Premium Malls Strained By Online Competitors

Top-tier malls in the country, once thought to be impervious to the changing retail landscape, have been struggling lately, according to a report by The Wall Street Journal.

Landlords at popular malls are warning that income is going to continue to slow down as more people continue to shop online instead of at brick-and-mortar locations.

Simon Property Group is the owner of Phipps Plaza in Atlanta and King of Prussia mall in Pennsylvania. During a recent earnings call, Simon Property Group said recent retail bankruptcies have “negatively impacted” the company’s Q3 income and it had to lower yearly guidance on net income to a range of 6.76 to $6.81 a share, from an earlier range of $7.04 to $7.14 a share.

Another example is Taubman Centers Inc., which owns The Mall at Short Hills in New Jersey and the Beverly Center in Los Angeles.

Taubman also had to lower its 2019 guidance and also dropped its net operating income growth from 1 percent to zero, which is down from the previous estimate of 2 percent. William Taubman, the CEO of the company, blamed the bankruptcy of Forever 21.

“Forever 21’s bankruptcy has disproportionately impacted ‘A-malls’ and Taubman Centers specifically,” he said.

Because of a mix of restaurants and retail, about 260 top-tier malls in the country were considered to be protected from the rampant store closings and bankruptcies that have affected smaller malls around the country.

However, landlords have been forced to cut rents at these types of malls to keep stores there, and that’s affecting revenue.

Forever 21, for example, was going to close 178 stores, but that number dropped to 87 after landlords agreed to reduce rent, but then they were forced to lower earnings projections as well.

Stocks in malls have fallen so much that analysts think it might be time to start buying. Dividend yields at Taubman hover around 9 percent, and at Macerich at 11 percent.