10-QPeriod: Q3 FY2012

SIMON PROPERTY GROUP INC. Quarterly Report for Q3 Ended Sep 30, 2012

Filed November 7, 2012For Securities:SPGSPG-PJ

Summary

Simon Property Group, Inc. (SPG) reported strong financial performance for the nine months ended September 30, 2012, demonstrating significant growth in key metrics compared to the prior year. Total revenue increased to $3.54 billion, and net income attributable to common stockholders grew substantially to $1.12 billion. The company's strategic acquisitions and expansions, including the significant 'Mills transaction' and the investment in Klépierre, contributed to this growth, generating substantial non-cash gains and increasing the company's asset base. Operationally, SPG experienced improved leasing spreads and increased occupancy rates in its U.S. mall and Premium Outlets portfolio. The company also saw a decrease in its overall borrowing rate, reflecting effective debt management. Despite increased interest expenses due to strategic financing activities, the company's FFO (Funds From Operations) also saw a healthy increase, indicating a positive operational outlook. Investors can look to the continued expansion and strategic acquisitions as drivers for future growth, coupled with a stable operating performance in its core retail properties.

Financial Highlights

29 data points
Beta

Revenue

$1.23B

Net Income

$254.92M

20.7% Net Margin

EPS (Diluted)

$0.84

Total Assets

$31.98B

Cash & Equivalents

$452.71M

Free Cash Flow

$627.96M

Financial Statements
Beta
Revenue$1.23B
Operating Expenses$663.66M
Operating Income$564.95M
Interest Expense$288.90M
Net Income$254.92M
EPS (Basic)$0.84
EPS (Diluted)$0.84
Shares Outstanding (Basic)304.11M
Shares Outstanding (Diluted)304.11M

Key Highlights

  • 1Total revenue for the nine months ended September 30, 2012, increased to $3.54 billion from $3.14 billion in the prior year.
  • 2Net income attributable to common stockholders surged to $1.12 billion for the first nine months of 2012, up from $658.5 million in the same period of 2011.
  • 3The company reported a significant non-cash gain of $488.7 million from the 'Mills transaction,' which involved consolidating previously unconsolidated properties.
  • 4US Malls and Premium Outlets portfolio saw an increase in ending occupancy to 94.6% and a rise in total sales per square foot to $562.
  • 5Average base minimum rent per square foot for the total US portfolio increased by 3.8% to $40.33.
  • 6The company's overall borrowing rate decreased to 5.15% from 5.37% year-over-year.
  • 7Funds From Operations (FFO) for the nine months ended September 30, 2012, increased to $2.06 billion, with diluted FFO per share at $5.70.

Frequently Asked Questions

The substantial increase in net income was driven by a combination of improved operating performance in the core business, the impact of strategic acquisitions and expansions such as the 'Mills transaction' and the investment in Klépierre, and a significant non-cash gain of $488.7 million recognized from consolidating previously unconsolidated properties as part of the 'Mills transaction'. These factors, among others, contributed to a robust increase in net income attributable to common stockholders.

Total consolidated debt increased, reflecting significant financing activities for acquisitions and development, including new unsecured notes issuances totaling $1.75 billion and the consolidation of $2.6 billion in property-level mortgage debt from the Mills transaction. While interest expense increased due to these activities, the company's effective overall borrowing rate decreased to 5.15% from 5.37% by refinancing at lower rates and managing its debt structure. The weighted average years to maturity of consolidated indebtedness also increased to 6.0 years.

The outlook for the US mall and Premium Outlet portfolio appears positive. Ending occupancy increased by 80 basis points to 94.6% year-over-year. Furthermore, total sales per square foot rose by 9.3% to $562, indicating strong tenant sales performance, which in turn supports higher rents and recoverable expenses. Average base minimum rent per square foot also saw a healthy increase of 3.8%.

The 'Mills transaction,' completed in March 2012, involved acquiring additional interests in 26 joint venture properties. This led to the consolidation of nine previously unconsolidated properties and the purchase of remaining noncontrolling interests. A significant portion of the transaction's financial impact was a non-cash gain of $488.7 million, resulting from the remeasurement of the company's previously held interest in these properties to fair value upon consolidation. Additionally, $2.6 billion in property-level mortgage debt was consolidated.