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Here's Why Simon Property Group Will Win Against E-Commerce

By Matthew Frankel, CFP® - Feb 26, 2021 at 6:53AM

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E-commerce is a legitimate concern for retail businesses, but this mall operator is in a league of its own.

The retail industry was struggling before the COVID-19 pandemic caused store closures and accelerated consumer adoption of e-commerce. However, mall real estate investment trust Simon Property Group (SPG -1.09%) is investing heavily to turn its properties into destinations, not just malls. In this Fool Live video clip, recorded on Feb. 16, Millionacres real estate analyst Matt Frankel, CFP, and editor Deidre Woollard discuss why Simon can be a long-term winner even as e-commerce continues to grow. 

Matt Frankel: There's the Arundel Mills in Baltimore, that's a Simon Center that's pretty impressive. There's a Medieval Times in there, just an entertainment venue to bring people and there is a casino attached to the mall. Maryland Live is attached to that mall. It creates a destination feeling more than any other mall operator in the world does. Not all of Simon's malls. They want all of their malls to become destinations. Like I said, they have very deep pockets to make it happen. But Simon is really turning their properties into destinations. I thought at $50 a share earlier in the pandemic, Simon was the biggest no-brainer stock in the market.

Deidre Woollard: I would agree with that. Do you have any reservations about them buying more retail? I mean, on the earnings call, it sounded like David Simon did talk about the Forever 21 thing. He is obviously very proud of that. Do you feel like they're going to do some more of that?

Frankel: Well, we haven't talked about their SPAC yet. I think they could do it through that. I think the market might like that better. I was talking about how profitable the Forever 21 thing has been. Share it with your shareholders a little bit if you can get a deal like that. I would almost love to see them take a high-value brand public again, that was struggling through that SPAC. You leverage their expertise, leverage their massive portfolio of real estate. I don't think they are done acquiring retailers.

I hope that we've seen the last of this wave of retail bankruptcies, at least where a prominent name is going bankrupt every month like we saw during the pandemic for a while. I think that's a big part of their strategy going forward, it gives them a guaranteed tenant, it'll keep their occupancy high. They get some of the profits so it's not just a real estate play. One of the reasons I like some of the healthcare REITs so much is because they run their senior housing properties as partnerships, not just landlord-tenant. That lets the REIT benefit from when the business does well. I have an entrepreneurial mindset. I like to see that Simon giving itself some kind of profit streams other than just rental income. I think in good economies, if Simon can really figure out how to make all of their malls destinations, owning some of the retail brands in them will pay off tremendously.

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