Simon CEO Declares Brick-And-Mortar Comeback, Sees Benefit In Recession

Simon Property Group CEO David Simon used the occasion of the company's third-quarter earnings call on Tuesday to tout not only the survival of malls, but their relative strength now compared to online sales.

"I need not remind you when physical retail was closed in Covid, all the naysayers saying that physical retail was gone forever," Simon said. "However, brick-and-mortar is strong, brick-and-mortar retail is strong, and e-commerce is flatlining.

"The flight toward bricks-and-mortar is real," Simon 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 talks about."

So far this year, during the first and second quarters, total U.S. e-commerce sales are $507.7B, or a little more than half of 2021's total of $959.9B, according to the Census Bureau.

If sales remain at that level for the rest of this year, they will top $1T, an increase compared with 2021, but not nearly as much as the increase between 2019 and 2020, when sales jumped from $569.8B to $811.6B due to pandemic-related restrictions.

Currently, Simon owns 230 malls totaling about 184M SF, making it the largest U.S.-based mall owner. It has properties in North America, Asia and Europe.

Simon turned in a decent third quarter. David Simon noted that the company's base minimum rent was $54.80 per SF at the end of Q2, up from $53.91 a year ago. Occupancy at the Simon malls came in at nearly 95%, up 1.7 percentage points year-over-year.

On the other hand, Simon's funds from operations during Q3 2022 came in at $1.11B, or $2.97 per share, just a little lower than $1.18B in Q3 2021. Net income for the third quarter of 2022 was $539M, down from $679.9M during the same quarter last year.

David Simon also asserted that an economic slowdown wouldn't put too much of a crimp in Simon's prospects.

"Even though 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," Simon said. 

"If we do run into a recession ... we see a slight benefit," Simon said. "I may sound counterintuitive, but construction pricing for new projects is higher than what we want to see. So I'm hopeful that any slowdown will ... reduce cost of new construction."