eResearch | Retail brands who generate most of their revenues through brick-and-mortar stores were hit hard by the pandemic, which resulted in numerous bankruptcy announcements, providing an opportunity for property owners and brand management firms to acquire the assets of established brands at a steep discount.
Property owners, especially those focused on retail, experienced a significant decline in revenues as most shopping and retail centers closed down when the pandemic was announced in March.
As a result, property owners are scrounging for new methods to generate revenues from acquiring discounted brands to re-purposing large department store spaces.
Earlier this month, eResearch published an article highlighting quarterly results from REITs including National Retail Properties (NYSE: NNN), Macerich (NYSE: MAC), and RioCan (TSX: REI.UN). The commercial real-estate market was significantly impacted by the COVID-19 pandemic, leaving retail businesses and tenants unable to pay rent due to lower or non-existent sales.
- August 2020: REITs – National Retail Properties, Macerich, and RioCan Report Q2/2020 Earnings as COVID-19 Significantly Impacts Profits
Simon Property Group
Simon Property Group (NYSE: SPG) is the largest retail-focused REIT and mall operator in the U.S., who was forced to close all of its U.S. shopping centers at the start of the pandemic. SPG is currently focused on acquiring distressed retail assets, while strategizing new methods to generate revenues from vacated retail spaces.
According to the Wall Street Journal, SPG and Brookfield Property Partners (NASDAQ: BPY) are together attempting to buy real estate properties and assets of J. C. Penney (OTC: JCPNQ), a recently bankrupt U.S. department store who currently operates 604 locations, down from 846 locations due to the pandemic.
As SPG and BPY are two of J. C. Penney’s largest landlords, they are sweetening the deal by adding lease concessions on past rents. In addition, anchor stores such as J. C. Penney are important to shopping centers, as it attracts foot traffic for other stores.
Furthermore, the loss of an anchor tenant can also trigger co-tenancy clauses that allow other mall tenants to renegotiate the terms, typically with a period of lower rents, until a new anchor tenant moves in.
The Wall Street Journal also recently reported that SPG is currently in talks with Amazon.com (NASDAQ: AMZN) to transform shopping areas which were once used by J. C. Penney and Sears Holdings (OTC: SHLDQ), into fulfillment centers for storing, packing, and shipping Amazon’s products.
Although SPG is actively looking to buy distressed assets, it recently announced the termination of a $3.6 billion acquisition of Taubman Centers (NYSE: TCO), a U.S. mall operator, due to unseen impacts from the pandemic.
Taubman is taking legal action as it argues SPG was already aware of the risks from the pandemic, which started before the merger agreement.
Authentic Brands Group
Authentic Brands Group (“ABG”) is a U.S. brand management company who owns more than 50 consumer brands, in addition to owning estates and marketing rights of celebrities such as Muhammad Ali, Elvis Presley, Shaquille O’Neal, and Marilyn Monroe.
Last week, ABG raised $600 million, increasing its war chest to $1 billion, with plans to use the funds towards acquiring struggling retail brands.
Earlier this year, ABG teamed up with SPG and Brookfield Property Partners (NASDAQ: BPY) for an $81 million deal to buy FOREVER 21 (www.forever21.com), a U.S. fast fashion retailer who filed for bankruptcy last year. ABG and SPG each received 37.5% ownership, while BPY received 25% ownership of FOREVER 21.
Previous retail investments in the U.S. made by ABG include Barneys New York, Nautica Apparel (www.nautica.com), Nine West Holdings and Camuto Group (www.camutogroup.com).
SPARC Group
SPARC Group, a joint venture created between SPG and ABG in 2016, focused on acquiring discounted retail brands, recently announced two successful bids on distressed retail assets that went bankrupt due to the pandemic.
Earlier this month, SPARC received approval for a $325 million bid on Brook Brothers (www.brooksbrothers.com), a two centuries-old U.S. luxury-clothing retailer with 424 retail locations. SPARC is expected to maintain operations of 125 Brook Brothers stores.
SPARC also recently received the go-ahead to acquire Lucky Brand Dungarees (www.luckybrand.com), a U.S. denim clothing company with 150 retail locations. SPARC expects to continue operations for key Lucky brand stores in the U.S.
SPARC is expected to continue adding retail brands to its portfolio, which currently includes Aéropostale (www.aeropostale.com), as the brand management company consolidates acquired operations to improve overall margins and brand growth.
Global Bankruptcies 2020
According to S&P Global Market Intelligence, 424 companies filed for bankruptcy this year, the highest since 2010, with most coming from the Consumer discretionary sector.
The largest bankruptcies so far in the Consumer discretionary sector this year include Ascena Retail Group (OTC: ASNAQ), J.Crew Group, Lord & Taylor, J. C. Penney and Neiman Marcus Group.
As the COVID-19 pandemic heads into a potential second wave, retail businesses may be in for another headwind if lockdown measures are re-instated across economies.
Other eResearch articles related to real estate:
- May 2020: Impacts to Office Real-Estate Space as Twitter, Shopify, and Facebook Announce Permanent Remote Work Standards
- April 2020: REIT Stock Prices Drop to Financial Crisis Levels as Revenue Stalls and Expenses Pile Up
