Simon Raises Outlook After Solid Third Quarter

Simon, the largest real estate investment trust in the U.S., lifted by higher rents and the sale of some of its ownership in the SPARC partnership, posted a solid third quarter.

“We produced an excellent quarter highlighted by strong financial and operational performance,” said David Simon, chairman, chief executive officer and president. “We continue to demonstrate our ability to grow our business.”

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For the third quarter ended Sept. 30, Simon’s net income attributable to common stockholders was $594.1 million, or $1.82 a diluted share, as compared to $539 million, or $1.65 a diluted share in 2022. Last quarter’s net income included non-cash after-tax gains of $118.1 million, or 32 cents a diluted share, primarily due to the partial sale of the company’s ownership interest in its SPARC Group joint venture to Shein in the third quarter.

Simon now owns 33 percent, instead of 50 percent, of SPARC, a partnership between Simon, Authentic Brands Group and Shein. SPARC owns Aéropostale, Brooks Brothers, Eddie Bauer, Forever 21, Lucky Brand, Nautica and Reebok and designs, sources, manufactures, distributes and markets apparel and accessories for those brands.

Funds from operations, or FFO, was $1.2 billion, or $3.20 a diluted share, as compared to $1.1 billion, or $2.93 a diluted share, in the prior year.

Domestic property net operating income, or NOI, increased 4.2 percent and portfolio NOI increased 4.3 percent, in each case compared to the prior-year period.

The company raised its guidance for the year ending Dec. 31 and now estimates net income to be within a range of $6.67 to $6.77 a diluted share, compared to previous guidance of $6.39 to $6.49. Guidance on FFO for the year is seen within a range of $12.15 to $12.25 a diluted share compared to the previous guidance in the range of $11.85 to $11.95 a diluted share, or an increase of 30 cents a diluted share at the midpoint.

Simon also raised its quarterly common stock dividend to $1.90 for the fourth quarter of 2023, an increase of 10 cents, or 5.6 percent year-over-year. The dividend will be payable on Dec. 29 to shareholders of record on Dec. 8.

David Simon
David Simon

“It sounds a little braggadocius, but if you step back, five, 10, 15, 20, 25 years, we have dramatically outpaced our peer group,” Simon said during a conference call Monday with investors and analysts. “We are not capital constrained where some others might be. Our ability to invest in our portfolio is unmatched, rates are up, but you haven’t seen a change in our redevelopment. When we do build up, we have to do a better job in leasing and on returns.…We have to be economic animals.

Simon said the business is ahead of plan, tenancy is strong, and rents are at record levels. “We are very experienced at managing our business through volatile periods of time,” the CEO said. “We will have some interest expense headwinds, but we still think we will end up growing our business next year.…Year-end occupancy will be higher than it is today. I don’t know if it will be our highest ever, but it will be pretty close.

“Whether it’s F&B, entertainment, high-end luxury tenants, athleisure, just to name some categories, we’re still seeing a lot of demand on that front. Supply and demand is in our favor. We’ve cycled through a lot of poor performers during COVID.”

Asked about outlets versus full-price malls, Simon replied, “We are seeing pretty good tenant sales growth on tourism properties, whether outlets or malls. Most of our tourist properties are outlet centers where we are seeing good growth. Sunbelt malls or outlets have produced pretty good results year-to-date. We saw a decent pick up in California, which is encouraging. Woodbury Common [among the nation’s largest and most trafficked outlet centers] is finally getting the tourism back. Apparel is strong in the outlet business, people are looking for maybe a lot more value. There is not a huge bifurcation between malls and outlets. It is very property specific.”

Simon did say that luxury “flattened out in the third quarter, but it wasn’t across the board. It was really retail-specific. Jewelry was a category that took a little more on the chin, but some higher-end retailers in the jewelry category performed well.

“Importantly, the most interesting that we have going for us, in addition to the quality and diversity of our properties, is that retailers know we are going to be around and they know we will stick to a deal and make it happen. When we say we are going to redo a mall we do it.”

Occupancy was 95.2 percent as of Sept. 30, compared to 94.5 percent as of Sept. 30, 2022, an increase of 70 basis points.

Base minimum rent per square foot was $56.41 at Sept. 30, compared to $54.80 a year earlier, an increase of 2.9 percent.

Reported retailer sales per square foot was $744 for the trailing 12 months ended Sept. 30, a decrease of 0.7 percent compared to the prior year period.

Due to its lower ownership interest in SPARC, Simon expects a 5-cent lower FFL contribution from SPARC in the fourth quarter.

Also during the third quarter, Simon picked up an additional 4 percent ownership interest in the Taubman Realty Group, through an exchange 1.72 5 million partnership interest units, bringing Simon’s stake in TRG to 84 percent.

For the nine-month period, net income attributable to common stockholders was $1.53 billion, or $4.68 a diluted share, compared to $1.46 billion, or $4.46 a diluted share in 2022. FFO was $3.3 billion, or $8.82 a diluted share as compared to $3.21 billion, or $8.54 a diluted share in the prior year. Domestic property NOI increased 3.8 percent and portfolio NOI increased 4 percent, in each case compared to the prior-year period.

As of Sept. 30, Simon had about $8.8 billion of liquidity consisting of $1.4 billion of cash on hand, including its share of joint venture cash, and $7.4 billion of available capacity under its revolving credit facilities.

During the quarter, construction started on Jakarta Premium Outlets, the first premium outlet center in Indonesia. The 300,000-square-foot upscale outlet is projected to open in February 2025. Simon owns 50 percent of this project. Construction continues on redevelopment and expansion projects at properties in North America and Asia, Simon indicated.

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