A year after acquiring JC Penney out of bankruptcy via a partnership, Simon Property Group CEO and President David Simon said the retailer’s business has stabilized.
Simon told analysts on a Q3 earnings call late Monday that the retailer’s liquidity position is at $1.5 billion and there’s no outstanding balance on its line of credit. JC Penney’s success is an example of how to understand Simon Property Group Inc. as a company, Simon said.
“Even though you call us a mall company, I think we’ve proven to be beyond that,” Simon told analysts on the call.
Simon Property Group, an Indianapolis-based real estate investment trust, has diversified its investments, moves the CEO said offer the company the potential to perform well during an inflationary period.
“We’re very pleased with the JC Penney results,” Simon said, adding that the retailer and its management team, which was led by interim CEO Stanley Shashoua, made significant gains over the past year. “The Penney’s team has stabilized the business, improved financial results, and we’ve added private and exclusive national brands to it.”
In addition to operating and managing malls, Simon Property Group has ownership interest in several retail stores and brands.
Since March 2020, the company has grappled with a pandemic that’s hit the service and retail industries hard. Travel restrictions cut tourism shopping. Labor shortages have impacted retail centers and stores. Now a backlog of goods at U.S. ports threatens to create a chaotic holiday shopping season.
But since the pandemic began, Simon has jointly purchased retailers Brooks Brothers and Lucky Brand Jeans out of bankruptcy via a partnership with New York City-based Authentic Brands Group called SPARC Group LLC. The joint venture absorbs troubled retailers at reduced overhead costs.
Simon also added JC Penney to its portfolio of retailers via a partnership with rival Brookfield Property Partners. And, the company completed its acquisition of rival mall operator Taubman Centers, Inc.
Retail investment platforms are performing very well, Simon, the CEO, said SPARC outperformed their budgets on sales, gross margins and EBITDA, or earnings before interest, taxes, depreciation and amortization.
“Much like the variety of our investments, no other company in our industry has the capability to put an executive in an interim role and produce these results,” Simon said.
The CEO urged analysts to focus on the company’s cash flow which he added allows the REIT to increase growth opportunities and increase dividends.
“There are many levers that contribute to it (growth) beyond what is contained in one or two operating metrics,” he said.
Simon added that the company believed its stock price was undervalued. At the end of day Monday, Simon Property’s Group stock sold at $149.36, up $2.88. By 3:30 p.m. Tuesday, the company’s stock price climbed nearly 6% to $158.31.
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Simon delivered the company’s third-quarter financial results, which reflect a net income of roughly $680 million for the quarter compared to just under $146 million last year. Funds from operations were approximately $1.2 billion for the period.
That’s compared to $723.2 million in the prior year.
Simon’s third-quarter net income reflects the extinguishment of debt and a non-cash after-tax gain of nearly $112 million associated with the company’s interests in the Forever 21 and Brooks Brothers intellectual property licensing.
As of Sept. 30, Simon had roughly $8 billion of liquidity, consisting of more than $1 billion of cash on hand. Occupancy at its properties was roughly 93%.
“We have unequivocally proven with our results year to date that we’ve overcome the arbitrary shutdown of our business due to the pandemic and our cash flow has bounced back dramatically, which many have doubted,” Simon, the CEO, said. “We have growth levers beyond our real estate assets that are unique attributes of our company. We have proven to be astute investors and we have unique business models and diversity of income streams.”