10-QPeriod: Q3 FY2014

SIMON PROPERTY GROUP INC. Quarterly Report for Q3 Ended Sep 30, 2014

Filed November 5, 2014For Securities:SPGSPG-PJ

Summary

Simon Property Group, Inc. (SPG) reported solid performance for the nine months ended September 30, 2014, with diluted earnings per share increasing to $3.22 from $3.01 in the prior year period. This growth was driven by improved operating fundamentals, including strong leasing activity and a 5.4% increase in comparable property Net Operating Income (NOI) for its U.S. malls and Premium Outlets. The company also benefited from reduced interest expenses and a significant gain from its investment in Klépierre SA. A key strategic move during the period was the spin-off of its strip center and smaller enclosed malls business into Washington Prime Group Inc. on May 28, 2014. While this resulted in the loss of $68.3 million in net income from discontinued operations, it allowed SPG to focus on its core, higher-quality retail assets. The company also proactively managed its debt by tendering for and repurchasing $1.322 billion in senior unsecured notes, funded by a new $1.3 billion debt offering with a lower weighted average coupon rate and longer maturity. Financially, SPG maintained a strong liquidity position with $818 million in cash and cash equivalents and access to significant credit facilities. The company's occupancy rates remained high at 96.9% for its U.S. malls and Premium Outlets. Management is focused on continuing to enhance profitability through strategic acquisitions, developments, and efficient operations, while maintaining a disciplined capital allocation strategy.

Financial Highlights

28 data points
Beta

Revenue

$1.23B

Net Income

$251.97M

20.4% Net Margin

EPS (Diluted)

$0.81

Total Assets

$29.67B

Cash & Equivalents

$818.00M

Free Cash Flow

$661.09M

Financial Statements
Beta
Revenue$1.23B
Operating Expenses$627.14M
Operating Income$607.56M
Interest Expense$249.78M
Net Income$251.97M
EPS (Basic)$0.81
EPS (Diluted)$0.81
Shares Outstanding (Basic)310.77M
Shares Outstanding (Diluted)310.77M

Key Highlights

  • 1Diluted Earnings Per Share (EPS) increased to $3.22 for the nine months ended September 30, 2014, up from $3.01 in the same period last year.
  • 2Comparable property Net Operating Income (NOI) for U.S. Malls and Premium Outlets grew by 5.4%, indicating healthy performance in core assets.
  • 3Completed the spin-off of its strip center and smaller enclosed malls business (Washington Prime Group Inc.) on May 28, 2014, to focus on higher-quality retail assets.
  • 4Successfully refinanced debt by repurchasing $1.322 billion of senior unsecured notes and issuing $1.3 billion in new notes with a lower average interest rate (3.64%) and longer maturity (16.1 years).
  • 5Ending occupancy for U.S. Malls and Premium Outlets remained strong at 96.9% as of September 30, 2014.
  • 6Generated a significant gain of $133.9 million from the sale of a portfolio of retail galleries by its investment in Klépierre SA.
  • 7Maintained a robust liquidity position with $817.0 million in cash and cash equivalents and $5.2 billion in available borrowing capacity under its credit facilities as of September 30, 2014.

Frequently Asked Questions

The spin-off of Washington Prime Group Inc. on May 28, 2014, resulted in the presentation of those operations as 'discontinued operations.' For the nine months ended September 30, 2014, this led to a loss of $68.3 million in net income from discontinued operations. While this reduced current period reported income, it allowed SPG to focus on its core, higher-quality retail assets and portfolio.

SPG actively managed its debt by completing cash tender offers for $1.322 billion of its senior unsecured notes and issuing $1.3 billion of new senior unsecured notes. The new notes have a weighted average coupon rate of 3.64% and a weighted average duration of 16.1 years, which is a favorable refinancing that extends maturity and lowers interest costs. The company also repaid significant mortgage debt and maintained compliance with all debt covenants.

The outlook for SPG's core U.S. Malls and Premium Outlets appears positive. Comparable property NOI increased by 5.4%, and ending occupancy remained high at 96.9%. Average base minimum rent per square foot also increased by 4.4%, and releasing spreads were strong at 17.3%, indicating the company's ability to secure higher rents on new and renewed leases. Total sales per square foot remained stable at $613.

SPG has interests in international properties, notably its 28.9% stake in Klépierre SA. The sale of a portfolio by Klépierre generated a significant gain of $133.9 million for SPG. The company also has joint venture interests in outlets in Japan, South Korea, Canada, Mexico, Malaysia, and Europe, which contribute to its overall results, though specific performance details for all international ventures are not as granularly detailed as domestic operations in this report.