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Mall Operators Have ‘Reasons to Be Optimistic’

Mall operators are upbeat about the retail outlook over the next year.

The Macerich Co.:

“We find a lot of reasons to be optimistic,” CEO Tom O’Hern said in a Wall Street conference call.

In a Nutshell: Macerich reported an 88 percent occupancy rate for the recent quarter, slightly lower than the 92 percent rebound post-Great Recession, O’Hern said, though it expected this first-quarter metric to bottom out and recover from here.

“We expect to see a similar recovery post-COVID, perhaps better, as today we have a much higher quality portfolio than we did 10 years ago,” O’ Hern said, adding his expectation for a strong recovery through 2022.

“The leasing environment has significantly improved. Leasing volumes were very good in the first quarter, on par with the first quarter of 2020 when leasing was largely unimpacted by Covid. The demand we are seeing is not only from traditional retailers, but also nontraditional uses, such as fitness, health and wellness, co-working, medical, hotel, big box, food, beverage and entertainment,” he said, citing plans for two new Primark stores and plans for a former department store at Arizona’s Chandler Fashion Center.

O’Hern is seeing deal flows return to “pre-Covid levels.”

“Every two weeks, we have an executive leasing meeting, where we review and approve pending lease deals,” he continued, pointing to 95 proposals up for approval last week alone. “That’s 256,000 square feet. If we annualize that pace, we would be doing deals for this year for roughly one-third of our non-anchor space. Now, I’m not predicting we’re going to see that volume every two weeks, but it is an indication of the strength of the leasing environment.”

Net Sales: Total revenues fell 16 percent to $190.4 million from $227.0 million, including a 15 percent dip in rental income to $179.5 million from $210.7 million.

Earnings: The real estate investment trust reported a net loss of $63.6 million, or 40 cents a diluted share, against net income of $7.5 million, or 5 cents, in the year-ago period.

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Funds from operation (FFO), a metric the sector uses to compare operating performance, reached 45 cents, or $75.6 million, below the 46 cents Wall Street expected.

Macerich affirmed prior guidance of FFO in the range of $1.77 to $1.97.

CEO’s Take: “For the most part, in the U.S., the pandemic is behind us” O’Hern said. “The leasing environment is strong and getting better by the month, and we expect significant gains in occupancy and net operating income as we move through ‘21 and into 2022.”

Simon Property Group:

Simon reported a 90.8 percent occupancy rate for the quarter ended March 31, with base minimum rent per square foot at $56.07, up 0.6 percent year-over-year. Liquidity exceeded $8.4 billion at quarter’s end.

In a Nutshell: “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,” David Simon, chairman and CEO, said. “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.”

Simon told Wall Street analysts that the company collected over 95 percent of its net billed rents for the first quarter, with collections back to pre-Covid levels in the 98 percent range. Mall and outlet occupancy at the end of the first quarter was 90.8 percent, down 50 basis points versus the fourth quarter of 2020.

The average opening rate for the trailing 12 months was about $60 per foot, above the rents for leases set to expire over the next few years, the CEO said.

Leasing momentum has continued across the REIT’s portfolio. “We signed 1,100 leases for approximately 4.4 million square feet, and we have significant number of leases in our pipeline,” he said.

Meanwhile, global brands in Simon’s SPARC joint venture with Authentic Brands Group “outperformed” their plans in March and April on both sales and gross margin, led by Forever 21 and Aéropostale.

“For the two months combined, SPARC outperformed the sales plan by more than $135 million and our gross margin plan by more than $75 million. And we’re also very pleased with the JCPenney early results. They continue to be above our plan. Our company’s liquidity position at Penney is strong at $1.2 billion, and the balance sheet is in very good shape with leverage of less than 1.2 times net debt to projected EBITDA (earnings before interest, taxes, depreciation and amortization),” he said.

Net Sales: Total revenue dipped 8 percent to $1.24 billion from $1.35 billion, including a 9 percent drop in rental income to $1.15 billion from $1.26 billion.

Earnings: The company reported a net income gain of 2 percent to $445.9 million, or $1.36 a diluted share, from $437.6 million, or $1.43, in the year-ago period.

For the quarter, FFO was $2.48 a diluted share, or $934.0 million. For the year ending Dec. 31, 2021, the company guided diluted earnings per share at $4.47 to $4.57, with FFO forecasted in the range of $9.50 to $975.

CEO’s Take: According to Simon, the “increase in traffic for our open air and suburban centers has been very encouraging and retail sales continue to improve across the portfolio with higher sales volumes in March compared to 2019 levels.”

Tanger Factory Outlets:

Stephen Yalof, president and CEO, told Wall Street analysts that the company continues to expand relationships with traditional tenants, and is seeing a “measured pace of new leasing activity” with particular interest among the “higher-end brands.” Tanger is also expanding its tenant mix beyond apparel and footwear, growing categories such as food and beverage, interactive and experiential, home, sporting goods and gourmet grocers. Yalof noted strong popup leasing, which introduces new brands that may become permanent tenants.

In a Nutshell: The company reported a 91.7 percent consolidated portfolio occupancy rate for the first quarter ended March 31, 2021. For the trailing 12 months, it had renewed or re-leased 280 leases, totaling over 1.4 million square feet. Tanger said it collected 95 percent of the $85.6 million in rents billed for the quarter.

“We are pleased that traffic to our domestic open-air centers reached 97 percent of 2019 levels during the first quarter of 2021, and exceeded 2019 levels in April. These strong results clearly reflect the attraction of our centers, their dominant market locations and the value proposition that we offer to both our retailer partners and shoppers, “Yalof said.

Through the end of April, the REIT collected 96 percent of the deferred 2020 rents due to be repaid in the first quarter and had collected 83 percent of all rent deferred last year, leaving a balance of just $3.7 million, Yalof said in a May 6 call. “Given this run rate, we’re comfortable with our outlook for future collections. Meaningful rebound in traffic that we discussed last quarter has been sustained,” he added.

Domestic traffic in the quarter returned to 97 percent of the 2019 level, despite weather dampening February footfall, he said.

While Tanger isn’t reporting tenant sales, the company has heard anecdotally that retailers are seeing results ahead of plan, Yalof noted, adding that a fourth-quarter uptick in leasing activity continues

Net Sales: Total revenues were down 10 percent to $100.7 million from $111.6 million. Included in revenue was rental income that also fell 10 percent to $97.5 million from $108.6 million.

Earnings: The company posted net income of $3.9 million, or 4 cents a diluted share, against a net loss of $27.4 million, or 30 cents, in the same year-ago quarter.

FFO for the quarter was 38 cents, or $38.2 million. For the year ending Dec. 31, 2021, the company guided diluted earnings per share between 13 to 23 cents, with FFO guided to a range of $1.31 to $1.41.

CEO’s Take: “As we further evolve Tanger’s core strategies—the leasing, operations and marketing of our outlet centers, we are empowering our team as we rebuild occupancy, drive leasing and curate our tenant mix to maximize shopper frequency and dwell time and attract new shoppers to Tanger Outlet Centers,” Yalof said. “We are also accelerating our digital transformation efforts to meet the customer where they are, and our outlets continue to demonstrate their importance as a vital component of an omnichannel strategy.”