David Simon likes his position in retail — a kind of side hustle for his mall giant Simon Property Group — but he’s content to be the one accepting the rent payments and doesn’t expect to buy more retailers in the near term.
In part, that’s because the business of being a landlord is paying up for Simon.
For the quarter ended Dec. 31, the real estate group’s net income increased 33.9 percent to $673.8 million, or $2.06 a diluted share, from $503.2 million, or $1.53, a year earlier. Comparable funds from operations — a standard yardstick among retail real estate companies — inched up to $1.18 billion from $1.17 billion.
The retail portfolio shifted some within the group.
On a conference call with analysts Monday, Simon said net income for the quarter was boosted by 25 cents a share, or $90.5 million, as the company traded its direct stake in Eddie Bauer for more shares of its partner, Authentic Brands Group.
The CEO said Simon now owns 12 percent of Authentic, a stake valued at about $1.5 billion — giving all of Authentic a valuation of about $12.5 billion. (Simon has a joint venture with Authentic called SPARC, which owns Reebok, Forever 21, Brooks Brothers and Aéropostale as well as Eddie Bauer).
“We really don’t have any plans to acquire anything,” Simon said of SPARC. “If we do, it’ll be opportunistic…Most of our work has been on the bankruptcy front or where somebody wanted to unload the business, but generally there’s not a lot of distress in retail right now.
“I’m not saying it won’t develop in the year, but there’s some brands out there that are in trouble that obviously people know about, but we don’t see playing in any of those situations,” he said.
Retail is stronger, in part, because so many of the weaker players fell into bankruptcy during the pandemic — like J.C. Penney, which Simon owns with Brookfield Asset Management — while the rest of the industry worked to shore up their balance sheets.
Retail still makes up a small part of the company’s business, but it’s a high-profile cog in the machine and one that did cause a little trouble last year.
Simon acknowledged that, while SPARC was profitable in 2022, it didn’t meet expectations and he offered “a little mea culpa.”
“We made the mistake that … we budgeted basically flat to ‘21 and ‘21 was for a couple of the brands there [was] just extraordinarily profitable,” Simon said. “We made some tactical mistakes at Forever 21. We brought in a new CEO [Winnie Park] to rectify those mistakes. She’s doing a terrific job. So we’re very pleased there. We also are very pleased with J.C. Penney. It’s unbelievably profitable.
“But we did make the mistake of thinking ‘21 would repeat and then obviously, you know, we had a lot of volatility from a macro point in ‘22 with huge increases in interest rates, huge increase in price and food and energy cost that the consumer was whipped and we felt the impact of it,” he said. “It stabilized now, we believe.”
It’s a mistake that much of retail seems to have made as well.
But Simon, of course, always has his mall empire to fall back on.
Occupancy at the company’s U.S. malls and premium outlets stood at 94.9 percent at the end of the year, up from 93.4 percent at the close of 2021.
Minimum rent per square foot rose 2.3 percent to $55.13 over the year and retail sales per square foot for the 12 months increased 5.6 percent to $753.
For the full year, Simon’s comparable funds from operations rose 3.5 percent to $4.5 billion, or $11.87 a share — with $2.8 billion of that going to shareholders in the form of dividends and share repurchases.
The mall giant is expecting its comparable funds from operations to come in about the same this year with an outlook of $11.70 to $11.95 a share.