Simon Property Group bounced back with brick-and-mortar retail last year.
But even as fourth-quarter earnings gains came with an outlook that disappointed, chief executive officer and chairman David Simon said 2022 would be about preparing for big things next year.
That goes for both the landlord’s business leasing space to retailers and its own growing retail operations, which encompass a variety of businesses and partnerships or investments, including J.C. Penney, the SPARC joint venture with Authentic Brands Group that houses Brooks Brothers, Nautica, Aéropostale, Lucky Brand and Forever 21 as well as the Rue Gilt Groupe.
Simon told analysts on a conference call Monday that operating earnings at SPARC would be hit as the company becomes the operating platform for Reebok, once ABG closes on the acquisition of the brand this month. Rue Gilt is also going to see more investment while J.C. Penney is spending to build out its beauty business and its digital operation.
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And while leasing is improving, the CEO said the real action will be next year.
“Obviously the last couple of years with COVID[-19], we’ve been … working with our retailers. So we haven’t quite had, you know, the level of pricing power that we’d like to see,” Simon said. “We’re starting to see that strengthened from our standpoint and we’re still looking for a win-win between us and our clients.”
The CEO added: ‘Now we just got to execute it. I do think there’s so much going on that I’d be remiss not to say it still takes a while to get stores open. And with all the activity, we’ll see some of that in 2022. But you know, we’re going to see a tremendous amount of great new stores in the 2023 time period.”
That makes 2022 another building year — but one that comes after a strong rebound.
The real estate giant’s fourth-quarter net income increased 85 percent to $503.2 million, or $1.53 a diluted share, from the $271.5 million, or 86 cents, logged a year ago during retail’s first coronavirus Christmas.
And Simon’s funds from operations — the standard financial yardstick for landlords — rose 47 percent to $1.2 billion from $786.6 million a year earlier.
Occupancy rates at the firm’s U.S. malls and premium outlets advanced to 93.4 percent as of Dec. 31, up from 91.3 percent a year earlier.
Retail sales at Simon properties rose 34 percent in the fourth quarter from a year earlier and were up 8 percent from the final quarter of 2019.
For the full year, the firm’s net income tallied $6.84 a share and included 50 cents in special gains. Simon forecast a profit decline this year, to a range of $5.90 to $6.10.
Investors wanted something more and sent shares of the company down 3.3 percent to $144.05 in after-hours trading Monday.
Simon has been peppered repeatedly with questions about his company’s move from landlord to retailer, but on the call he reiterated — and with additional evidence — that the move was a good one.
“Given our level of cash investment, if you were to look at it on a private equity basis, we’ve made 20-times on our investments and they’re continuing to grow,” he said. “Ultimately, we’ll see if we need to at some point in time monetize these or highlight the value, but it’s embedded here …but frankly the external market is probably valuing it more than what it is today.”
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