IBJNews

Simon’s 20-year run has made investors a bundle

Back to TopCommentsE-mailPrintBookmark and Share
Greg Andrews

Guiding Simon Property Group Inc. through the financial crisis was tough for CEO David Simon. But weathering the early 1990s, right after Simon returned from a job on Wall Street to help save the family company, was even tougher.

By comparison, Simon said at an investor conference last month, the Great Recession “was child’s play. OK. That was real stress, right?”

Now is a fitting time to remember such pivotal moments because Simon Property Group is on the verge of completing its 20th year as a public company.

It’s been quite a ride—and an extraordinarily profitable one for investors. Since its December 1993 IPO, Simon has racked up a total return of 1,917 percent, compared with 435 percent for the S&P 500 during the same span, according to data provided by Kirr Marbach & Co.
 

Simon Simon

Simon now is the largest real estate company in the world and has a stock market value of $59 billion. That’s $6 billion more than Eli Lilly and Co., not that the hypercompetitive Simon has noticed.

“If I have a bigger market cap, that might get better Colts tickets,” the 52-year-old quipped at the investor conference.

Those early days were rough. David was only 29 when he came back to Indianapolis with the mission of instilling discipline in the sprawling company that his father Melvin and uncle Herb had built.

In the midst of a recession, Simon, as chief financial officer, refinanced hundreds of millions of dollars in debt, forced subordinates to justify their budgets, and slashed payroll.

The crisis soon passed, but Simon never has fallen back on the freewheeling ways of his dad and uncle. As a result, while every company stumbles now and then, Simon has a dazzling record of buying or improving existing malls and making acquisitions that ultimately pay off. Those deals made it the No. 1 player in the fast-growing outlet mall business and expanded its footprint around the globe.

“We have done roughly $33 billion in deals since 1993,” Simon said at the investor conference. “How many companies do you know that have been able to get $33 billion in deals done—none of which were dilutive—and at the end of the day improve their balance sheet from a non-rated company to an A-rated company?”

After such an impressive run for the company, the question now is whether it’s too late to jump aboard as an investor.

David Simon, to no surprise, sees opportunity, given Simon Property Group’s underperformance of late compared with the overall market. Shares are trading at about $157, down from $182 in May.

Simon and other real estate companies have suffered from the perception that higher interest rates would boost their borrowing costs. In addition, a host of mall retailers have reported smaller-than-expected increases in same-store sales.

But at the investor conference, David Simon pointed out that his company’s fortunes are not tethered to the sales of the shops that populate its malls. He noted that the list of Simon Property Group’s top 10 tenants today is almost entirely different from its list at the IPO.

“I hope I don’t have any of my friendly retailers here, but when they don’t produce, we are going to look to replace them,” often with a tenant paying higher rent, he said. “You can see that basically they’ve completely changed, yet we’re still standing.”

Another enticement for investors is Simon’s rich dividend—$4.60 per share on an annualized basis. The decline in the stock price has pushed the dividend yield up to nearly 3 percent.

Simon’s take on Internet retailing

Does the rapid rise in Internet retailing imperil the shopping mall? Simon says no, at least not for the stronger-performing malls that represent a big chunk of his company’s portfolio.

“I do think it will continue to obsolete some retail real estate,” Simon said of Internet retailing. “But at the end of the day … our good stuff is going to get better. And the retailers all have to be kind of omni-channel—they have to be in the physical environment.”

But the competition does force mall owners to raise their game, creating as pleasant a shopping environment as possible and providing technology that helps consumers find new merchandise and what’s on sale.

“We’ve got to schlep bags to their car if they need help,” he said. “We’ve got to do the service points that we’ve probably ignored in the past.”•

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. The east side does have potential...and I have always thought Washington Scare should become an outlet mall. Anyone remember how popular Eastgate was? Well, Indy has no outlet malls, we have to go to Edinburgh for the deep discounts and I don't understand why. Jim is right. We need a few good eastsiders interested in actually making some noise and trying to change the commerce, culture and stereotypes of the East side. Irvington is very progressive and making great strides, why can't the far east side ride on their coat tails to make some changes?

  2. Boston.com has an article from 2010 where they talk about how Interactions moved to Massachusetts in the year prior. http://www.boston.com/business/technology/innoeco/2010/07/interactions_banks_63_million.html The article includes a link back to that Inside Indiana Business press release I linked to earlier, snarkily noting, "Guess this 2006 plan to create 200-plus new jobs in Indiana didn't exactly work out."

  3. I live on the east side and I have read all your comments. a local paper just did an article on Washington square mall with just as many comments and concerns. I am not sure if they are still around, but there was an east side coalition with good intentions to do good things on the east side. And there is a facebook post that called my eastside indy with many old members of the eastside who voice concerns about the east side of the city. We need to come together and not just complain and moan, but come up with actual concrete solutions, because what Dal said is very very true- the eastside could be a goldmine in the right hands. But if anyone is going damn, and change things, it is us eastside residents

  4. Please go back re-read your economics text book and the fine print on the February 2014 CBO report. A minimum wage increase has never resulted in a net job loss...

  5. The GOP at the Statehouse is more interested in PR to keep their majority, than using it to get anything good actually done. The State continues its downward spiral.

ADVERTISEMENT