SIMON PROPERTY GROUP INC. annual report, FY2021

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Simon Property Group, Inc. — 2021 Form 10-K

Reporting period: Fiscal year ended December 31, 2021. The filing is a combined annual report for Simon Property Group, Inc. and its operating partnership; quarterly data includes the fourth quarter. Simon is a REIT focused on owning, developing and managing malls, Premium Outlets, The Mills and related retail destinations.

Business context and operating results

At year-end, Simon owned or held interests in 199 U.S. income-producing properties, 33 international outlet and designer outlet properties, and an 80% noncontrolling interest in Taubman Realty Group (TRG). It also held a 22.4% stake in Klépierre. Retail leases are the principal revenue source.

  • Revenue: $5.12 billion, up 11.1% from $4.61 billion in 2020. Lease income was $4.74 billion, up $434.4 million; comparable lease income increased 10.6%. The increase primarily reflected higher tenant-sales-based rents and fewer pandemic-related abatements.
  • Profit: Consolidated net income was $2.57 billion, versus $1.28 billion. Net income attributable to common stockholders was $2.25 billion; diluted EPS was $6.84, compared with $3.59 in 2020.
  • FFO (non-GAAP): $4.49 billion, up 38.6%; diluted FFO per share was $11.94, compared with $9.11. The filing cautions that FFO is not a substitute for GAAP earnings or cash flow.
  • Operating performance: Portfolio NOI increased 22.3% to $5.08 billion. U.S. malls and Premium Outlets occupancy rose to 93.4% from 91.3%; average base minimum rent declined 3.4% to $53.91 per square foot. The Mills occupancy increased to 97.6% from 95.3%.
  • Cash flow and capital spending: Operating cash flow was $3.64 billion, up from $2.33 billion. Capital expenditures were $528 million. Cash and cash equivalents decreased $478 million to $534 million.
  • Debt and liquidity: Consolidated debt was $25.32 billion, down from $26.72 billion; effective average borrowing rate was 2.86%, versus 2.98%. Simon reported $5.8 billion of available borrowing capacity under its facilities, net of borrowings and letters of credit. Floating-rate debt was 7.6% of consolidated debt.
  • Distributions: The filing reports 2021 common dividends of $7.15 per share and a declared first-quarter 2022 dividend of $1.65 per share. The board determines future dividends based on financial and liquidity conditions and REIT requirements.

Material changes versus 2020

  • Performance rebounded from 2020 pandemic disruption: comparable lease income, occupancy, NOI, earnings and operating cash flow improved. Simon said its domestic portfolio lost about 13,500 shopping days in 2020.
  • Net income and FFO benefited from nonrecurring or noncash items, including a $118.4 million share of Klépierre’s deferred-tax-liability reversal, a $159.8 million noncash gain on exchanging licensing interests for ABG interests, $18.8 million gain on an ABG interest sale, and property disposition and insurance-recovery gains.
  • These gains were partly offset by $51.8 million of debt-extinguishment losses and higher income and other tax expense. 2020 included $125.6 million of impairment charges and a $115.0 million net loss on property and investment dispositions/impairments.
  • Simon refinanced and extended debt, issued notes and repaid the $2.0 billion delayed-draw term facility. It also drew $1.05 billion under the Supplemental Facility late in 2021 to retire mortgage loans; that facility borrowing was repaid in January 2022.
  • Three consolidated retail properties were foreclosed upon in satisfaction of nonrecourse mortgage debt, contributing to reported disposition gains. Simon acquired further interests in retail and brand ventures and opened outlet developments in South Korea and the U.K.

Outlook, risks and contingencies

  • Management expected positive operating cash flow in 2022 and believed cash and available credit were sufficient for debt maturities and capital needs through 2022. Simon anticipated funding ongoing operating costs, debt service, recurring capital spending and REIT distributions from operating cash flow. These are expectations, not guarantees.
  • Simon’s share of costs for development, redevelopment and expansion projects under construction was about $944 million; estimated remaining net cash funding was about $263 million. Management targets stabilized returns on invested capital of 7%–10% for these projects.
  • COVID-19 remained a material uncertainty, including potential restrictions, tenant financial stress, rent collection, consumer traffic and travel. Other key risks include e-commerce competition, anchor and tenant closures or bankruptcies, vacancies and leasing costs, interest rates and refinancing, foreign currency exposure, joint-venture control and property impairments.
  • The Operating Partnership guaranteed $209.9 million of joint-venture mortgage debt. Management said it was in compliance with debt covenants at year-end. Legal proceedings were described as ordinary-course matters not expected to materially affect financial condition, liquidity or results.
  • Financial reporting depends on significant estimates, particularly lease collectability, property and investment impairment, and TRG purchase accounting. Auditors issued unqualified opinions and reported effective internal control over financial reporting.

Important facts for investors to verify

  • How much of 2021 earnings and FFO growth came from recurring property operations versus noncash gains, tax reversals, dispositions and other investment income.
  • Whether occupancy gains and tenant-sales recovery can be sustained, and how rent levels, leasing costs and collections evolve.
  • Debt maturities, refinancing costs, interest-rate sensitivity and liquidity after the January 2022 Supplemental Facility repayment. The filing estimates a 50-basis-point rate increase would reduce future earnings and cash flows by about $9.9 million.
  • The distinction between the reported $7.15 annual dividend disclosure and the filing’s separate taxable-distribution table, which lists $5.85 per share/unit; confirm the applicable declaration and payment basis.
  • Execution, remaining funding and realized returns on development projects, and the financial performance and valuation assumptions for TRG and other unconsolidated investments.