Simon Property Says Its Bet on Brick-and-Mortar Paying Off

Few people have a larger stake in — or better view of — the retail industry than David Simon does.

Having navigated — and survived — more than 30 years of booms, busts and changing consumer habits atop the country’s largest shopping mall empire, the 61-year-old billionaire chairman and CEO of Simon Property Group has earned a reputation for bold insight and blunt analysis, which is why his assessment of last year’s results and this year’s outlook bode listening to.

“We kicked the crap out of ‘21. It was an unbelievable year,” Simon told analysts and investors on the company’s Q4 earnings call Monday (Feb. 7) evening.

“We took a bet that the world of bricks-and-mortar was not going to end,” Simon said. “We bet on our company. We made the right bet and it produced the results that we wanted to see.”

With a portfolio consisting of over 200 premium retail and mixed-use properties in 37 states, as well as its stake in the SPARC joint venture of acquired retail chains it runs with Authentic Brands Group, this $50 billion business has unmatched exposure to retail and real estate.

While the trailing results for the three months that ended Dec. 31 came in above analyst expectations, the company’s outlook for 2022 and beyond is equally optimistic, although not without challenges.

“So I think we’re very optimistic about 2022 leases,” Simon said. “A lot of new business with a lot of new tenants is the goal and we expect to increase occupancy compared to [2021],” the Indianapolis-based executive said, noting that it still lacked the pricing power that it would like to see but noted that it was starting to strengthen.

“Every space and every mall is different and market rents are all over the place,” Simon said, adding that it was still working through excess space.

Tremendous Opportunity for Reebok 

Six months after acquiring the struggling apparel and footwear maker Reebok for $2.5 billion from Adidas — which unloaded the iconic 80s aerobic sneaker company after 15 years of unsuccessful attempts to revive it, and for 30% less than it paid for it in 2005 — Simon was confident that it will be able to drive growth where the previous owner could not.

“SPARC Group will be the operating partner for Reebok in the U.S. and there’s a tremendous opportunity for SPARC to develop sportswear and footwear expertise,” Simon said, before cautioning investors that turning around the iconic maker of 80s aerobic sneakers — something Adidas could never do — was going to take time and money.

“The Reebok integration will require additional investment by SPARC as it expands its capability and reach,” Simon said, adding that the cost will temporarily reduce the joint venture’s operating earnings in 2022.

On the issue of recent increases in organized retail crime that have put retailers on the defensive and raised safety concerns among shoppers, Simon said the tide was turning but that cracking down on the problem was something the country needed to do, rather than the private sector.

“I don’t think it’s an industry issue. I think it’s a local jurisdiction issue and it’s a nationwide issue,” Simon said in response to analyst questions, noting that his company was doing better than most in fighting the problem, but was far from immune.

“I would love to be immune but we as a nation have to address this as it’s happening in a lot of different areas,” Simon said. “‘I don’t think the industry can solve it. I think it’s got to be [addressed] at the local and national level.”