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Simon Says: More Retail Bankruptcies Ahead, But Retail Industry Solid

So far in the first quarter, retail bankruptcies are trending lower than they did at the same point in both 2017 and 2018, Simon Property Group CEO David Simon said during the company's recent Q4 earnings call.

David Simon
Simon Property Group Chairman David Simon

Even so, the wave of retail failures probably isn't over.

"I do think there will be more bankruptcies to come in '19," Simon said, though he didn't offer any names.

"We're concerned about a few retailers, and they should shake out in the first quarter," Simon said. "But the retailers who are investing in their products and their store experiences and their branding are seeing decent results.

"Physical retailing can produce good results. But of course the landscape is littered with leveraged buyouts in our industry that we continue to sort through.

"That's why we're relatively conservative, because it's a little bit out of control as to when we get the space back, and it takes time to lease it," Simon said. 

The company's conservative approach includes a paucity of M&A activity. According to Simon, the company has no plans to pursue major acquisitions right now, despite its strong financial position.  

The REIT is aggressively investing in redeveloping and repositioning some of its properties. The company is currently redeveloping 10 former anchor spaces and is busy opening outlet-style retail — two properties recently and three more in the near future, according to Simon.

As a measure of Simon Property Group's international expansion, the three outlets that it plans to open soon are in Mexico, Spain and the U.K., with another planned for Thailand.

Simon Property Group reported that its funds from operations — an important metric in the REIT sector — was about $4.3B, or $12.13/share in 2018, compared to about $4.02B, or $11.21/share in 2017, an 8.2% increase per share.

Sales per SF for the year were $661, an increase of 5.3% year over year, and occupancy at the company's properties was 95.9% at the end of 2018, compared to 95.6% a year earlier.