Simon Property Group Inc., a publicly traded real estate investment trust and the largest U.S. shopping mall owner, is experiencing difficulties due to a wave of mall and retail store closures.
Simon Property Group’s struggle to keep malls alive reflects broader trends within the real estate investment trust industry, which is on a decline from less foot traffic in stores and the rise of online shopping via e-commerce platforms.
Commonly known as REITs, real estate investment trusts are companies that own and operate real estate assets that generate income by selling shares to raise capital.
Simon Property Group’s recent challenges involve its ownership of Forever 21, a clothing brand that is closing over 200 locations and could soon face bankruptcy. Simon Property Group owns a 37.5% stake in Forever 21.
To prevent a complete collapse, Simon Property Group, along with Authentic Brands Group and Brookfield Property Partners, bought all of its assets for $81 million. However, following closures, Forever 21 has now become a liability that further worsens the company’s financial position.
Forever 21 has already closed its only store in Idaho at Boise Towne Square Mall. As one of the largest stores in the shopping center, its vacancy reduced foot traffic, adding pressure to some of the already struggling retail brands to join the closure.
Recently, Simon Property Group sold retail space at The Shops at Nanuet, one of its struggling malls in Rockland County, New York, to local real estate developers. The company aims to change their strategy by revitalizing mid-tier “B” grade malls after years of prioritizing “A” grade malls.
Over the next two years, Simon Property Group plans to fill vacant space in underperforming malls, outlets, and renovate to modernize spaces.
Simon Property Group’s price-to-funds from operation ratio — a metric that helps investors determine whether the company is overvalued or undervalued — is 16.37, indicating a moderate performance which could decline further from additional mall or store closures.
In November 2024, Simon’s quarterly fund from operations declined to $2.84 per share compared to $3.20 from the previous year. However, by February, Simon’s change in strategy helped rebound to $3.68 per share, surpassing analysts’ prediction of $3.41.
Simon Property Group CEO David Simon recently announced a plan to improve Smith Haven Mall on Long Island by signing a lease agreement with a major retailer. He expects a 12% return on investment from the mall within the first two years.
