10-QPeriod: Q2 FY2018

SIMON PROPERTY GROUP INC. Quarterly Report for Q2 Ended Jun 30, 2018

Filed August 2, 2018For Securities:SPGSPG-PJ

Summary

Simon Property Group Inc. (SPG) reported a strong first half of 2018, demonstrating robust operational performance and strategic growth initiatives. Diluted earnings per share (EPS) saw a significant increase of $1.02 to $3.77, driven by improved property operations, successful acquisitions and expansions, and favorable disposition and investment gains. The company's core business fundamentals are solid, as evidenced by a 4.5% 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. Retail tenant sales per square foot also increased by 4.6% for U.S. Malls and Premium Outlets, indicating healthy consumer spending within SPG's properties. Financially, SPG maintained a strong liquidity position with approximately $6.2 billion in available borrowing capacity under its credit facilities. The company strategically managed its debt, including redeeming senior unsecured notes and refinancing a significant mortgage at Aventura Mall at a lower fixed interest rate. While the effective borrowing rate saw a slight increase, the weighted average years to maturity remained stable, reflecting prudent debt management. SPG also continued its capital allocation strategy, returning capital to shareholders through dividends and stock repurchases, underscoring its commitment to shareholder value.

Financial Highlights

28 data points
Beta

Revenue

$1.39B

Net Income

$547.00M

39.5% Net Margin

EPS (Diluted)

$1.77

Total Assets

$30.84B

Cash & Equivalents

$714.25M

Free Cash Flow

$993.30M

Financial Statements
Beta
Revenue$1.39B
Operating Expenses$657.08M
Operating Income$727.98M
Interest Expense$206.62M
Net Income$547.00M
EPS (Basic)$1.77
Shares Outstanding (Basic)309.36M

Key Highlights

  • 1Diluted EPS increased by $1.02 to $3.77 for the first six months of 2018 compared to the prior year period, driven by strong operational performance and favorable gains.
  • 2Portfolio Net Operating Income (NOI) grew by 4.5%, and comparable U.S. Malls, Premium Outlets, and The Mills NOI increased by 2.3%, highlighting the health of core properties.
  • 3Total sales per square foot for U.S. Malls and Premium Outlets rose by 4.6% to $646 psf, indicating robust tenant sales performance.
  • 4Average base minimum rent for U.S. Malls and Premium Outlets increased by 3.3% to $53.84 psf, showing positive leasing momentum.
  • 5The company maintained strong liquidity with approximately $6.2 billion in available borrowing capacity under its credit facilities as of June 30, 2018.
  • 6SPG strategically redeemed $750 million of senior unsecured notes and completed a significant refinancing at Aventura Mall, securing a lower fixed interest rate.
  • 7The company continued returning capital to shareholders, paying $1.4 billion in dividends and distributions and repurchasing $307.3 million of common stock in the first six months of 2018.

Frequently Asked Questions

The $1.02 increase in diluted EPS to $3.77 was primarily driven by improved operating performance from core business fundamentals, successful acquisition and expansion activities, net gains from disposition activities totaling $144.9 million, and a non-cash investment gain of $35.6 million. These were partially offset by specific financing-related charges in the prior year.

For U.S. Malls and Premium Outlets, ending occupancy slightly decreased by 0.5% to 94.7% as of June 30, 2018, compared to the prior year. However, average base minimum rent per square foot increased by 3.3% to $53.84 psf, and leasing spreads were favorable at 10.7%, indicating strong rent growth on new leases.

Simon Property Group maintains a strong liquidity position, with approximately $6.2 billion in available borrowing capacity under its credit facilities as of June 30, 2018. The company strategically manages its debt by accessing public and private debt markets, and during the first half of 2018, it redeemed $750 million of senior unsecured notes and refinanced a significant mortgage at Aventura Mall at a lower fixed interest rate of 4.12%. The overall effective borrowing rate increased slightly to 3.32% but the weighted average maturity of debt remains substantial at 6.8 years.

Simon Property Group utilizes Funds From Operations (FFO), Net Operating Income (NOI), Portfolio NOI, and Comparable Property NOI as key performance indicators. FFO, as defined by NAREIT, excludes real estate depreciation and amortization and gains/losses from property sales, providing a measure of REIT operating performance. NOI measures property-level profitability. These non-GAAP measures are important as they are widely recognized in the REIT industry and help investors and management evaluate the operating performance of the portfolio on a comparable basis.