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Simon Property CEO Says Bad News on Bankruptcy Front is Largely Over

David Simon, who earlier this year forecasted more retail bankruptcies, now thinks “most of the bad news” is over.

Simon is chairman and chief executive officer of Simon Property Group, one of the largest mall owners and operators in the real estate investment trust sector. Given the data points Simon receives on mall traffic and sales reports from tenants, when he sees a trend, retail trackers tend to pay close attention.

Speaking to investors and Wall Street analysts Tuesday after the company posted first-quarter earnings results, Simon said there are a few more retailers–though he didn’t identify them by name–that the company is keeping close tabs on to see how the rest of the year shapes up. He also noted, though, that several of the big companies he thought would file, ended up going into bankruptcy and then moving to a liquidation.

“I think it’s safe to say that we did anticipate some bankruptcies…Couple of the bigger ones just liquidated–that was different than our plan. But [what] makes our company unique is that we’ll take that space back [and] we will lease a lot,” Simon said. “And I don’t think it will affect the long-term prospects of our cash flow generation, but it’s going to take some work this year to balance that. But I think most of the bad news is behind us.”

For the first quarter, funds from operation were $3.04 a share, beating Wall Street’s consensus estimate by 10 cents. Reported retail sales per square foot for malls and outlets were $6.60 a foot, versus $6.41 in the year-ago period. And the REIT’s malls and outlets occupancy at the quarter’s end was 95.1 percent. Simon said the company ended the first quarter with $7 billion in liquidity, and expects to generate about $1.5 billion cash flow after dividend distributions, which will be used to fund investment in the company’s development and redevelopment projects.

Redevelopment activity–more than 30 projects domestically and internationally–according to Simon, is moving quickly, and in some instances faster than originally anticipated. The company broke ground on Siam Premium Outlets in Bangkok, which will be its first outlet in Thailand. It is slated to open in the first quarter of 2020.

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Simon Property Group also received approval to begin construction on its luxury designer outlet in Western Paris. Other projects in development include outlet centers in Queretaro, Mexico and Malaga in Spain for this year, and in Cannock, England for fall 2020. The redevelopment activity includes work on projects in the pre-development phase. Many of the centers are being densified with the inclusion of mixed-used components, Simon said, like hotels, multi-family, office and other uses.

The Group also has its initiative currently in beta testing. “This is a unique long-term investment for us, which capitalizes on the power of the Premium Outlets brand, our large base of loyal and engaged shoppers and the strong relationships we have with our retail partners,” the chairman said, noting that the company is looking forward to a “full public launch,” which could happen within the next few months. The site gives its outlet brands another way to reach consumers, and for Simon a new revenue stream.

Meanwhile, Richard S. Sokolov, president and chief operating officer, commented about the tenant pipeline in connection to leasing activity.

“Frankly there are still a great many tenants that are happy to have the opportunity [to] take advantage of the inventory that we have now that we haven’t had historically, and that leasing interest [is] accelerating,” he said.

The demand is coming from new retail concepts, international retailers looking to expand, and e-tailers that need a brick-and-mortar presence, as well as existing tenants who need retail space for brand extensions, Sokolov explained. “So there’s a lot of activity [from] different sources, and I think that’s reflecting itself in our occupancy,” he said.

The chief operating officer also spoke briefly about the fallout from over-levered retailers that liquidated, noting: “You can never say there isn’t going to be somebody else out there that goes [bankrupt], but we’re making very good progress in releasing that space….The bottom line is our properties are getting better and better. There’s $1.5 billion that we’re talking about. We’re adding great tenants; we’re renovating properties; we’re adding amenities. We are making this portfolio better and more attractive to retailers.”