The Simon Property Group, continuing to transform several of its malls and build up its retail holdings, reported a healthy first quarter, encouraging the nation’s largest shopping center owner to raise its outlook for the year.
Net income rose to $445.9 million, or $1.36 a common share, in the quarter ended March 31, from $437.6 million, or $1.35 a share, in the year-ago period.
Revenues slipped a bit to $1.24 billion from $1.35 billion a year ago.
“We are very pleased with our first-quarter results,” said David Simon, chairman, chief executive officer and president. “Our business has substantially improved after addressing the impacts from the COVID-19 pandemic including significantly restrictive governmental orders as evidenced by our improved profitability and cash-flow growth, increasing shopper traffic, increasing retailer sales and leasing momentum across our portfolio. We are also seeing similar results in the Taubman Realty Group portfolio and are encouraged by our collective progress in increasing its profitability. Today we are increasing our full-year 2021 guidance.”
In December, Simon completed its acquisition of an 80 percent ownership interest in Taubman.
Funds from operations, or FFO, were $934 million, or $2.48 a diluted share for the first quarter.
Domestic and international properties net operating income, or NOI, combined, declined 8.4 percent compared to the prior-year period as a direct result of the pandemic. Portfolio NOI, which includes NOI from domestic properties, international properties and NOI from the company’s investment in Taubman Realty Group, increased 4 percent compared to the prior-year period.
Occupancy was 90.8 percent at the end of the first quarter, down from 94 percent a year ago. Base minimum rent per square foot was $56.07, an increase of 0.6 percent from $55.76 a year ago.
Simon has been active transforming several of its shopping centers with different services, end-uses and experiences, such as gyms, clinics, groceries and residences, to be more relevant and less dependent on traditional retailing. For example, at the Northgate center in Seattle, Simon is adding the National Hockey League’s Seattle Kraken corporate offices and practice and training facility. At Phipps Plaza in Atlanta, there will be a Nobu Hotel and Restaurant, Citizens food hall, Life Time athletic club and Life Time Work.
In addition, construction continues on redevelopments at the North Shore and Burlington malls, both in the Boston area; at the West Town Mall in Knoxville, Tenn., and the Tacoma Mall in Washington.
In the U.K., the West Midlands Designer Outlet opened on April 12 upon the lifting of COVID-19 restrictions, which delayed the initial opening date. The open-air center has 197,000 square feet; Simon owns a 23 percent interest in the center.
Last week, Simon and Authentic Brands Group, through their SPARC partnership, agreed to buy Eddie Bauer, adding the outdoor gear and apparel retailer to SPARC’s portfolio of brands that includes Aéropostale, Lucky Brand, Nautica, Forever 21 and Brooks Brothers.
Simon made the case for brick-and-mortar being “unquestionably better for the environment than e-commerce…People cared less because of COVID-19. Really, the focus for us in the future is to explain the merits of physical stores and what they mean to the environment versus e-commerce. Between the packaging and transportation, I could go on and on about the carbon footprint of e-commerce versus physical retail.”
J.C. Penney he said is past the stabilization and capital preservation modes. “We have accomplished those already…We are bringing new merchandise brands to it, some of the other brands are nervous.” As for moving Penney’s to growth in the future, “We are not there yet. We’ve got lots of ideas, but the first goal is to rightsize the company, strengthen financial capabilities and repair any vendor relationships and stabilize the morale.…The plan is above where we thought it would be.” In 2022, or late 2021, ABG brands will start selling at Penney’s, Simon said.
On occupancy levels, Simon said, “We expect a reasonable improvement on 2020 versus 2021. We’re not going to get back to 2019 levels in 2021, more likely 2022 or ‘23.”