David Simon: Retail Scene May Worsen Before It Substantially Improves

November 10, 2020 | Tom Yeatts | S&P Global Market Intelligence 

The retail real estate marketplace improved incrementally during third quarter, and while it is possible the worst of the pandemic is over, it is not guaranteed, Simon Property Group Inc. Chairman, President and CEO David Simon said November 10.

Rent collection improved on a sequential basis during the quarter, though “certain larger national tenants” still refuse to pay rent even though they are open and operating, Simon said on the mall real estate investment trust’s third-quarter earnings call. Occupancy and rent collection levels may deteriorate further in the coming quarters, and there are a handful of potential retailer bankruptcies coming “in the next few months.”

“The consumer obviously is cautious,” Simon said. “The consumer is starting to come back. They’re wearing masks. And with all our protocols, we’re hopeful that that trend [of improvement] will continue, but there are certainly no guarantees.”

The company reported negative 22.4% same-store net operating income growth during the third quarter, which it attributed to reduced revenue as a result of rent abatement, higher provisions for uncollectible rents, lower sales-based rents and a diminution in sponsorship and other ancillary property income. The company collected 85% of net billed rents during the quarter, up from 72% in the second quarter.

Average portfolio occupancy declined 330 basis points to 91.4% during the quarter, but base minimum rent per square foot increased by 2.9% year over year, to $56.13.

All of the REIT’s retail properties were open and operating as of November 9, with the exception of one property in El Paso, Texas, which local authorities asked to “essentially shut down” earlier in November in compliance with COVID-19 measures, Simon said. It is unclear if there will be further closures if there is a spike in coronavirus cases nationally in the coming weeks.

“I think enclosed malls are being treated unfairly and inconsistently, but we deal with what we deal with,” he said.