Trending

With curfews and public assembly restrictions, what will happen to malls?

Some retailers have more supply-chain exposure than others

The American Dream mega mall (Credit: TIMOTHY A. CLARY/AFP via Getty Images)
The American Dream mega mall (Credit: TIMOTHY A. CLARY/AFP via Getty Images)

As cities around the country curtail large public gatherings, institute curfews and shut down schools to prevent the spread of the coronavirus, questions hang over the fate of malls — which have already been on a knife’s edge thanks to retailer bankruptcies and store closures.

Some industry watchers have said retail will be among the first industries to take a hit, as people stay indoors to avoid catching the illness — or passing it on to others. Around midday Monday, mall real estate investment trusts were down almost 16 percent, according to one Nareit index of retail REITs, compared to just 11 percent for Nareit’s All REITs index. Shopping centers had dropped over 15 percent, and regional malls almost 16.4 percent.

American Dream Mall, owned by the private, family-run Triple Five Group, said last week it was closing its doors temporarily to prevent the spread of the coronavirus, which causes the respiratory illness COVID-19. American Dream is in Bergen County, New Jersey, whose county executive announced that all of the numerous malls and retailers in the county would shutter. Taubman Centers, which Simon recently agreed to acquire, said on Twitter it was upping its disinfecting efforts, closing play areas and canceling nearly all events.

On Monday, mall owner Simon Property Group refinanced its revolving credit facility, upping it to $6 billion from $4 billion, though the REIT did not say whether the refinancing was linked to the coronavirus. And Macerich said it was lowering the cash component of its quarterly dividend to make sure it has enough cash on hand, “given the uncertain and rapidly changing environment.” Macerich and Simon did not return requests for comment.

In a note to investors Monday, Piper Sandler analysts said REITs are well positioned to ride out the coronavirus storm, and retail REITs in particular can boost local supply. Some stores also may be supported through drive-through capabilities, as retailers weigh limiting contact between workers and customers. Among six shopping-center REITs Piper Sandler tracks, Kimco has the most number of centers with drive-throughs, with 91.

As long as the closures are relatively temporary, malls should be able to hold up, said Alexander Goldfarb, a REIT analyst at Piper Sandler.

“Tenants have to pay rents,” he said. “Rents are not voluntary.”

Sign Up for the undefined Newsletter

The impact of the closures on rental revenue depends on the length and terms of any closures, as rents based on stores’ sales make up about 3 percent of mall rents and roughly 1 percent of shopping center rents, the note said. And a closure of a few weeks likely isn’t enough to trigger discussions for rent relief or rent deferment, Goldfarb said.

In other words, malls would have to be closed for quite some time to see further impacts to their bottom lines, Goldfarb said. “If this lasts long enough to really impact mall landlords, the country has much bigger issues,” he added.

As retailers are forced to shut their doors for the time being, they may turn to business interruption insurance to lessen the blow. But typically, pandemics are not covered by such insurance, though it may kick in if malls close properties because of civil authorities, Goldfarb noted.

There also might be another safety net for retailers, should their insurance not prove helpful.

“If all the insurers deny business insurance and all these retailers have trouble, then there’s political pressure to do something,” Goldfarb said.

There also are retailers that may be more exposed to the coronavirus than others depending on how much of their supply chain is reliant on China, whose manufacturing sector has been hit hard because of the coronavirus outbreak there, according to research from Coresight Research.

For instance, shoe retailer Steve Madden said 73 percent of its products are sourced from China, and factories there only began to return to normal operations last week, according to Coresight’s report. Best Buy also said it is expecting product shortages over the next few months, and Macy’s and Dick’s Sporting Goods also are anticipating a slowdown of goods, but not a big hit.

Other retailers said it is still too soon to know if their supply chains will see a big disruption, according to Coresight. American Eagle Outfitters has 20 percent of its products sourced from China, but its CFO in a recent earnings call said the clothing chain was not expecting any disruptions short term. Foot Locker said it was confident about its inventory for the first half of the year and is working with its vendors.

In New York, there are 950 confirmed COVID-19 cases, and almost 3,500 cases around the country. There have been 68 deaths in the U.S., and more than 6,500 worldwide.

Write to Mary Diduch at md@therealdeal.com

Recommended For You