Type to search

Retail

Taubman: If Saks doesn’t reopen at The Mall of SJ, other stores may follow

Saks 5th Ave. remains closed following extensive damage caused by Hurricane María.

Taubman Centers Inc., owners of a 95 percent stake at The Mall of San Juan, warned in its 2017 annual report that it may not fully recover the losses related to Hurricane María, and anticipated that if a major tenant or anchor store does not reopen, others may follow.

Specifically, the company referred to the lawsuit it filed against Saks Fifth Avenue in October 2017, to compel the anchor to expedite the repairs and reopening of the store, which according to Taubman suffered “significant damage.”

“In response, Saks PR and Saks Inc. filed a counterclaim, alleging that they have no obligation to repair, remediate, reconstruct, or reopen the store, asserting various alleged breaches of the [Reciprocal Easement Agreement] and other operating agreements,” Taubman noted in its 10-K report filed with the Securities and Exchange Commission on Tuesday.

Under its REA with Nordstrom Puerto Rico LLC and Saks Fifth Avenue Puerto Rico Inc., the retailers are required to promptly “remediate and repair” their stores and to reopen once the work is done.

“We are advised that Nordstrom has completed its remediation, and we expect Nordstrom to reopen this summer. Saks Fifth Avenue has begun its remediation efforts, but Saks Fifth Avenue has asserted that it is not required to reopen,” the company that operates in Puerto Rico as Plaza Internacional noted.

“Should Saks PR prevail [in the lawsuit,] Nordstrom PR and other mall tenants may then have the right to terminate their own operating covenants or leases,” Taubman stated. “Plaza Internacional is vigorously prosecuting its claims and defending the counterclaim. An unfavorable outcome may have a material and adverse effect on our business and our results of operations.”

Taubman Centers Inc., a Michigan-based real estate investment trust that operates 24 urban and suburban shopping centers in 11 U.S. states, Puerto Rico, South Korea, and China, also acknowledged that while some of the setbacks to the future of its business at The Mall of San Juan may be offset through business interruption insurance, that may not cover the full extent of revenue losses resulting from the impact of Hurricane María.

“This coverage includes a single deductible of $2 million and policy limits of $900 million, all subject to various terms and conditions. However, we expect insurance proceeds will lag and likely will not be received in the same period the losses are incurred,” Taubman noted.

The mall sustained interior water damage, impacts to exterior landscaping and signage, and remained closed for a month. The property damage was estimated at $7 million.

Bouncing back depends on several factors
“The timing for the recovery of business in Puerto Rico will depend on successful rebuilding and recovery efforts and in turn the availability of workers and materials, which may be scarce for periods of time,” the operator said.

Furthermore, the impact caused to Puerto Rico’s local infrastructure, residents, and the prospects for tourism may all contribute to a decrease in foot traffic at the 600,000 square-foot mall that opened in March 2015, in the midst of a protracted economic recession in Puerto Rico.

“The local economy is highly dependent on tourism and declines could continue to adversely impact the center for an extended period of time. Foot traffic, tenant sales, and profitability of tenant operations have been and may all continue to be affected,” the company noted.

The Mall of San Juan is known for its high-end luxury tenants, coupled with other moderately priced retailers such as Gap, H&M — both of which remain closed more than five months after the hurricane — Victoria’s Secret and Bath & Body Works, among others.

The company noted that its ability to reach occupancy and profitability levels recorded before Hurricane María struck will depend on: “Tenants or anchors who, despite contractual requirements, are unable or refuse to reopen; the ability of tenants or anchors to pay current rent obligations in light of the decrease in sales and mall foot traffic; and, tenant or anchor rent, operating, and other lease obligations that are dependent on maintaining specified occupancy levels at the mall.”

“If a major tenant or anchor does not reopen, it may adversely impact our ability to re-lease space in the future to desirable tenants or at profitable rates and maintain the overall mall merchandising plan,” Taubman said.

Finally, the mall operator conceded that Puerto Rico’s situation in the wake of the storm will “adversely affect The Mall of San Juan’s business for the foreseeable future.”

“With existing infrastructure challenges and residents and tourism being highly disrupted, we cannot provide the timing for the recovery of business and the return of normal consumer spending in Puerto Rico, which will depend on restoration of power to the island and the overall pace and progress of the rebuilding and recovery efforts. We expect that full recovery will span a significant period of time,” Taubman stated.

The Mall of San Juan has not yet contributed materially to the company’s net income or net operating income, with both such amounts being less than 2 percent of the totals for the year ended Dec. 31, 2017, according to the annual report.

Author Details
Author Details
Business reporter with 30 years of experience writing for weekly and daily newspapers, as well as trade publications in Puerto Rico. My list of former employers includes Caribbean Business, The San Juan Star, and the Puerto Rico Daily Sun, among others. My areas of expertise include telecommunications, technology, retail, agriculture, tourism, banking and most other segments of Puerto Rico’s economy.
Tags:

4 Comments

  1. Rosa Maria Gonzalez February 28, 2018

    I have always said that what would fit in Sak’s space much better than the store are Fine Arts Cinemas….

    Reply
  2. Heidie Calero February 28, 2018

    Great idea to have Fine Arts Cinemas with new and traditional screens.

    Reply
  3. Eneida Torres February 28, 2018

    The idea of movie theaters like the ones suggested would be wonderful, specially based on the type of clients that visit the Mall.

    Reply
  4. Liz April 20, 2018

    This mall was supposed to have a second phase that included a hotel and a movie theater. I guess because of the financial crisis in Puerto Rico the second phase was postponed but its still there for there future expansion. A hotel and a movie theater would bring a lot of more people to the mall and would benefit the stores in the mall.

    Reply

Leave a Comment Rosa Maria Gonzalez Cancel Comment

Your email address will not be published. Required fields are marked *