BEHIND THE NEWS: Mergers may shake up Simon’s department-store mix Last supper

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Big changes are brewing at the department-store chains that anchor Simon Property Group Inc.’s shopping malls in Indianapolis and across the nation. That may be good news for the company’s strong malls but bad news for its weak ones.

The Wall Street Journal says Cincinnatibased Federated Department Stores Inc., parent of Lazarus-Macy’s, has rekindled negotiations to buy St. Louis-based May Department Stores, the underperforming parent of L.S. Ayres.

Such a deal would be the latest in a string of shakeups in the once-hidebound industry. Last year, Troy, Mich.-based Kmart Holding Corp. agreed to buy Hoffman Estates, Ill.-based Sears Roebuck & Co.

Now, speculation is swirling on Wall Street that Birmingham, Ala.-based Saks Inc. will keep its Saks Fifth Avenue luxury chain but unload its lethargically performing middle-market department stores, including Parisian, an anchor for Simon’s Fashion Mall and Circle Centre.

All of which raises the specter of store closings or other uncertainties. At first blush, that sounds like trouble for Simon and other shopping mall owners. For them, anchors serve as magnets, attracting the millions of shoppers who course through mall corridors.

Simon officials did not respond to a request for comment. But in a conference call with analysts this month, they cast changes as potentially positive, allowing them to replace weaker anchors with stronger ones.

The Indianapolis-based company has 27 malls with both Federated and May anchors, including star performers Castleton Square and Greenwood Park. Its two weakest local malls, Lafayette Square and Washington Square, had an anchor from each until Federated closed stores several years ago.

Indianapolis-based Kite Realty Group Trust owns the city’s other mall, Glendale. It has L.S. Ayres as an anchor, but lost its Federated anchor in 1999.

The Simon malls across the country with both Federated and May anchors “are highquality assets in strong markets, with average sales per square foot of $500,” which is 17 percent higher than the company’s average, CEO David Simon said during the conference call.

“At this time, we do not know if there will be a merger, much less if or where there will be store closings,” Simon said. “If we control the real estate for any announced closures at these malls, we are confident we will find quality replacements.”

Simon owns 30 percent of the nation’s top malls. Closings in those locations would provide the company the opportunity to bring in new anchors that have more drawing power and pay higher rent, analysts said.

“We believe Simon’s relentless effort to upgrade its mall portfolio will pay off in 2005 and 2006 as an increasingly likely shakeup in the department store sector provides opportunities for top properties but risks for weaker ones,” Paul Morgan, an analyst with Arlington, Va.-based Friedman Billings Ramsey, said in a report.

“The bifurcation of strong vs. weak malls is exacerbated by anchor consolidation,” Morgan added, since the weak ones often lack the pull to attract replacement tenants.

The trend already is playing out across Simon’s portfolio of 172 U.S. malls. Late last year, Seattle-based Nordstrom opened a posh store in Miami’s Dadeland mall, replacing May’s Lord & Taylor. Nordstrom also will replace a Lord & Taylor at Phipps Plaza in Atlanta.

On the other end of the spectrum is Simon’s Eastland Mall in Tulsa, Okla. It’s been so decimated by anchor closings that Simon in the fourth quarter took an $18 million impairment charge, concluding the property had little value beyond what the land was worth.

Steak n Shake Inc. has gotten a lot of mileage through the years from Indianapolis native David Letterman’s fondness for steakburgers. Now, the Indianapolis-based chain can boast another high-profile devotee.

In The New York Times magazine, Chicago-based film critic Roger Ebert says that for his last meal on Earth, he’d choose “a super steakburger with onion and pickle, ketchup and mustard, an order of chili mac, a side of fries and a Coke.”

Said Ebert: “My first restaurant meal was held at the Steak n Shake when I was 3, and I’ve been going back ever since.”

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