Simon Property Group, Inc. — Q2 2021 Form 10-Q
Business context and period. Simon is a retail REIT that owns, develops and manages malls, outlet centers and other retail properties. This report covers the quarter and six months ended June 30, 2021, with comparisons to 2020. Simon reported an 87.4% ownership interest in its operating partnership. The company’s portfolio included 202 U.S. income-producing properties and interests in 32 international outlet properties.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $1.254 billion | $1.062 billion | $2.494 billion | $2.415 billion |
| Operating income before other items | $605 million | $451 million | $1.209 billion | $1.106 billion |
| Net income attributable to common stockholders | $617 million | $254 million | $1.063 billion | $692 million |
| Diluted earnings per share | $1.88 | $0.83 | $3.24 | $2.26 |
| FFO per diluted share (non-GAAP) | $3.24 | $2.12 | $5.72 | $4.90 |
| Cash from operating activities | Six-month measure | $1.878 billion | $814 million |
- Q2 revenue increased about 18% and diluted EPS more than doubled year over year. Six-month revenue rose about 3%, EPS about 43%, and FFO per diluted share about 17%.
- Q2 lease income was $1.159 billion, up from $1.014 billion. Higher tenant-sales-based variable lease income and lower COVID-related abatements drove the increase; fixed minimum and CAM lease income declined.
- Six-month portfolio NOI increased 16.7%, primarily reflecting the Taubman Realty Group (TRG) acquisition; excluding TRG, portfolio NOI increased 2.8%. The company reported Q2 portfolio NOI growth of 32.5%.
- U.S. Malls and Premium Outlets occupancy was 91.8%, down 1.1 percentage points year over year; average base minimum rent was $55.03 per square foot, down 1.8%. Management attributed lower occupancy primarily to 2020 tenant bankruptcies, partly offset by leasing activity.
- At June 30, cash and cash equivalents were $1.291 billion, versus $1.012 billion at year-end 2020. Consolidated mortgages and unsecured indebtedness totaled $26.232 billion, down from $26.723 billion. The effective overall borrowing rate was 3.02%; 4.6% of consolidated debt was floating rate.
- Available borrowing capacity under the credit facilities was approximately $6.9 billion, net of outstanding borrowings, commercial paper and letters of credit. Simon said it was in compliance with unsecured-debt covenants.
Material changes, outlook and risks
- Results benefited from increased income from retailer and international investments, including a $118.4 million share of a non-cash deferred-tax-liability reversal at Klépierre. Six-month results also included a $89.3 million gain on foreclosure of a property and a $3.7 million gain from consolidating a previously unconsolidated property. These items make reported earnings less representative of recurring operations.
- Interest expense rose by $17.7 million for the first six months, principally due to debt issued to fund the TRG investment. Simon issued $1.5 billion of U.S. notes and €750 million of notes, and repaid its $2.0 billion term-facility balance.
- Management expected positive operating cash flow in 2021 and believed cash and available facilities were sufficient for debt maturities and capital needs through 2021. It said COVID-19 was not expected to impair its ability to fund foreseeable needs, while acknowledging the pandemic’s ultimate impact was difficult to predict. No specific earnings or FFO guidance was provided in the supplied filing text.
- COVID-19 remained a material uncertainty: further rent deferrals, abatements, lease amendments or terminations could arise, and tenant receivables were subject to collection assessments and litigation. Potential consequences include lower recognized lease income and impairment charges.
- The company declared a $1.40-per-share Q2 dividend, paid July 23, and subsequently declared a $1.50-per-share Q3 dividend. A July 2021 property foreclosure was expected to generate an approximately $87 million gain in Q3; Simon also expected a non-cash gain from a July contribution of licensing-venture interests to ABG.
- Other risks include retail competition and tenant failures, substantial indebtedness and covenant restrictions, interest-rate and LIBOR-transition exposure, joint-venture risks and guarantees, foreign-exchange exposure, development commitments, and access to capital markets. Management stated that current legal proceedings were not expected to have a material adverse effect.
Most important facts for investors to verify
- Whether improved tenant sales, rent collections and reduced abatements persist, and how occupancy and average rent trends develop.
- How much earnings and NOI growth reflects recurring property operations versus TRG, retailer investments, tax reversals, foreclosures and other gains.
- Debt maturities, refinancing needs, borrowing costs and continuing access to the $6.9 billion of stated facility capacity.
- Potential additional tenant concessions, bad debts, bankruptcies, impairments or material litigation outcomes related to the pandemic.
- Capital requirements for development and redevelopment, joint ventures and guarantees, and the sustainability of dividends relative to operating cash flow.