U.S. mall growth stagnates, so Simon Property eyes Asia

INDIANAPOLIS — Mel and Herb Simon recently returned from a week of sightseeing in China. But they weren't on a vacation.

The founders and co-chairmen of Simon Property Group led a team of executives to the Asian country to check out the potential to make money by owning malls there. The trip, while only exploratory, points to the growing international focus in Simon's shopping mall empire.

Simon, based in Indianapolis, owns the most shopping centers in North America and perhaps the world. It has 245 U.S. properties — including the Trolley Square mall in Salt Lake City — as well as one each in Canada and Puerto Rico. Simon also owns 48 shopping centers in Europe.

Simon obtained 39 of those centers in December when it bought into The Rinascente Group, an Italian retail and mall developer. It will get four more in Japan by year's end once it completes its acquisition of Chelsea Property Group, which was announced last month.

"We do believe we have a brand that is exportable," said Stephen Sterrett, Simon's executive vice president. "The market share that we've developed in the U.S. would travel abroad."

Two key factors are pushing and pulling Simon overseas.

Growth of malls in the United States has stagnated as the industry continues to consolidate and mature, according to analysts who cover the nation's mall owners. Such saturation makes it difficult for Simon, which now has a market capitalization of $28 billion, to keep up sizable growth rates.

At the same time, both the European and Asian markets present attractive opportunities for Simon. In Europe, disposable incomes are similar to those in the United States, but there is significantly less retail space. Asia, particularly China, has a fast-growing economy and burgeoning middle class with increasing disposable incomes.

"China is like America during the 1800s and 1900s, but on speed," wrote Edward Yardeni, an economist at Prudential Equity Group, in a report.

If Simon were to ramp up operations across the globe, it would expose itself to more risks, unfamiliar foreign business laws and a dizzying diversity of consumer preferences.

"You can't just totally take the American model and transfer it," said Malachy Cavanagh, a vice president at the International Council of Shopping Centers.

Simon officials acknowledge the risks.