Simon Property Group, Inc. — 2013 Form 10-K Summary
Business context and reporting period. The filing covers the fiscal year ended December 31, 2013. Simon is a self-managed REIT focused on owning, developing, and managing retail real estate. At year-end it owned or held interests in 308 U.S. income-producing properties, alongside international joint ventures and a 28.9% stake in Klépierre.
Financial and operating performance
- Revenue: $5.17 billion, up 5.9% from $4.88 billion in 2012. Minimum rent was $3.20 billion; tenant reimbursements were $1.44 billion.
- Profit and EPS: Consolidated net income was $1.55 billion, down from $1.72 billion. Net income attributable to common stockholders was $1.32 billion, versus $1.43 billion; diluted EPS was $4.24, versus $4.72.
- FFO: Funds from operations, a non-GAAP measure, rose 11.1% to $3.21 billion. Diluted FFO per share increased to $8.85 from $7.98.
- NOI and leasing: Simon’s share of portfolio NOI grew 10.0%; comparable U.S. malls and Premium Outlets NOI rose 5.2%. Total portfolio occupancy for U.S. malls and Premium Outlets was 96.1%, up 80 basis points. Average base rent increased 4.0% to $42.34 per square foot; sales per square foot rose 2.5% to $582.
- Cash flow and capital spending: Operating cash flow was $2.70 billion, up from $2.51 billion. Investing activities used $948 million and financing activities used $1.22 billion. Capital expenditures were $841 million, including $554 million for redevelopment and expansion.
- Debt and liquidity: Consolidated mortgages and unsecured debt totaled $23.59 billion, compared with $23.11 billion a year earlier. The effective weighted average borrowing rate declined to 4.84% from 4.99%; 7.5% of consolidated debt was floating rate. Cash was $1.72 billion, and available capacity under credit facilities was $4.8 billion.
- Dividends: 2013 common dividends were $4.65 per share, up from $4.10. The board declared a $1.25-per-share dividend in January 2014.
Changes versus the prior year
- Operating measures improved, including comparable NOI, occupancy, rents, and tenant sales.
- GAAP net income and EPS declined despite operating growth, largely because 2012 included a $488.7 million noncash gain from gaining control of properties in the Mills transaction. Net gains from acquisitions, disposals, and related investment impairments were $107.5 million in 2013, versus $510.0 million in 2012.
- Debt increased by approximately $476 million. The borrowing rate improved, but weighted average debt maturity shortened to 5.4 years from 5.9 years.
- Simon expanded its outlet and international investments, including McArthurGlen properties, and continued significant redevelopment and expansion spending.
Outlook, risks, and unusual items
- Management expected positive operating cash flow in 2014 and stated that cash on hand and credit availability were sufficient for 2014 debt maturities and capital needs. It estimated Simon’s 2014 share of domestic development, redevelopment, and expansion costs at approximately $1.1 billion, plus approximately $180 million for international development. These are plans and estimates, not earnings guidance.
- A planned spin-off of 98 properties, substantially comprising strip centers and smaller enclosed malls, was expected to become effective in the second quarter of 2014. It remained subject to approvals, consents, and other conditions; Simon could change or abandon the transaction.
- Key risks include substantial debt and refinancing needs, interest-rate and foreign-exchange exposure, retail and e-commerce competition, tenant distress or anchor closures, leasing and redevelopment execution, environmental liabilities, and limited control of joint ventures. The Operating Partnership guaranteed $190.8 million of joint-venture mortgage debt; $83.0 million was recoverable from venture partners.
- At Opry Mills, insurers had paid $50 million for flood damage but denied additional excess-insurance claims of up to $150 million. Simon was pursuing recovery through litigation and said recovery was probable, without assurance of success.
- Simon reported compliance with debt covenants. The auditor gave an unqualified opinion on the financial statements and internal controls; management also concluded internal controls were effective.
Important facts for investors to verify
- Reconcile the drivers of lower GAAP earnings against growth in FFO, NOI, occupancy, and leasing metrics; assess the treatment and comparability of non-GAAP measures.
- Review the debt maturity schedule, refinancing completed or planned after year-end, and the assumptions behind management’s liquidity assessment and 2014 capital spending plans.
- Confirm the spin-off’s final terms, approvals, timing, and expected effect on Simon’s portfolio and financial results.
- Monitor joint-venture leverage, guarantees, partner rights, and the status and potential recoveries of the Opry Mills insurance litigation.
- Assess tenant concentration and exposure to retailer bankruptcies, anchor closures, e-commerce competition, and weaker property-level occupancy or sales.