festyle centres in the US, plus 14 Mills megamalls and 70 premium factory outlet centres. Outside the US, it had a further 35 factory outlet centres, of which 18 are in Asia, specifically in Korea, Japan, Thailand and Malaysia. It has had a profound influence on Asian retail by pioneering the high-end factory outlet concept on a continent that had never really been exposed to it. The company has provided an entry-level access point to luxury brands in Asia that has not been bettered anywhere. Earlier in the week of Herb Simon’s announcement, company results were released for the fourth quarter and the year, showing that the co-founder was leaving the company in good health despite the growth of e-commerce and strained household finances. Total revenue, mostly leasing income, amounted to US$1.58 billion in the quarter, representing a 3.6 per cent increase from a year ago. Revenue for the whole year came to US$5.96 billion, up 5.4 per cent from 2023. Just over 90 per cent of Simon’s income is from leasing, identical to last year. Net income for the fourth quarter was US$771.76 million, down just over 10 per cent from a year ago, partly due to higher non-cash, after-tax gains in the base year, rather a bust in operations. Net income for the year was US$2.73 billion, an increase of 4.3 per cent. Funds from operations (FFO) were virtually flat for the quarter and up 4.1 per cent for the year. FFO is a REIT non-GAAP metric that adds back real-estate depreciation and other items to net income on the assumption that this provides a more accurate picture of how the company is performing.  Rents still heading up but sales productivity is treading water Sales productivity is still marooned: at Simon’s domestic malls and premium outlets, specialty retailer sales per square metre were $7951 in 2024, down from $8016 per square metre in 2023. The inflation rate in the US is running at a shade under 3 per cent, so in real terms the sales result is a material deterioration. Simon is not drawing attention to that particular metric with flashing lights. The company is attempting to adopt a more strategic focus, believing that it is now more important in the short term to emphasise the optimisation of tenant mix rather than maximisation of sales and rent. Historically, the incentives for shopping centre landlords to focus on shorter-term gains by churning marginal tenants are formidable, particularly for public companies that have to report to their shareholders every three months. Leasing personnel also have incentives to go for the rental jugular; they get commissions, after all. Simon is trying to change the investor’s mindset to look longer term, and we wish them good luck with that because it’s good for retailers and good for shoppers.  Meanwhile, the company’s revenues from variable rents (those tied to tenant sales and reimbursements for utilities, common-area maintenance and other items) have fallen slightly as a per cent of the total. However, the fixed component of rents increased by 2.5 per cent on a per-square-metre basis, so as rents and sales go in opposite directions, occupancy costs for mall and outlet retailers continue to rise. Retailers stay hungry for quality space Still, this isn’t dampening retailer demand for space. During the year, Simon opened a new factory outlet centre in Tulsa, Oklahoma, with not a skerrick of vacant space in its 31,400sqm of gross leasable area. It also delivered 16 redevelopments. One of these was a 17,094sqm expansion of Busan Premium Outlets in Korea. Occupancy across Simon’s domestic portfolio keeps rising. It reached 96.5 per cent at the end of the year. It doesn’t get much better than that, considering the vastness of Simon’s portfolio. With an excellent occupancy profile and growth opportunities outside of the US and Canada through its popular premium factory outlet concept, the only thing standing in the way of the company’s continued growth is that construction costs are through the roof, so to speak. A consistent theme of CEO David Simon’s is that the company’s sheer size affords it a unique ability to absorb those costs and continue doing what it does so well: developing new centres. Thus, Simon has a development/redevelopment pipeline nudging $4 billion, although roughly 35 per cent of that is residential, reflecting a marriage of residential and retail that has traditionally been a staple of Asian commercial development.  That doesn’t mean Simon will turn its back on domestic upgrades. One of the things David Simon gets excited to tell investors about is that the bottom fifth of Simon’s malls in the US are the sole or almost sole mall in their town, and therefore in a sense fortified, particularly if the company makes investments in physical improvements and tenant remixes. All in all, Simon is forecasting gross investment of around $1 billion in redevelopments over the three-year period 2024-26. Simon is also keen on using technology to brighten the mall experience and drive foot traffic. It recently launched a 3D holographic ad feature at 30 of its malls. Holograms, you may recall, were a feature of the Star Trek series; they offered the space travellers an opportunity to escape from their daily routine by engaging with 3D characters that were made out of particle beams. In this instance, the holograms are being used to engage, amuse and market products to shoppers. They are getting good reviews. Other shopping-centre companies will be releasing their 2024 results over the next two weeks.  Further reading: What Simon’s latest results say about the landlord-tenant divide in retail