10-QPeriod: Q3 FY2010

SIMON PROPERTY GROUP INC. Quarterly Report for Q3 Ended Sep 30, 2010

Filed November 5, 2010For Securities:SPGSPG-PJ

Summary

Simon Property Group, Inc. (SPG) reported a significant increase in net income attributable to common stockholders for the nine months ended September 30, 2010, reaching $392.5 million, a substantial jump from $191.6 million in the prior year. This growth was driven by a combination of improved operating performance and significant one-time gains, including a $320.3 million gain from the sale of assets and interests in unconsolidated entities, largely from the sale of its stake in Simon Ivanhoe. However, the company also recorded a substantial $350.7 million loss on the extinguishment of debt related to its debt tender offers and refinancing activities. The company's operational metrics show resilience, with occupancy rates improving across its U.S. Regional Malls and Premium Outlets to 93.6% and comparable sales per square foot increasing by 7.6%. Average base rents also saw a slight increase. Despite economic challenges, SPG has actively managed its debt structure by completing multiple tender offers and refinancing its notes, extending the weighted average duration of its debt portfolio. Simon Property Group demonstrated strategic execution through significant acquisitions, notably the purchase of 21 outlet centers from Prime Outlets Acquisition Company for approximately $2.3 billion. This acquisition, alongside other property dispositions and development activities, reflects the company's ongoing strategy to optimize its portfolio and pursue growth opportunities while managing capital effectively. The company maintained a strong liquidity position, with available borrowing capacity under its revolving credit facility.

Financial Highlights

28 data points
Beta

Revenue

$979.27M

Net Income

$230.62M

23.6% Net Margin

EPS (Diluted)

$0.79

Total Assets

$24.79B

Cash & Equivalents

$1.01B

Free Cash Flow

$508.31M

Financial Statements
Beta
Revenue$979.27M
Operating Expenses$581.48M
Operating Income$397.79M
Interest Expense$249.26M
Net Income$230.62M
EPS (Basic)$0.79
EPS (Diluted)$0.79
Shares Outstanding (Basic)292.83M
Shares Outstanding (Diluted)293.09M

Key Highlights

  • 1Net income attributable to common stockholders more than doubled year-over-year for the nine months ended September 30, 2010, reaching $392.5 million.
  • 2The company realized a significant gain of $320.3 million from the sale of assets and interests in unconsolidated entities, primarily from the sale of its stake in Simon Ivanhoe.
  • 3SPG completed a major acquisition of 21 outlet centers from Prime Outlets Acquisition Company for approximately $2.3 billion, funded through a combination of cash and Operating Partnership units.
  • 4Occupancy rates improved to 93.6% for U.S. Regional Malls and Premium Outlets, and comparable sales per square foot increased by 7.6%.
  • 5The company recorded a substantial loss of $350.7 million on the extinguishment of debt due to tender offers and refinancing of senior unsecured notes.
  • 6Debt management efforts included extending the weighted average duration of its debt portfolio through the issuance of new notes and repayment of existing ones.
  • 7Liquidity remains strong, with $1.0 billion in cash and cash equivalents and significant availability under its revolving credit facility.

Frequently Asked Questions

The significant increase in net income was driven by two primary factors: improved operating performance in the core business and substantial one-time gains. Notably, the company recorded a $320.3 million gain from the sale of assets and interests in unconsolidated entities, largely from the divestiture of its stake in Simon Ivanhoe. While operational improvements contributed positively, a large debt extinguishment charge of $350.7 million also impacted the overall financial results.

Simon Property Group actively managed its debt by undertaking significant refinancing activities. This included completing two major cash tender offers for outstanding senior unsecured notes, repurchasing approximately $2.3 billion and $1.33 billion in notes, respectively. These were funded by issuing new senior unsecured notes with longer maturities. The company also repaid several other maturing notes and unencumbered five properties by repaying $1.1 billion in mortgage loans. These actions resulted in extending the weighted average duration of its debt portfolio.

The acquisition of 21 outlet centers from Prime Outlets Acquisition Company, valued at approximately $2.3 billion, significantly expanded SPG's outlet portfolio. This transaction was funded by approximately 80% cash and 20% Operating Partnership units. The acquisition included assuming $1.2 billion in existing mortgage indebtedness and also involved drawing on SPG's credit facility for the cash portion. The results of operations from these acquired properties were included in SPG's consolidated results from the date of acquisition.

The company appears to maintain a strong liquidity position. As of September 30, 2010, it had $1.0 billion in cash and cash equivalents and approximately $3.0 billion in available borrowing capacity under its revolving credit facility, net of outstanding borrowings. Management expects that cash generated from operations, combined with available credit, will be sufficient to meet its operating expenses, debt service, capital expenditures, and REIT qualification dividend requirements through 2011. However, management notes that a significant deterioration in projected cash flows from operations could increase reliance on its credit facility or necessitate seeking alternative financing.