Are malls necessary in a world where e-commerce is taking more and more retail sales each year? To be sure, some malls are struggling and have been for a long time, and we even saw a couple mall operators go bankrupt in 2020.
However, it's important for investors to understand that not all malls are in the same boat. In this Fool Live video clip, recorded on Feb. 16, Millionacres real estate analyst Matt Frankel, CFP discusses why the top-tier malls are going to be just fine in the post-COVID world.
Matt Frankel: Simon (SPG +0.31%) is known for its big, large-scale shopping malls. It's also by far the dominant player in the outlet space. If you see any outlet properties under the Premium Outlets brand name, those are Simon properties as well. I was just at a Simon mall this weekend. So, I will tell a personal story before we really dig into the details.
We went to Concord Mills in Charlotte. It's about an hour and a half from our house. The fact that people are willing to just drive an hour and a half to go to Simon malls, they are that much of a destination. When we got there, this was on Sunday. When we got there, it took me 15 minutes to find a parking spot. The Bonefish Grill at the mall had a two-and-a-half hour wait at 5:00 in the afternoon.
The mall was very busy. These A-quality malls are going to be just fine. This isn't even one of Simon's real destination malls. In fact, some of the other malls have hotels in them, some of them have big entertainment venues. The closest thing I saw to any of that was a Dave and Buster's (PLAY 1.75%) in Concord Mills. But they attract the retailers that people want to go to, and that people are willing to go to in person, Concord Mills is an A-quality mall, hands down. It has a Disney (DIS +0.14%) Outlet in it. It's the only Disney Outlet within a four hour drive of my house. We are willing to go there with our kids as a destination.
Simon's Malls are profitable first of all, they're very profitable. Their occupancy dipped a little bit due to bankruptcies in 2020, their base rent actually went up by 2%, because that's where the crowds are going. Simon's malls are doing just fine right now. Their funds from operations, FFO, was over $3 billion in 2020. They cut their dividend a little bit because it was the responsible thing to do being honest, they paid over $2 billion of dividends to their shareholders. What I love about Simon more than anything, they have money, they are the most financially flexible REIT that I know of in any kind. They have over $8 billion in total liquidity right now, including over $2 billion in cash, I believe.
Simon has the money to do whatever it needs to do to stay competitive and to make a profit. It went shopping during the COVID pandemic, and not just for another REIT in Taubman. All these retailers that went bankrupt, Simon bought them. They bought JC Penney, they bought Brooks Brothers, they bought Forever 21, they bought Aeropostale, however, I mean, potato potato. They bought that years before the pandemic, which everyone thought they were nuts and now they're making money on it. I remember Forever 21, they said their share of the profits were about half of what they paid for it already. That's looking like a very profitable acquisition.
JC Penney like Sears like we just mentioned with Seritage Properties (SRG 0.36%), JC Penney owns a lot of its buildings, and the parking lots around them, which gives Simon a lot of optionality when it comes to redeveloping it's malls and adding value to them. I'll end it there for the moment, but Simon's malls are going to be just fine.
