David Simon sees the market coming back his way.
“Many have tried to kill off physical retail real estate and, in particular, enclosed malls,” Simon, who is chairman, chief executive officer and president of mall giant Simon Property Group, told analysts on Tuesday.
“I need not remind you, when physical retail was closed in COVID[-19], all the naysayers saying that physical retail was gone forever,” he said. “However, brick-and-mortar is strong — the brick-and-mortar retailer is strong and e-commerce is flatlining.”
This is something of a recurring theme for Simon, who has been making the case to investors that few merchants will be able to live off of e-commerce alone, even as online shopping spiked during the pandemic.
Now, his brick-and-mortar belief is resonating more broadly with e-commerce growth rates back to their historical norm and open storefronts in malls being snapped up.
“Our shopper remains resilient,” he said. “We reported another record in the third quarter of $749 per square foot for the malls and outlets, which was an increase of 14 percent year-over-year.”
Simon’s net income for the quarter ended Sept. 30 slipped to $539 million from $679.9 million a year earlier. But the mall giant’s comparable funds from operations — the standard yardstick in real estate — inched up 1.4 percent to $1.1 billion, or $2.97 a diluted share.
In the company’s U.S. malls and premium outlets, occupancy rose to 94.5 percent at the end of the quarter from 92.8 a year earlier. Base minimum rent per square foot increased 1.7 percent to $54.80.
For the full year, Simon is looking for comparable FFO per share to range from $11.83 to $11.88 — an increase, at the midpoint, of 12 cents from the guidance given in August and 26 cents from the forecast in February.
Simon noted that the bump up in the forecast “comes in the face of a strong U.S. dollar, rising interest rates and inflationary pressures.”
The CEO acknowledged the macro-economic troubles vexing the world and consumers, particularly on the lower end of the income spectrum, but said his empire was well positioned.
“We have yet to see any pullback in opening new stores or renewals,” he said. “So there’s been absolutely no impact. And you’re always going to have a deal here or there that falls apart for all sorts of different reasons, but nothing based upon the macro conditions. And I would tell you…that where they’re seeing most of the pressure is in the e-commerce business.
“So the flight toward brick-and-mortar is real,” he said. “It’s going to be sustained. And if they’re in the retail business, and they want to grow, they’re going to open stores. And it’s that simple because the returns on e-commerce just aren’t quite what everybody talked about.”
“Physical retail is where the action is,” he said. “That’s where the return on investment is — and so even if we may slow down next year or even into the holiday season, I don’t think the growth from our existing business is going to slow down because the demand for new deals and space is there.”
Shares of Simon Property rose 4.5 percent to $113.83 on Wall Street.