Jamie Salter, CEO of ABG, told CNBC earlier this month Despite his declining sales, he saw Penney as a brand worth saving.
“I think there is a place for J.C. Penney,” Salter said on the phone interview. “They faltered. They didn’t really find their place. … But I think there is a play for JC Penney. I think JC Penney needs a purpose. And I have my ideas what it should be. ”
Salter did not speak directly to Penney during the bankruptcy proceedings.
Although Simon CEO David Simon has publicly touted how the property owner has made money from his aeropostale business, it suggests the company could make more such acquisitions, not everyone on Wall Street believes this is safe betting.
“I think investors would rather see how they spend capital on their business,” Mizuho Securities analyst Haendel St. Juste told CNBC.
“It feels like it’s a slippery slope,” he said. “I understand they’re big tenants. But it’s none of your business.”
In the meantime, Simon is trying to get out of his business to buy a high-end mall owner TaubmanThe pandemic has had a disproportionate impact on Taubman’s business.
Simon said on June 10 that it would end the merger that was announced on February 10. But Taubman replied that it would “vigorously challenge Simon’s alleged termination.” The dispute has since entered a mediation phase, with a process scheduled for later this year.
The Simon share closed less than 1% on Tuesday. The stock fell more than 54% this year, increasing the company’s market cap to around $ 21 billion.
In a press release released on Monday, Simon said 199 of its 204 properties in the US were reopened during the Covid 19 pandemic. Together, the properties generate 95% of their operating profit. The last five properties should reopen next week.
“Many tenants have reported higher than expected conversion rates and sales since reopening,” said Simon.