The upscale mall operator posted consolidated net income of $592.64 million for the third quarter, compared to $587.94 million a year ago, on revenue of $1.4 billion, up from $1.35 billion last year.
David Simon, chairman and chief executive officer, said during a call with analysts that he was “pleasantly surprised” with the quarterly results and made note of the company’s “solid operating metrics.”
Despite the solid results, shares of the company fell 3.4 percent by early afternoon to $158.25, the lowest price since August.
Simon said during a September conference that the property group has reinvested about $1 billion annually in its properties since 2010. It’s also added 260 restaurants over the last couple of years.
Those efforts probably contributed to the group’s occupancy, which stood at 95.3 percent at the end of September. Rents also rose during the quarter by 3.3 percent, hitting $52.42 per square foot. New leases for apparel retail however are down about 20 percent, according to Richard Sokolov, Simon’s president and chief operating officer, while leases in food and entertainment are up by the same percentage.
Simon said during the call that, despite a number of retail bankruptcies, the group has done over $7 million in leases so far this year for more than 10 million square feet of space and he expects the company to “improve upon that” in the months ahead, including an “uptick” during the fourth quarter.
He added that redevelopments and changes to properties aren’t being done simply for show, “the idea is to increase the value of the portfolio.”
Simon pointed to the continued expansion the group’s King of Prussia mall, which he compared to the massive development of Hudson Yards in New York, saying it will go from being a $2 billion property to one worth more than $3 billion.
“That’s why having good real estate is all about and it’s underappreciated, but I get it — we’ve got do it, we’ve got to prove it,” Simon said.
Another announcement from the group on a “major mixed use development… along the lines of King of Prussia” is likely to be made this year, Simon said.
But the group is far from abandoning retail entirely. Last month it opened The Shops at Clearfork, a 500,000-square-foot mall in Texas anchored by Neiman Marcus. It’s also completed an expansion of a retail outlet mall in the state, and is working on two other outlet malls, one in Canada and one in Colorado, set to be completed next year.
All told, Simon was redeveloping and expanding 31 properties in North America at the end of the third quarter.
Looking ahead to the rest of the year, Simon said net income should be in the range of $6.23 to $6.28 per diluted share, an increase of 3 cents over its previous guidance.
That guide includes impacts from “ongoing restoration efforts” at two malls located in Puerto Rico that were damaged after the commonwealth was hit by hurricanes Irma and Maria in a matter of weeks.
Simon admitted during the call with analysts that there’s “nobody paying rent at this point” in Puerto Rico, and that they won’t be paying “until we restore the building.”
“And I wish I could give you a sense of [timing on] that, but it’s really going to depend on the next couple of months because it is – there is a lot going on down there and power needs to be restored permanently,” Simon said. “And as I said, we’re doing our repairs and restoration work concurrently, but it’s going to take some time to get it all – to get it going.”
Simon added the the expected financial impact is “less than 1 percent of our business” making it “obviously immaterial” to the group’s business.
“I’m more focused on the tragedy of Puerto Rico…we’re more interested in what’s going on,” Simon said.
For the year so far, 45 Simon Property centers have been closed for a total of 412 days due to natural disasters, including widespread hurricanes in the southern U.S. and deadly wildfires across California. Currently all of the groups malls in the contiguous U.S. are “back to normal.”
As for Puerto Rico, Simon said the properties will be built back and “better than ever.”
“Those assets are important to that community. We will deliver.”
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