Mall Giant David Simon: ‘Physical Retail Is Here to Stay’

August 2, 2021

David Simon continues to be the ultimate brick-and-mortar believer — and is more invested than ever.

The mall giant, who leads Simon Property Group as chairman, chief executive officer and president, held court on a conference call with analysts on Monday after turning in stronger second-quarter results.

Simon said the lockdown lease fights with most retailers have died down and the company is moving forward — shoppers are out and spending despite rising COVID-19 cases, properties are being developed and new tenants are ready to move in.

Like the rest of fashion and the world, the real estate company is still recovering after more than a year of the coronavirus. But while brands of all shapes and sizes shift their focus to driving more digital sales, Simon is making his case for the store loud and clear.

“We continue to see demand for space across our portfolio from healthy local, regional and national tenants, entrepreneurs, restaurateurs — and mixed-use demand [is] ever so increasing day by day,” Simon said.

“We still have a hole to dig out of because of the bankruptcies that we had to confront with the pandemic,” he said. “But I’m very pleased with the activity, the mojo that we have in leasing, the work that our personnel are doing there, the creativity. It’s pretty encouraging.”

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In the company’s U.S. malls and premium outlets, occupancy stood at 91.8 percent at the end of the quarter, down from 94.4 percent two years earlier.

But the momentum seems to be gaining. So far this year, the company has signed leases for 3 million more square feet of space — more than 800 more deals compared with the first six months of 2019.

For the three months ended June 30, the group’s net income increased to $617.3 million from $254.2 million a year earlier. Funds from operations — the standard yardstick for real estate firms — rose to $1.2 billion from $746.5 million a year earlier.

Simon’s funds from operations are on track to hit $4 billion this year, or 5 percent below the 2019 comparison.

“To be just 5 percent below 2019, given all that we’ve endured over the last 15, 16 months, including significant restrictive governmental orders that forced us to shut down, unlike many other establishments, is a testament to our portfolio,” the CEO said.

To get there, though, Simon has had to make some quick moves, doubling down on retail by making investments in the flailing J.C. Penney Co. Inc. and others.

He praised Sparc — the company’s venture with Authentic Brands Group — and said the retail business “outperformed their budget in the quarter on sales, gross margin and earnings before interest, taxes, depreciation and amortization led by Forever 21 and Aéropostale. Sparc’s newest brand, Eddie Bauer, also outperformed our initial expectations.”

If Simon has become more of a retailer himself, he’s excessively clear-eyed about the names he’s taken on and the straits they were in.

“Our Sparc operations employ thousands of people,” Simon told analysts. “And then when you add Penney’s, you’ve got well over 50,000, 60,000 people. So, don’t underestimate what we’ve done. I mean, we’re not — these were companies that were frankly, roadkill and we saved them.”

And he argued that it is those retailers’ stores that are working for them now.

“Omnichannel clearly is very important to the future, but these companies are basically surviving and prospering because of their physical footprint, not because of e-commerce,” he said.

The store is under assault again with the Delta variant causing COVID-19 cases to spike, but Simon said the mall is safe.

“There are Delta hot spots. We actually have malls in some of these hot spots,” he said, pointing to the company’s Battlefield Mall in Springfield, Mo., and others. “We have not seen in an enclosed mall an uptick in COVID-19 cases.

“I think physical retail, when I listen to the pundits…they’re throwing the baby out with the bathwater,” he said. “Read my lips: Physical retail is here to stay. And people really like to shop in the physical world. So don’t believe everything you hear on TV. We’ve got the evidence.”