For the first time since the March 2020 lockdowns, property giant SM Prime Holdings resumed charging full rental fees across its local shopping mall chain in the second quarter, clearing the road toward earnings recovery after paying the hefty price of moratorium and discounts that kept tenants afloat.
With the relaxation of quarantine protocols now bringing back the usual crowd to shopping malls, SM Prime’s flagship SM Supermalls is confident enough to unwind the remaining concessions given to mall tenants, 75 percent of which are micro, small and medium enterprise (MSMEs).
“Especially for May and June, majority of our malls have already exceeded 2019 sales,” Steven Tan, president of SM Supermalls, said in an interview with Inquirer.
“So we are confident that business is back. Even for the tail-end of July—I get the weekly sales report from our malls—it’s looking very rosy,” he said.
Previous rental concessions did not come cheap for SM Prime. Throughout the government-imposed community quarantine periods, SM Prime waived a total of P23.3 billion in rental and other charges in 2020, based on its regulatory filing.
As such, revenue from SM Prime’s Philippine mall business slid to P23.6 billion in 2020 from P57.8 billion in 2019. Consolidated net income tumbled by 53 percent to P18.01 billion that year from P38.09 billion in 2019.
For a long time, even when mobility restrictions started to ease, Tan said SM Prime was just charging the equivalent of 3 to 5 percent of tenants’ sales, without any basic or minimum rent.
“In 2021, we gradually moved it back,” Tan said. “In January 2021, I remember that we were giving 90 percent discount to some of our tenants.”
SM Prime’s net income improved to P21.79 billion in 2021 from P18 billion in the previous year but this was still at just 57 percent of prepandemic level.
In the first quarter of 2022, SM Prime delivered P7.4 billion in net income versus P6.48 billion in the previous year.
2 years of discounts
“It’s only this year, 2022, that we are charging full rental, in the second quarter. We understand that there was still the Omicron (variant) in the first quarter, so it was actually more on the second quarter that we were able to recover,” Tan said.
“We’re already back to prepandemic level, even our occupancy,” he said.
Tan said SM Supermalls’ tenants appreciated the rental concessions during the pandemic, especially since these helped them survive the challenges. As such, he said occupancy rates at SM malls did not decline much.
At the same time, he said SM Supermalls helped its MSME-tenants digitalize during the pandemic by providing an online platform for them to sell their products. In areas where there were no third-party delivery providers, the mall linked the store owners with local mobility providers, such as tricycle and pedicab drivers.
Asked about tenant casualty during the pandemic, Tan estimated this at a single-digit level, adding these were the ones that were not able to embrace the “new normal” and already had operational woes.
Before the pandemic, from 2016 to 2019, vacancy rates at shopping malls in the Philippines were stable at 8 to 9 percent, based on earlier estimates by property consulting firm 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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