David Simon on Luxury, Mixing Up His Mall Portfolio
David Simon believes in change, and churn in Simon Property Group’s portfolios of malls — but one thing he doesn’t plan on changing is his close connection to the luxury world.
Simon, who is chairman, chief executive officer and president of the mall giant, took some time out of his report on second-quarter results to Wall Street to express a little admiration for the luxury giants like LVMH Moët Hennessy Louis Vuitton and Kering that have “the best brands.”
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“They do the most volume,” Simon told analysts on a conference call. “They build the best stores. They think longer-term over any retailer that we’ve ever experienced. They’re true to their business. So we admire what they do. We admire how they build their brands.…We aspire to be more like them.
“The luxury business is here to stay,” he said. “It’s growing, it’s really important. It’s worldwide. It’s a great consumer that loves physical retail, that wants to go shop and do other things at our centers.”
He noted that LVMH ranks as number 10 among Simon’s largest tenants with 105 stores and 393,000 square feet.
For luxury, he said: “It’s all systems go there. Yeah, sales will flatten, they’ll go up, they’ll go down. But their commitment to their customer and what they do in the stores, I think goes unabated.”
Over the years Simon has evolved toward luxury and is clearly looking to continue.
Simon said that, in 1996, the company had 119 malls and 65 strip centers, mostly in the Midwest. Over the past 27 years it has bought 220 properties, developed 50 and sold about 250 others.
Today, only 37 of the properties it held in 1996 are still in the portfolio.
“Our high productive portfolio is the result of constant asset rotation,” Simon said.
At the company’s premium malls in the U.S., the occupancy rate as of the end of the quarter on June 30 rose to 94.7 percent from 93.9 percent a year ago. The base rent increased 3.1 percent over the 12 months to $56.27 a square foot. And retailers reported sales per square foot of $747 for the last 12 months.
Simon’s second-quarter profits slipped 2.1 percent to $486.3 million from $496.7 million a year earlier. Funds from operations, the standard yardstick for retail real estate companies, ticked down modestly to $1.08 billion from $1.09 billion.
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