Simon Property Says It's Looking At Saving More Retailers From Going Out Of Business
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Simon Property Group might be fed up with private equity sending its tenants into foreclosure.
The retail REIT might use some of its vast capital reserves to invest in struggling retail brands and prevent them from closing stores, CEO David Simon told analysts in an earnings call, CNBC reports. Simon said that his company had "made a lot of money" when it partnered with General Growth Properties to take Aeropostale out of bankruptcy in 2016 and keep 160 stores in its portfolio open.
“I think it’s very possible — we’re going to be very smart about it,” Simon said on the call when asked about investing in more tenants. “We’re certainly as good as the private equity guys when it comes to retail investment. And so, I wouldn’t rule it out.”
SPG also has an ownership stake in Authentic Brands Group, which operates brands like Nautica and Juicy Couture, CNBC reports. The REIT has used its deep capital reserves ($6.8B in liquidity, according to CNBC) to make forward-thinking investments in recent months into concepts like a CBD store chain and an esports venue operator.
If SPG were to buy into another retail chain, the next likely target would be Forever 21, according to CNBC. The fast-fashion retailer is Simon's seventh-largest tenant in terms of store count, with 99 locations in the portfolio, and has already made overtures to landlords as it fends off bankruptcy.
Private equity-funded owners have long track records of bankrupting their retail businesses due to the large debt loads they take on to fund their acquisitions. Their practice of transferring the risk of that debt to the brands themselves and selling off assets to try for quick profits has led high-profile retailers like Sears and Toys R Us to go bankrupt.
The practice has become prevalent enough for Sen. Elizabeth Warren to propose, as part of her presidential campaign platform, a plan that would force private equity-funded owners to maintain more debt risk and hold onto a company's assets for at least two years.
Simon would have a much more vested interest in keeping stores open than a private equity owner, and may be motivated to get involved with a retailer before a debt-saddled new buyer can sell off valuable assets. Forever 21 has reportedly been in discussion with private equity firm Apollo Global Management about debt restructuring options.