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More Of Simon's Mall Portfolio In Dire Straits As U.S. Retail Slumps

The interior of the Oxford Valley Mall in suburban Bucks County, Pennsylvania, seen in 2008

Though Simon Property Group may be encouraged by the performance at its best shopping malls, other parts of its portfolio continue to suffer.

The retail REIT has moved two malls to the "other properties" portion of its portfolio in financial documents, a designation it has given over a dozen malls in the past year that were then surrendered to lenders, Commercial Real Estate Direct reports. Two other malls seem to be heading in similar directions, though they remain listed within Simon's core portfolio.

The two malls now listed as Simon's "other properties" are Ingram Park Mall in San Antonio and Solomon Pond Mall in the far Boston suburb of Marlborough, Massachusetts, Commercial Real Estate Direct reports. The CMBS loans that back the two centers are worth a combined $211M, according to data from credit monitoring agency Trepp.

Two of Simon's malls in suburban Pennsylvania towns similarly distant to Philadelphia also have loans that are either in distress or worse. The Oxford Valley Mall in the Bucks County township of Middletown saw its appraised value drop from $255M to $39M from its loan's issuance in 2011 to its maturation in December 2020, DBRS Morningstar reports. Simon was still in loan modification negotiations with its special servicer as of March; the property had a loan-to-value ratio of less than 30% at the time the debt was issued.

The Montgomery Mall, also in Bucks County, has already entered foreclosure after a local bankruptcy judge issued a $118M judgment against Simon on July 12, the Bucks County Courier Times reports. The judgment said that Simon had already agreed to a foreclosure sale of the property, months after Simon had publicly stated that it would not inject any additional capital into the mall.

The Oxford Valley Mall might have better future prospects, as Simon has agreed to a deal wherein Cornerstone Tracy will develop a 612-unit apartment complex on 20 acres of the mall's parking lot, with construction slated to start by the end of the year, the Courier Times reports. Simon has not commented on how the Montgomery Mall foreclosure or the Oxford Valley Mall's new appraisal could affect those plans.

The struggles within Simon's portfolio did not seem to affect CEO David Simon when discussing the company's Q2 earnings report earlier this month. The tone of Simon's earnings call was victorious, as the company reported that its June sales equaled those of June 2019. Simon also reported that it had signed 2M SF more in new leases over this year's first half than it did in the first half of 2019 over 800 more deals.

If national data from July is any indication, Simon's Q3 could be less triumphant. Retail sales nationwide dropped 1.1% from June to July, according to the U.S. Department of Commerce's monthly data reported by Yahoo Finance. Clothing stores saw a 2.6% monthly drop in sales, while e-commerce overall saw a 3.1% drop.

It was a much sharper drop than the 0.3% predicted by economists polled by Reuters, though it comes with several mitigating factors. The drop in online sales could be a result of Amazon's Prime Day coming in June this year as opposed to July, as well as a pause before back-to-school shopping picks up in earnest during August. The back-to-school sales are also likely to drive up clothing sales in August, Yahoo Finance reports.