Business context and reporting period
Simon Property Group, Inc. (SPG) and its operating partnership filed this combined, unaudited Form 10-Q for the quarter and six months ended June 30, 2023. Simon is a REIT focused on malls, Premium Outlets, The Mills and mixed-use destinations; it owned approximately 87.4% of the Operating Partnership. At quarter-end, the company reported interests in 196 U.S. income-producing properties and 35 international outlet and designer outlet properties.
Financial and operating performance
Unless noted otherwise, amounts are U.S. dollars. Figures below are rounded.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $1.370 billion | $1.280 billion | $2.720 billion | $2.576 billion |
| Operating income before other items | $657.9 million | $626.8 million | $1.321 billion | $1.247 billion |
| Consolidated net income | $557.5 million | $569.5 million | $1.077 billion | $1.058 billion |
| Net income attributable to common stockholders | $486.3 million | $496.7 million | $938.2 million | $923.4 million |
| Diluted earnings per share | $1.49 | $1.51 | $2.87 | $2.81 |
| Diluted FFO per share (non-GAAP) | $2.88 | $2.91 | $5.62 | $5.61 |
For the first six months, cash from operations was $1.958 billion, versus $1.893 billion in 2022. Investing activities used $313.0 million; capital expenditures were $387.3 million. Financing activities used $1.429 billion, including approximately $1.4 billion of stockholder dividends and unitholder distributions. Cash and cash equivalents were $837.5 million at June 30, up from $621.6 million at year-end.
Mortgages and unsecured indebtedness totaled $24.990 billion, compared with $24.960 billion at December 31, 2022. The effective weighted-average borrowing rate was 3.38%, up from 3.22% at year-end; floating-rate debt was 2.0% of consolidated debt. Available borrowing capacity under credit facilities was approximately $7.4 billion. The company reported covenant compliance.
Six-month portfolio NOI, a non-GAAP measure, increased 3.8%. U.S. Malls and Premium Outlets portfolio occupancy rose to 94.7% from 93.9% a year earlier, while average base minimum rent increased 3.1% to $56.27 per square foot.
Material changes versus the prior comparable period
- Q2 revenue rose about 7%, but common-stockholder net income and diluted EPS declined year over year. Six-month revenue increased about 6% and common-stockholder net income increased about 2%.
- Higher fixed lease income and other income supported revenue growth. Six-month interest expense increased $45.0 million, primarily due to new U.S. dollar bond issuances, credit-facility activity and higher variable rates.
- Income from unconsolidated entities fell $158.9 million for the six months, chiefly reflecting weaker year-over-year results from other platform investments, partly offset by improved international joint-venture operations.
- Six-month diluted FFO per share was nearly flat at $5.62 versus $5.61; portfolio NOI growth was 3.8%.
Outlook, commentary, risks and unusual items
- Management expects positive operating cash flow in 2023 and said cash on hand and credit-facility availability should be sufficient for debt maturities and capital needs through 2023. It expects operating cash flow generally to cover operating costs, debt service, recurring capital expenditures and REIT-related distributions. No full-year earnings or FFO guidance is provided in the supplied filing text.
- Management reported approximately $1.0 billion as its share of costs for development, redevelopment and expansion projects under construction, with about $298 million of remaining net cash funding expected for projects under construction. The company targets stabilized returns on invested capital of 7%–10% for these projects.
- On August 2, 2023, the board declared a third-quarter dividend of $1.90 per share, payable September 29, 2023. The second-quarter dividend was $1.85 per share.
- ABG’s second-quarter capital transaction diluted Simon’s ownership to approximately 11.8% and produced a $36.4 million non-cash pretax gain; related deferred taxes were $9.1 million. The gain was a notable positive item in reported results.
- Management cited risks including retail and economic conditions, tenant failures or vacancies, competition and e-commerce, interest rates and substantial debt, access to capital, real estate development and investment risks, foreign exchange, joint ventures, insurance and natural disasters, cybersecurity, and the effects of public-health events. Management believes current legal proceedings will not materially adversely affect financial condition, liquidity or results.
Important facts for investors to verify
- Whether stronger occupancy, rents and lease income continue to offset higher financing costs and operating expenses.
- The sources and durability of changes in income from unconsolidated entities and other platform investments, and the impact of the ABG dilution and non-cash gain.
- Debt maturities, refinancing costs, variable-rate exposure and the continued availability of the reported $7.4 billion in credit capacity.
- Whether operating cash flow can fund distributions, capital spending and remaining development commitments while preserving liquidity.
- How the company’s non-GAAP FFO and NOI measures reconcile to GAAP results and compare with peer-company measures; the filing cautions that these measures are not GAAP cash flow or liquidity measures.