David Simon is branching out and becoming more of a retailer — playing for a share in Brooks Brothers, Lucky Brand and perhaps J.C. Penney — but that doesn’t mean Simon Property Group is changing its spots and veering too far from its profitable life as a landlord.
Despite losing a collective 10,500 shopping days to the coronavirus shutdown in the second quarter, the real estate giant still managed to come away making money, although not as much as a year ago and the firm is still haggling with retailers that didn’t keep up with their rent.
For the quarter ended June 30, the landlord posted net income of $254.2 million, down from $495.3 million a year earlier, despite the coronavirus shutdown and continued disruptions. Funds from operations — the standard yardstick in real estate — fell to $746.5 million from $1.1 billion a year earlier. Nearly 93 percent of the company’s space was occupied at the end of the quarter.
In its U.S. retail portfolio, Simon saw about 51 percent of its contractual rent billed for April and May together, including some level of rent deferrals. That rose to roughly 69 percent in June and approximately 73 percent last month.
The mall owner has a 50/50 joint venture with Authentic Brands Group called Sparc that has the stalking horse bids in the auctions for Brooks Brothers and Lucky Brand, both expected this week. The company is also said by a source close to the situation to be the leading contender to pick up J.C. Penney out of bankruptcy this week, (and a report by the Wall Street Journal has Simon working on some kind of collaborative effort with Amazon where the web giant would make use of the space).
But despite all that, Simon, who is chairman, chief executive officer and president of the real estate group, said the company’s bets in retail aren’t big in the context of Simon Property Group, which has a market capitalization of $20 billion.
“It’s not material, it’s a sideline business,” Simon told analysts on a conference call late Monday. “We’re doing it for one reason only, we believe in the brand and we think we can make money. There’s nothing out there that says you can’t make smart investments outside your core business.”
If Sparc were to prevail in both the auctions for Brooks Brothers and Lucky, Simon said his company would be putting less than $50 million worth of equity into the combined deals.
And, he noted, “We’re not buying the inventory at the retail cost to the consumer, we’re buying it at basically the cost that the retailer has and then we’ll sell it, so there’s profit there.”
Simon dodged questions about Penney’s, which is being auctioned off in two parts — an operating company and a company holding the intellectual property — but he did offer up this tidbit, that seemed to indicate more than a passing interest in the matter.
“The amount of equity required to do the operating company is going to be a little less than you would think,” Simon predicted of buying that part of Penney’s.