As its investments in retail deteriorate, Simon Property Group sells its position in Eddie Bauer.

February 8, 2023

As its investments in retail deteriorate, Simon Property Group sells its position in Eddie Bauer.


Brief Dive:

  • With assets in J.C. Penney, Sparc Group, Authentic Brands Group, and Rue Gilt Groupe, Simon Property Group’s retail and brand businesses’ net operating income dropped 35.4% to $125 million in the fourth quarter and 33.4% to $355 million overall. Their percentage of the company’s funds from operations decreased by 40.2% over the course of the year and by 39.5% in the fourth quarter.
  • According to CEO David Simon, the real estate investment trust increased its ownership of Authentic Brands Group to 12% during the quarter by exchanging its stake in an Eddie Bauer licensing joint venture for a new stake in the company.
  • Forever 21 fared the worst last year among the brands managed by Sparc (which also include Aeropostale, Brooks Brothers, Eddie Bauer, Lucky, Nautica, and Reebok), as its teenage customer base was severely impacted by inflation, he claimed.


Dive Insight:

David Simon reaffirmed his optimism regarding the REIT’s retail endeavors, but he pointed out that they were still affected by the instability of the previous year because the late-pandemic rally that would have helped many shops in 2021 failed to materialize. He stated that while the REIT is “pleased with the impact” they have made overall, investments in retailers and brands have been very small.


He added, “But we did make the error of believing that ’21 would recur. And after that, there was undoubtedly a lot of instability in ’22, marked by sharp increases in prices, interest rates, and the cost of food and energy. We saw the impact of the whipsawing of the customer. We think it has now stabilized.


Many of Simon’s brands were “extraordinarily lucrative” in 2021, and Simon noted that J.C. Penney in particular was “unbelievably profitable” in terms of EBITDA. Simon and ABG jointly own Sparc, whereas Brookfield and Simon jointly own J.C. Penney. To deal with self-inflicted issues at Forever 21, the business hired former Paper Source CEO Winnie Park a year ago, according to him.


“At Forever 21, we committed some tactical errors. To fix those errors, we hired a new CEO,” he stated. She is working quite hard.


In spite of the relatively tiny size of Simon’s retail division, David Simon stated that there are no intentions to expand it. According to a news statement from the firm, overall comparable funds from operations for Simon Property Group in the fourth quarter increased 1.1% year over year to $1.18 billion while net income attributable to common stockholders increased 33.9% to $673.8 million. According to the announcement, portfolio net operating income increased by 6.3% while domestic property net operating income increased by 5.8%.


However, UBS analysts lead by Michael Goldsmith noted that the retail and brand operations were “down substantially” and that they must improve if the company is to succeed. This is especially important given that the business must deal with increased expenses, such as greater interest charges when $1.8 billion in debt matures this year, as UBS pointed out in remarks sent via email on Tuesday.


All of Simon Property Group’s business sectors must contribute, according to Goldsmith, for the company to considerably increase profitability. When its segments are not perfectly matched, it significantly reduces the potential for earnings growth.