Anjali Sundaram | CNBC
Simon Property Group, the biggest mall owner in the country, is expecting this year to be better than last, as some retailers start to think about opening new stores in its malls, and tenants are in a better position to pay their rent on time.
“The [retailers] that want to grow their business are excited,” CEO David Simon said Monday evening during a call with analysts. “The healthy retailers that believe in their business — believe in their plans — are making deals.” He later listed Kohl’s, Dick’s Sporting Goods and Primark as three examples of retailers that his team is in talks with for new locations.
However, he cautioned, “it’s going to take some time” to get back to 2019 levels.
Simon shares were up almost 3% in after-hours trading.
Simon’s remarks came after the mall owner on Monday reported weaker year-over-year profits and sales for the fourth and holiday quarter, as the Covid-19 pandemic continues to take a toll on the industry, with many retail and restaurant tenants struggling to stay open for business.
Total revenue fell by about 24% to $1.13 billion, from $1.49 billion a year ago.
Simon’s funds from operation for the three-month period amounted to $2.17 per share, down from $2.96 per share a year ago. For real estate investment trusts like Simon, analysts more closely track this metric, which excludes real-estate depreciation costs and accounts for other adjustments.
Simon’s occupancy rate at the end of the year was 91.3%, a tick down from 95.1% a year ago.
A visitor looks down an empty hallway at The Fashion Mall at Keystone, Wednesday, March 18, 2020, in Indianapolis. Simon Property Group, the largest owner of shopping malls in the nation, is closing all of its malls and retail properties because of the coronavirus outbreak.
Darron Cummings | AP
The mall owner was forced to temporarily shut all of its centers in mid-March, to try to help curb the spread of Covid-19. As of Feb. 5, Simon said it has collected 90% of net billed rents for the second, third and fourth quarters from its properties in the United States.
Simon said it has granted roughly $400 million in tenant rent abatements so far to support small and local businesses and restaurant owners during the pandemic. It lists about $340 million in granted deferrals through the end of 2020.
“We still, even to this day, have a handful of large tenants unfortunately, that have yet to resolve their receivables,” CEO Simon told analysts Monday. “Are we completely out of the woods? Not yet, but we’re well on our way.”
Simon’s outlook for the current year is more upbeat, as the landlord is optimistic that shoppers are increasingly comfortable getting back to the mall to shop, and that new additions to its malls, like hotels and other residential complexes, will start to pay off. It also stands to benefit as under-performing malls operated by its rivals go under.
CEO Simon mentioned Florida as one example of a positive sign, saying business at its malls and outlet centers is “clicking along,” citing “real domestic traffic increases.”
Some of the most valuable shopping centers in the country are owned by Simon and are in Florida, including Orlando Premium Outlets and Sawgrass Mills.
“Florida is a great example that … you can get on with the sadness … and there’s a lot of energy there,” Simon said about shopper traffic in the state, adding that Texas is the second-highest performing state in the U.S., likely due to the eased Covid-related restrictions compared with other parts in the country.
The company expects net income of $4.60 to $4.85 per share this year, or $9.50 to $9.75 a share in funds from operations, assuming no additional government-mandated shutdowns at its malls and outlet centers. That compares with the company’s reported profit of $3.59 per share, or $9.11 a share in funds from operations, in 2020.
Near the end of last year, Simon completed its acquisition of an 80% stake in the high-end mall owner Taubman. It also bought Forever 21, Brooks Brothers, Lucky Brand and J.C. Penney out of bankruptcy in 2020.
As of Dec. 31, 2020, Simon had more than $8.2 billion of liquidity on its balance sheet, including $1.5 billion of cash on hand.
Simon shares closed Monday up more than 2%. The stock is down about 30% over the past 12 months. Simon has a market cap of $32.5 billion.