Despite waning consumer confidence, trade wars and economic uncertainties, Simon Property Group, the nation’s largest operator and owner of shopping centers, came out looking good last quarter.
Funds from operations, a standard financial yardstick at real estate companies, reached $1.1 billion, or $2.95 per diluted share, for the first quarter, compared with $1.09 billion, or $2.91 per diluted share in the prior year.
Domestic property net operating income (NOI) for the three months ended March 31 increased 3.4 percent and portfolio NOI increased 3.6 percent compared to the prior year period.
Occupancy as of March 31 was 95.9 percent, up from 95.5 percent a year earlier. Base minimum rent per square foot stood at $58.92, a year-over-year increase of 2.4 percent.
Reported retailer sales per square foot was $733 for the 12 months ended March 31, versus $745 a year earlier. The decline was attributed to a shift in Easter timing, weather conditions impacting traffic, West Coast fires, and less tourism, particularly from Canadian and Mexican shoppers. Tourism to the U.S. has declined due, in part, to economic concerns and the strength of the dollar against other currencies.
Simon reaffirmed its outlook for real estate FFO of $12.40 to $12.65 per diluted share for 2025.
On Jan. 30, the company completed the acquisition of two luxury outlets in Italy — The Mall Firenze in Leccio, near Florence, and The Mall Sanremo, on the Italian Riviera.
Last March, Simon’s 50-percent-owned Jakarta Premium Outlets in Tangerang, Indonesia, opened with 302,000 square feet featuring global and local brands and international dining.
David Simon
Courtesy
“Our first-quarter results underscore the strength of our business,” David Simon, chairman, chief executive officer and president, said in a statement. “We delivered strong financial and operational performance and enhanced our portfolio with the acquisition of The Mall Luxury Outlets in Italy and the successful opening of Jakarta Premium Outlets in Indonesia. As macroeconomic conditions continue to shift, we are well-positioned with a fortress balance sheet and a proven track record of navigating successfully through a wide range of economic cycles.”
Simon’s board also declared a quarterly common stock dividend of $2.10 for the second quarter. This is an increase of 10 cents, or 5 percent year-over-year.
Regarding the impact of tariffs on dealmaking with retailers, Simon said during a conference call with investors: “It’s only affected four deals that I am aware of from one European retailer. Other than that, at this point, it hasn’t really affected any demand.”
He said many retailers are holding off bringing in goods from China, which could affect their inventory levels. “They’re to source it elsewhere, which they may or may not be successful with.”
Leasing demand “is still strong and we haven’t seen, by any stretch of the imagination, an across-the-board reduction.”
He said traffic in shopping centers is “holding up. The malls are actually performing above and the outlets are relatively flat.”
Some border properties by Mexico or Canada have seen “a slowdown in traffic and sales, but they’re great long-term assets,” Simon said. He characterized the consumer as “fine, being a little more cautious. I do think tourism is — this may be the wrong word — flattening, waning.”
Simon said retailers “have probably another month or so, maybe longer, to decide what they’re going to do with respect to China for Q4 inventory…a number of retailers have already reduced their exposure to China dramatically.”
The demand for former Forever 21 sites “has been really good. We’ve got basically over half of them leased,” Simon said, adding that Primark, the Dublin-based value oriented family retail, is among the retailers actively pursuing former Forever 21 sites.
Regarding luxury tenants, Simon, without specifying, said some are “absolutely on fire, others are bringing in new designers and upgrading the brand…They think very long-term like we do. So there really hasn’t been a change of mood or commitment from those brands. There are always ups and downs, but I think overall from a sales point view, it’s relatively flat.”
Catalyst Brands, he said, saw “real improvement quarter-over-quarter” as the combination of business realized synergies, the Forever 21 operating company went into bankruptcy. Simon, Brookfield Corp., Authentic Brands Group and Shein earlier this year formed Catalyst Brands, consisting of SPARC’s Lucky Brand, Aéropostale, Nautica, Eddie Bauer and Brooks Brothers brands, as well as JCPenney.