David Simon is ready to turn the page on 2020.
“One heck of year, let’s not repeat it,” said Simon, chairman, chief executive officer and president of Simon Property Group, on a conference call going over year-end results Monday.
That’s a sentiment many will share, although no one else is watching retail from quite the same perch.
Last year, Simon Property both battled with retailers over rent payments during shutdowns and also become much more of a retailer itself, taking control of Forever 21, Lucky Brands, Brooks Brothers and J.C. Penney with its partner Authentic Brands Group.
The company also bought control of competitor Taubman Realty Group, raised $13 billion in the debt and equity markets, granted $400 million in rent abatements to smaller tenants and paid shareholders $2 billion in dividends.
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Simon Property lost about one-fifth of its year to COVID-19 closures — a total of 13,500 shopping days at its various U.S. properties — and saw its net income fall to $1.11 billion from $2.1 billion in 2019.
Funds from operations, the standard financial yardstick in real estate companies, fell to $9.11 a diluted share from $12.04 in 2019.
Simon said the company had turned the corner, but is still fighting its way back. Occupancy rates stood at 91.3 percent at the end of the year on Dec. 31, down from 95.1 percent a year earlier.
“We expect growth in cash flow and earnings in 2021,” Simon said. “Our guidance is $9.50 to $9.75 per share [in earnings]. This range includes approximately 15 cents to 20 cents per share from our retailer investments.”
While some observers have wondered over the company’s growing real estate portfolio — which has helped keep its malls filled by propping up key tenants — Simon underscored the soundness of the investments with some Wall Street-ready examples.
“Let me just give Forever 21 as an example,” he said. “We bought it in February pre-COVID-19, well before we knew COVID-19 would have the impact it did on 2020. And despite all of that, despite all of that, Forever 21…generated a positive EBITDA, pre-royalties, of approximately $75 million in 2020, and we basically paid $67 million for that.”
Overall he said Simon has $330 million still invested in the retail portfolios, “net of cash distributions and the value of appreciation of our ABG investment, which has just had a recent trade.”
“And so, in marking that to market, our net investment in all of these activities is $330 million, and all of these brands will generate for us in 2021, our share, $260 million of EBITDA.”
Viewed another way, the retail names all together have $3.5 billion in digital sales. “All we have to do is look at how e-commerce brands are being valued today and I think you could all conclude, we hope you do, that we’ve been making some wise investments here,” Simon said.
But even if landlords are powerful — and Simon Property especially so — the CEO pointed to a still more-potent force today.
Big tech.
“The most amazing thing is that every retailer that we’ve purchased in bankruptcy, all the tech companies get 100 cents on the dollar that they pay, whether it’s services, whether it’s for their e-commerce business, whatever it is,” Simon said. “Landlords like us ended up getting it in the shorts. Those tech companies are so powerful that they can shut you off if you don’t play ball with them. Landlords, us included, don’t have that power.”
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