Simon raises financial outlook for 2021 after solid first quarter

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Indianapolis-based Simon Property Group Inc. has raised its financial outlook for the year as the mall operator continues to see its business conditions improve.

The real estate investment trust reported its first-quarter financial results on Monday.

“We’re encouraged with what we’re seeing with regards to sales, traffic, retail demand,” CEO David Simon told analysts during a conference call Monday afternoon.

The company said it expects to earn profits of between $4.47 and $4.57 per diluted share this year, with funds from operation, or FFO, in the range of $9.70 to $9.80 per diluted share. That’s an improvement over the guidance the company issued in February, when the company said it expected FFO in the range of $9.50 to $9.75 per share.

First-quarter FFO was $934 million or $2.48 per diluted share, down from $980.6 million, or $2.78 per diluted share, during the first quarter of 2020, largely before the pandemic hit.

Funds from operation, an important metric in the REIT industry, takes profit and adds back items such as depreciation and amortization.

The company’s first-quarter profit attributable to common stockholders was $445.9 million, or $1.36 per diluted share; as compared with $437.6 million, or $1.43 per diluted share, during the first quarter of 2020.

Occupancy stood at 90.8% as of March 31, down from 94% a year earlier. David Simon said the company has “a significant number of leases in our pipeline,” with potential tenants ranging from restaurants to national retailers and brands to local and regional operators.

The firm also said it’s seeing good early results from its acquisition of J.C. Penney Co., which Simon and a group of co-investors acquired out of bankruptcy in December.

David Simon said the new owners have successfully stabilized J.C. Penney’s financial situation, but work remains to “right-size” the retailer, stabilize employee morale and repair relationships with vendors who may have been spooked by the bankruptcy.

“In order to turn J.C. Penney into a 21st-century retailer, that’s still a work in progress,” Simon said.

Simon also gave an update on previously announced plans to introduce some new brands to J.C. Penney’s merchandise mix, likely starting late this year or in 2022.

In recent years Simon has teamed up with co-investors to acquire a number of other retailers out of bankruptcy, including men’s retailer Brooks Brothers, denim seller Lucky Brand Dungarees, and the teen-oriented retail chains Forever 21 and Aeropostale.

And SPARC Group LLC, a joint venture between Simon and the New York City-based brand development company Authentic Brands Group, announced Friday that SPARC and Authentic Brands had signed an agreement to purchase the Seattle, Washington-based retailer Eddie Bauer.

“We’ll start to see a lot of the Authentic Brands Group brands end up in J.C. Penney,” Simon said.

Simon released its earnings report after the stock market’s close on Monday. Shares of the company closed at $126.75, up 1.5% from Friday’s close, before dropping to $124.86 in after-hours trading.

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