Simon Posts Solid Year-end Results, Cites Robust Agenda on Redevelopments
Simon Property Group, energized by its strong 2024 financial performance and healthy balance sheet, has a “big program” ahead for redeveloping “B” properties as it continues to enhance “A” assets as well.
That’s the word from David Simon, chairman, chief executive officer and president of Simon, who on Tuesday outlined plans for the real estate investment trust after the company disclosed that its fourth-quarter earnings slipped to $667.2 million, or $2.04 per diluted share, from $747.5 million, or $2.29 per diluted share in the 2023 period. However for the year, income rose to $2.638 billion or $7.26 per diluted share, as compared to $2.28 billion, or $6.98 per diluted share in 2023.
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Net income for the fourth quarter of 2024 includes a non-cash, after-tax gain of $75.3 million, or 20 cents per diluted share from the combination of JCPenney and SPARC Group to form Catalyst Brands.
Q4 funds from operations rose a bit to $1.39 billion, or $3.68 per diluted share, as compared to $1.38 billion, or $3.69 per diluted share in the prior year. Simon’s fourth quarter ended Dec. 31, 2024.
Simon’s stock price was up 3.32 percent to $179.11 in after-hours trading Wednesday following an upgrade by Piper Sandler to “overweight” from “neutral” due to what it considered better-than-expected earnings and a renewed focus on improving the real estate portfolio.
“We’ve been organizationally very focused on, for no better word, the ‘As,'” Simon said referring to A malls, during a conference call with industry analysts. “We do think there’s a real effort, focus and growth in the ‘B’s where we’re investing our dollars. So that’s a big program for us in ’25 and ’26.”
In real estate jargon, a “B” mall is typically a shopping center in a secondary market with mid-tier retailers, while an “A” mall generates greater sales productivity with more upscale retailers and is situated in a larger market.
Simon cited the Smith Haven Mall, located on the eastern end of Long Island, as an example of a B mall being transformed, and said an announcement on the mall is forthcoming. “We’re going to update and renovate the property, add a great retailer and a huge box. We just added Primark. A hospital just opened one of their health facilities there.”
He said transforming the Smith Haven property would probably yield about a 12 percent return over the next couple of years. “It will be a renovated, rejuvenated asset that because of all the progress we’ve made in the bigger ones, we’re able to kind of re-energize our focus on an asset like that. But the list of those is long.”
The Smith Haven Mall is anchored by a Macy’s department store and also houses a Macy’s furniture store as well as Dick’s Sporting Goods, and many specialty chains including Barnes & Noble, Apple and Sephora.
Investments in B locations involve “a whole combination of things” Simon said, such as adding boxes, residential units and hotels, and updating restaurants, depending on the location. Non-retail projects at Simon properties, the CEO said, are usually 50-50 joint ventures.
Simon said the company is also considering expanding certain “better” assets, such as the Woodbury Common Premium Outlets which is an hour north of New York City; Toronto Premium Outlets, and Desert Hills Premium Outlets in Cabazon, Calif. “That stuff is high priority,” he said.
“Development and redevelopment opportunities are growing within our portfolio,” Simon added. “We de-levered our A-rated balance sheet, providing additional capacity and flexibility to fund future growth.”
Regarding projects in California, where Los Angeles has been devastated by wildfires, “We are going to accelerate anything we are planning. We are very nervous about construction costs due to the horrific events.”
For Simon, fiscal 2024 was eventful, marked by the purchase of two luxury outlet centers in Italy from Kering; the opening of a new, fully leased Premium Outlet in Tulsa, Okla.; and the completion of 16 significant redevelopment projects. Simon’s board declared a quarterly common stock dividend of $2.10 for the first quarter of 2025, an increase of 15 cents, or 7.7 percent year-over-year. The dividend is payable on March 31, 2025, to shareholders of record on March 10, 2025.
In addition, Simon, along with Brookfield Corp., Authentic Brands Group and Shein, formed a new company called Catalyst Brands, which consists of SPARC’s Lucky Brand, Aeropostale, Nautica, Eddie Bauer and Brooks Brothers brands, as well as JCPenney. The formation is expected to drive synergies and EBITDA [earnings before interest, taxes, depreciation and amortization] growth. Catalyst executives are exploring “strategic alternatives” for Forever 21, a SPARC holding. SPARC, which stands for Simon Property Authentic Retail Concepts, is a partnership between Simon, Authentic and Shein.
At the two properties purchased from Kering, “Kering will remain a long-term tenant,” said Simon. “They had a very competent group that ran it. That is not (Kering’s) main business. We have taken over that team and will help them with strategic guidance. We think there is an upside in that business.” Still, Simon added, “We’re not going to buy a mall in Europe. The outlet business we view a little differently.”
Deals at the right price for high quality properties that become accretive to earnings and are housed with the right retailers, Simon said, “are the kinds of deals we want to do . . . We are still interested in high quality transactions, but there is no big deal on the horizon. If there were a big dealt to do, (requiring) several billions of dollars, then we might have to readjust our thinking. The mindset right now is we can do it all,” Simon said, citing new development, redevelopments, extending dividends, and buying back stock subject to market conditions.
Asked by one investor about the impact of rising tariffs, Simon replied, “Catalyst as an example, only sources 20 percent of their goods in China, OK? So when we talked to Catalyst, their view of it is with respect to China, that they’ll pass some of it on to the consumer, but also hope that the supplier tightens up the cost of goods sold. So many, many retailers have moved a lot of production out of China over the last several years.
“What’s really going to be helpful to the American retailers and the non-Chinese retailers is to get rid of the de minimis rule, which basically exempts tariffs if you send a package over $800 to a customer. That’s not a level playing field. That causes retailers to pay more that ship in bulk, and it’s given real benefits to someone like a Temu, where they shipped purposely under the $800.”
Simon’s 2024 net income of $2.37 billion includes after-tax gains of $386.4 million, or $1.03 per diluted share from the sale of the company’s remaining ownership interest in Authentic Brands Group and the formation of Catalyst Brands.
Funds from operations in 2024 was $4.88 billion, or $12.99 per diluted share as compared to $4.69 billion, or $12.51 per diluted share in the prior year.
Also, a record 5,500 leases for more than 21 million square feet was signed last year; retailer sales per square foot was $739 for the trailing 12 months ended Dec. 31, 2024, and for 2025, the company estimates net income to range from $6.95 to $7.20 per diluted share.
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