Simon CEO says he's confident mall business will prevail in tough retail climate

April 27, 2017

Despite ongoing turmoil in the retail sector, the leader of the nation’s largest mall owner said he remains bullish on the in-store shopping experience and his company will continue to invest in its properties.

“The traffic is there,” David Simon, CEO of Indianapolis-based Simon Property Group Inc., said in a conference call with investors Thursday morning to discuss first-quarter financial results. “It was up throughout our portfolio.”

The real estate investment trust reported first-quarter funds from operations of $985 million, or $2.74 per share, which narrowly missed analyst expectations. The average estimate of nine analysts surveyed by Zacks Investment Research was for Simon to post FFO of $2.76 per share.

FFO is a closely watched measure in the REIT industry that takes profit and adds back items such as depreciation and amortization.

Occupancy at Simon’s U.S. malls and outlet centers held steady at 95.6 percent as of March 31, unchanged from a year ago. At the same time, 14 U.S. retailers have filed for bankruptcy, according to S&P Global Market Intelligence.

The number of retail bankruptcies this year is sure to outpace those in 2016, when 18 were reported.

David Simon acknowledged the tough retailing climate but said he's confident Simon will persevere by investing heavily in its properties. The company has $7 billion in capital available to help increase profitability, he said.

“The worst thing that we can do is to not invest in our business,” he said. “If you don’t invest in your business, you can’t continue to produce returns. I think the returns will be there. I don’t think the demands of the current [retail] environment have changed that.”

Even with fewer retailers going forward, David Simon expects Simon to still benefit based on the sheer “vastness of our portfolio.”

Anchors that might close stores at Simon properties present new redevelopment opportunities for the company, whether they be mixed-use or community-oriented projects, he said.

“We think that’s a great opportunity for redeveloping the mall to the next level,” he said. “They don’t provide any income, so there’s nothing but upside.”

In early-afternoon trading, Simon shares were up nearly $3.50, or 2 percent, to $168.34 each. Before Thursday, company shares had dropped 7 percent since the beginning of the year and 19 percent in the last 12 months.



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