10-QPeriod: Q1 FY2018

SIMON PROPERTY GROUP INC. Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 3, 2018For Securities:SPGSPG-PJ

Summary

Simon Property Group, Inc. (SPG) reported a strong first quarter for 2018, demonstrating solid operational performance and strategic growth initiatives. Diluted earnings per share (EPS) increased significantly to $2.00 from $1.53 in the prior year period, driven by improved operating fundamentals, successful disposition activity generating $135.3 million in net gains, and contributions from international investments. The company's core business fundamentals remain robust, evidenced by a 4.8% growth in Portfolio Net Operating Income (NOI) and a 2.3% increase in Comparable Property NOI for U.S. Malls, Premium Outlets, and The Mills. Key metrics like total sales per square foot ($641 psf) and average base minimum rent ($53.54 psf) for U.S. Malls and Premium Outlets showed healthy increases, indicating strong tenant performance and pricing power. Occupancy remained high at 94.6% for the U.S. Malls and Premium Outlets portfolio, despite a slight decrease from the previous year. Financially, SPG maintained a strong liquidity position with over $6.3 billion in aggregate available borrowing capacity under its credit facilities. The company also actively managed its debt, redeeming $750 million in senior unsecured notes and decreasing its commercial paper borrowings. SPG continues to invest in growth through development and redevelopment projects, with a focus on enhancing its high-quality retail destinations.

Financial Highlights

29 data points
Beta

Revenue

$1.39B

Net Income

$620.65M

44.5% Net Margin

EPS (Diluted)

$2.00

Total Assets

$31.02B

Cash & Equivalents

$367.21M

Free Cash Flow

$843.48M

Financial Statements
Beta
Revenue$1.39B
Operating Expenses$692.25M
Operating Income$704.96M
Interest Expense$205.49M
Net Income$620.65M
EPS (Basic)$2.00
Shares Outstanding (Basic)310.58M

Key Highlights

  • 1Diluted EPS increased by 30.7% to $2.00 per share in Q1 2018, compared to $1.53 in Q1 2017, boosted by gains from asset dispositions.
  • 2Portfolio Net Operating Income (NOI) grew by 4.8% year-over-year, and Comparable Property NOI increased by 2.3% for U.S. Malls, Premium Outlets, and The Mills.
  • 3Total sales per square foot for U.S. Malls and Premium Outlets rose 4.2% to $641, and average base minimum rent increased 3.2% to $53.54 psf.
  • 4Leasing spreads were favorable, with an open/close leasing spread of $8.45 psf, representing a 12.6% increase, indicating ability to lease at higher rents.
  • 5Ending occupancy for U.S. Malls and Premium Outlets stood at a strong 94.6%, though slightly down from 95.6% in the prior year.
  • 6The company maintained significant liquidity with approximately $6.3 billion in available borrowing capacity under its credit facilities.
  • 7SPG redeemed $750 million of senior unsecured notes and continues strategic capital allocation, including share repurchases and investments in development projects.

Frequently Asked Questions

The substantial increase in diluted EPS to $2.00 was primarily driven by improved operating performance from core business fundamentals, a significant net gain of $135.3 million (or $0.38 per diluted share) from disposition activities, increased consolidated lease settlement income, and higher income from an international investment. These positive factors were partially offset by an increase in interest expense.

The core portfolio is showing strong performance. Comparable Property NOI for U.S. Malls, Premium Outlets, and The Mills grew by 2.3%. Total sales per square foot increased by 4.2% to $641, and average base minimum rent for these properties rose by 3.2% to $53.54 psf. Furthermore, leasing spreads were favorable, with new leases commanding significantly higher rents than expiring leases.

Simon Property Group maintained a strong liquidity position with approximately $6.3 billion in available borrowing capacity under its credit facilities as of March 31, 2018. The company actively managed its debt by redeeming $750 million of senior unsecured notes and reducing commercial paper borrowings. The effective overall borrowing rate decreased slightly to 3.31%.

The company has ongoing redevelopment and expansion projects at 28 properties in the U.S., Canada, and Asia, with an estimated total cost of approximately $0.7 billion. Notable new domestic developments include Denver Premium Outlets, scheduled to open in September 2018. International development is also active, with projects in Canada, Mexico, Spain, and the UK. SPG aims for a stabilized return of 7-10% on invested capital for these projects.