Simon Property (SPG) Settles Radius Restriction Litigation

Simon Property Group Inc. (NYSE:SPG) has agreed on a settlement with Attorney General Eric T. Schneiderman over its “anticompetitive tactics” that limit the development of competing outlet centers in New York City. The company is the owner of Woodbury Common center in Hudson Valley region and Roosevelt Field in Garden City.

In an Attorney General’s Office investigation, it was established that retailers at Woodbury Common Premium Outlets were under contractual restrictions restraining them from opening a second store within the radius of 60 “air miles,” or about 70 land miles. Those in violation of the condition faced penalty charges.

Thus, Woodbury Common enjoyed “monopoly power” in the New York City area among 200 other outlet centers across the country. The restriction also foiled efforts of several developers who faced a hard time in signing key retailers for their outlet centers. Moreover, it confined competitive outlet centers from thriving in the New York City, limiting the choices available for consumers and retailers.

Per the settlement, the largest mall operator in the United States will pay $945,000 to New York State in addition to dissolving the radius restriction in its existing leases.

Moreover, the company will restrain from using radius restrictions or other similar privileged agreements for the next 10 years that might hinder the growth of other outlet centers. To ensure unbiased compliance with the settlement, Simon has agreed to appoint an independent monitor.

This agreement will accordingly allow new outlet malls to flourish in Queens, Brooklyn, The Bronx and Staten Island, benefiting the consumers and several retailers. It is anticipated to boost the growth of New York economy.

In a statement, Simon defended that its radius restrictions have a “lawful” and “reasonable” basis, and these restrictions were used long before the company acquired Woodbury Common in 2004. Moreover, it also “granted exception” and waived off the provision on several occasions.

Woodbury Common’s annual revenues total more than $1.3 billion. Some popular retailers at the outlet center are Michael Kors, Coach, Dior, Gucci, Fendi and Armani.

The settlement has increased the company’s litigation expenses and is anticipated to drain its resources. Moreover, Simon has been facing challenges to retain its customers with online shopping taking precedence over in-store purchase.

Year to date, shares of Simon have underperformed the industry. While the company’s shares fell 13%, the industry declined 7.2% over this period. The stock currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

A few better-ranked stocks in the REIT space are American Asset Trust, Inc (NYSE:AAT) , PS Business Parks, Inc. (NYSE:PSB) and Communications Sales & Leasing, Inc. (NASDAQ:UNIT) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While American Asset Trust and PS Business Parks, Inc. have expected long-term growth rates of 6.1% and 5%, respectively, Communications Sales & Leasing has an expected long-term growth rate of 7.5%.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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