“We are blowin’ and goin’:” Earnings rise for Simon Property amid retail storm

The giant mall landlord is taking aim at the challenge from e-commerce with its own online shopping platform
By John O’Brien | April 30, 2019 01:00PM

Simon Property Group's David Simon (Credit: Getty Images and iStock)

Simon Property Group’s David Simon (Credit: Getty Images and iStock) 

Simon Property Group reported higher earnings despite continued nationwide retail store closings and the unrelenting challenge from e-commerce.

At its first quarter earnings announcement on Tuesday, the Indianapolis-based REIT said the continued wave of retailer bankruptcies took a toll on revenue. Still, the company reported net operating income increased 1.7 percent year over year.

Funds from operations were $1.08 billion in the first quarter, up from the nearly $1.03 billion total in the first quarter of 2018. Retailer sales per square foot rose 3.1 percent over the previous 12 months to $660 year.

During the earnings call, Simon highlighted its first-quarter launch of Shop Premium Outlets, an online shopping platform that allows customers to make purchases from Simon’s national portfolio of outlet mall tenants.

A beta version has been launched, and Simon CEO David Simon said he anticipates a full public roll-out in the coming months. He said the expense related to the launch of the platform will have an effect on the company’s earnings in the near term, but is optimistic it will pay off in the long run.

“This is a long-term investment for us,” he said during the call. “We continue to be excited about it. We wouldn’t be doing it unless we felt confident about it.”

In boasting of “another quarter of impressive results” after a record-setting fourth quarter, the company said it continues to be aggressive in redeveloping its properties.

Mall owners stung by the loss of big-box tenants like Sears, Carson’s, Toys “R” Us and others have increasingly turned to adaptive reuse. Those hulking spaces now include hotels, offices and apartments.

Simon typically spends about $1 billion a year on redevelopment and new development, it said, but added that figure could climb to $1.5 billion this year.

Two California redevelopments, at former Sears spaces in Brea and Pleasantown, are each $300 million projects.

“We are blowin’ and goin’ on that front,” Simon said. “As a company we really are as active as we’ve ever been. It’s active and it’s not slowing down anytime soon.”

Occupancy at Simon properties improved in the first quarter, to 95.1 percent on March 31, compared to 94.6 percent on March 31, 2018.

Even as retailers are closing record numbers of stores nationwide, Simon Vice Chairman Rick Sokolov said other tenants are stepping forward to take space, including international retailers and “e-tailers,” online outlets looking for brick-and-mortar locations.

“There is a lot of activity from a lot of different sources,” Sokolov said.

Leasing spreads also improved, posting a 27.3 percent increase in the first quarter, in part by replacing former big-box retailers who paid below-market rent with smaller tenants who pay more.

“We are taking out some less-performing retailers and putting in better ones,” Simon said.

He added that the company didn’t anticipate all of the recent retail bankruptcies, and cautioned there could be more ahead.

“I think most of the bad news is behind us. But I can’t guarantee it,” he said.