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Simon & Macerich Partner for Developing Premium Outlet in LA

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Retail REIT Simon Property Group (SPG - Free Report) and Macerich (MAC - Free Report) are collaborating to create Los Angeles Premium Outlets. The move is aimed at luring the high-density affluent neighborhood and international tourists, and leverage on the improving spending habits of wealthier customers amid improving economy.

Particularly, Simon and Macerich have announced the formation of a 50/50 joint venture for this project that is expected to begin immediately and slated for an opening for fall 2021. The retail REITs will co-develop and jointly lease this outlet which will be situated in Carson in LA County. It will initially open with 400,000 square feet of space, and there will be addition of 166,000 square feet of space in the second phase.

The Los Angeles Premium Outlets will likely grab solid attention with 2,500 lineal feet of frontage on the high-traffic I-405 Freeway, with 300,000 cars passing a day. Also, per the company’s press release, 215,000 cars pass the site daily on the I-110 Freeway. Moreover, it is 11 miles away from LAX — the country's second busiest airport serving 81 million passengers annually.

Also, the trade area demographics are encouraging. In fact, there are 2.5 million residents within 10 miles. The population is affluent, indicating high chances of heavy footfall at this outlet. Also, its proximity to the City of Champions Stadium, which will be home to Rams, Chargers, and world-class entertainment options, is likely to further draw traffic to the property.

Notably, declining mall traffic resulting from the e-commerce boom, store closures and retailer bankruptcies has wreaked havoc for retail REITs like Simon Property, Kimco Realty Corp. (KIM - Free Report) , Macerich and Taubman Centers, Inc. (TCO - Free Report) . However, amid the retail apocalypse, mall landlords are making concerted efforts to boost their asset productivity by trying to grab attention from new and productive tenants, and disposing the non-productive ones. The companies have been active in restructuring portfolio and are aiming at premium acquisitions, strategic developments and transformative redevelopments.

Particularly, over the past five years, Simon Property has invested billions in development and redevelopment projects and further, in May 2018, the company announced the launch of a $4+ billion investment plan to transform its properties. These transformational plans included addition of hotels, restaurants, residences and luxury stores. Such initiatives are expected to create value and drive footfall at the company’s properties.

On the other hand, Macerich recently announced a national partnership with premium workplace operator — Industrious. This first-of-a-kind partnership, targeted at multi-property rollout, between a co-working company and a major mall owner is good news for the retail space.  

Per the partnership, Industrious will set up co-working spaces at selective Macerich’s properties. This will drive traffic and also complements top brands in the malls. This partnership is expected to debut at Scottsdale Fashion Square next January. Notably, Industrious is a preeminent leader in the budding co-working space and has an impressive track record of strong financial performance across its locations nationwide. This apart, Macerich is aiming to enhance its assets quality, as well as customer relationships.

Nevertheless, implementation of such measures requires a decent upfront cost and therefore, would limit any robust growth in the companies’ near-term profit margin. Also, rate hike has added to these REITs’ woes.

Currently Simon Property has a Zacks Rank #3 (Hold), while Macerich carries a Zacks Rank of 4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Simon Property have gained 13.4%, while that of Macerich inched up 0.9% in the past three months, against the 3% decline registered by the industry during the same period.


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