For the first time since the March 2020 closings, real estate giant SM Prime Holdings resumed charging full rental fees at its chain of local malls in the second quarter, paving the way for profits to recover after paying the price high from the moratorium and discounts that kept tenants afloat. .
With the easing of quarantine protocols now bringing the usual crowds back to malls, SM Prime’s flagship SM Supermalls is confident enough to untie the remaining concessions given to mall tenants, 75% of whom are micro, small and medium-sized enterprises (MSMEs).
“Especially for May and June, the majority of our malls have already surpassed 2019 sales,” Steven Tan, president of SM Supermalls, said in an interview with Inquirer.
“So we are confident that business is picking up. Even for the end of July – I get the weekly sales report from our malls – it looks very rosy,” he said.
Previous rental concessions have not been cheap for SM Prime. Throughout the government-mandated community quarantine periods, SM Prime waived a total of 23.3 billion pesos in rental and other fees in 2020, based on its regulatory record.
As such, revenue from SM Prime’s Philippine mall business fell to 23.6 billion pesos in 2020 from 57.8 billion pesos in 2019. Consolidated net profit fell 53% for reach 18.01 billion pesos that year, compared to 38.09 billion pesos in 2019.
For a long time, even when mobility restrictions began to ease, Tan said SM Prime only charged the equivalent of 3-5% of tenant sales, with no base or minimum rent.
“In 2021, we gradually rolled it back,” Tan said. “In January 2021, I remember we were giving 90% off to some of our tenants.”
SM Prime’s net income improved to 21.79 billion pesos in 2021 from 18 billion pesos the previous year, but it was still only 57 percent of the pre-pandemic level.
In the first quarter of 2022, SM Prime made a net profit of 7.4 billion pesos against 6.48 billion pesos the previous year.
2 years of discounts
“It is only this year, 2022, that we are charging for full rental, in the second quarter. We understand there was still the Omicron (variant) in Q1, so it was actually more in Q2 that we were able to recover,” Tan said.
“We have already returned to the pre-pandemic level, even our occupation,” he said.
Tan said SM Supermalls tenants have appreciated the rental concessions during the pandemic, especially as it has helped them survive the challenges. As such, he said occupancy rates at SM malls have not dropped much.
At the same time, he said SM Supermalls has helped its MSME tenants to digitize during the pandemic by providing them with an online platform to sell their products. In areas where there were no third-party delivery providers, the mall connected store owners to local mobility providers, such as tricycle and pedicab drivers.
Asked about tenant losses during the pandemic, Tan estimated that at a single-digit level, adding that it’s those who haven’t been able to embrace the “new normal” and already have operational issues.
Before the pandemic, from 2016 to 2019, mall vacancy rates in the Philippines were steady at 8-9%, according to earlier estimates from real estate consultancy Colliers.
As of last year, SM Prime operated 78 malls in the Philippines with 8.9 million square meters of gross floor area.
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