Simon Property Group raised its full-year earnings guidance as consumers returned to shopping centers and malls after Covid-19 lockdowns were mostly lifted across the country in the second quarter.
Funds from operations rose to $1.21 billion, 53 percent higher than the year-ago period when some stores were just beginning to reopen after months of pandemic-related closures. On a per-share basis, that accounted for $3.24, compared with $2.12 in the prior year for the retail real estate investment trust that is the nation’s largest shopping center owner.
Net income was $617.3 million, or $1.88 a share, compared with $254.2 million or 83 cents a share a year ago. Quarterly profit also included a non cash gain of $118.4 million, or 32 cents a share, tied to a deferred tax liability reversal. The profit comes after a Simon Property suffered a particularly rough year in 2020 when the REIT lost 13,500 shopping days across the portfolio.
Indianapolis-based Simon Property now expects to see FFO for the year in a range of $10.70 to $10.80 per share, up from the previous quarter’s guidance of $9.70 to $9.80 a share.
Chief Executive David Simon attributed the strong results and forecast to consumers’ desire to return to brick-and-mortar stores to do their shopping for everything from groceries to athletic wear to luxury handbags.
Conceding that omni-channel shopping is here to stay, David Simon said the activity at the company’s shopping centers, which are largely operating at pre-pandemic shopping hours, is also fueled by new local, regional and national retail tenants, restaurants and mixed-use demand. Overall, shopping centers were 91.8 percent occupied, ticking up slightly from the previous quarter but down from the year-ago level of 92.9 percent and 2019’s occupancy rate of 94.4 percent.
“Read my lips: Physical retail is here to stay,” he said. “People really like to shop in the physical store.”
Simon said he was “tickled pink” by the fresh demand for retail space from new retailers and restaurant owners, noting the company did more deals in the last quarter than it’s had in years with nearly 1,400 leases for approximately 5.2 million square feet and a “significant number of leases in our pipeline.” He expects to end the year with about 2,500 more leases for a total of 9.5 million square feet leased.
“We still have a hole to dig out of because of the bankruptcies we had to confront from the pandemic, but I’m very pleased with the activity, the mojo we have in leasing,” he said.
David Simon also praised the above-expectations performance of some of the retailers the company purchased with Authentic Brands and Brookfield.
Retailers Simon purchased with Authentic Brands and Brookfield Properties are performing above expectations. “What we found is if we just focus on the business, focus on cash flow, focus on consumers (with) patient money, we could turn those around,” he said.
Without offering solid numbers, David Simon said he was particularly pleased with the results from JCPenney, which closed hundreds of stores after it filed for bankruptcy protection last year.
“JCPenney continues to outperform,” he said, noting its liquidity is at $1.4 billion and not a center of an outstanding balance on its line of credit. He said the department-store retailer will launch several private brand and a new beauty initiative later this year.
He also noted strong performance by Forever 21, Aeropostale and Eddie Bauer. Simon Property also has stakes in Brooks Brothers and Lucky Brands.
“Don’t underestimate what we’ve done,” he said of the retailers that all have major presences at Simon Property shopping centers and malls and employ 50,000 to 60,000 workers. “These were companies that were basically roadkill and we saved them. And for that I’m thankful.”