Business context and reporting period
Simon Property Group, Inc. and Simon Property Group, L.P. filed a combined Form 10-K for the year ended December 31, 2022. Simon is a REIT; substantially all operations and debt are held through the Operating Partnership. The company owns, develops and manages malls, Premium Outlets, The Mills and other retail and mixed-use properties. At year-end, it held interests in 196 U.S. income-producing properties, 34 international outlet and designer-outlet properties, an 80% noncontrolling interest in Taubman Realty Group (TRG), and a 22.4% stake in Klépierre.
Financial and operating performance
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | $5.291 billion | $5.117 billion |
| Consolidated net income | $2.452 billion | $2.569 billion |
| Net income attributable to common stockholders | $2.136 billion | $2.246 billion |
| Diluted earnings per share | $6.52 | $6.84 |
| Diluted FFO per share | $11.95 | $11.94 |
| Comparable FFO per share | $11.87 | $11.44 |
| Portfolio NOI | $5.336 billion | $5.048 billion |
- Lease income rose 3.6% to $4.905 billion; comparable lease income increased 4.1%. Higher minimum rent, occupancy and tenant-sales-based rent contributed to the increase.
- Portfolio NOI increased 5.7%. U.S. mall and Premium Outlet occupancy was 94.9%, up from 93.4%; average base minimum rent was $55.13 per square foot, up 2.3%.
- Net cash provided by operating activities was $3.767 billion. Cash and cash equivalents were $621.6 million at year-end, up $87.7 million. The company reported approximately $6.6 billion of available borrowing capacity under its credit facilities.
- Consolidated debt was $24.960 billion at carrying value ($25.035 billion at face amount), versus $25.321 billion at carrying value a year earlier. The effective overall borrowing rate rose to 3.22% from 2.86%; variable-rate debt was 9.0% of consolidated debt.
- Capital expenditures were $650 million. Stockholder dividends and unitholder distributions totaled approximately $2.6 billion; the 2022 annual dividend/distribution was $6.90 per share/unit.
For the fourth quarter of 2022, total revenue was $1.400 billion, consolidated net income was $772.7 million, and diluted earnings per share was $2.06, compared with $1.326 billion, $573.7 million and $1.53, respectively, in the fourth quarter of 2021.
Material changes versus the prior comparable period
- Revenue and core property measures improved, including higher occupancy, rents and portfolio NOI.
- Annual diluted EPS declined to $6.52 from $6.84, while comparable FFO per share increased to $11.87 from $11.44. The EPS comparison was affected by larger 2021 gains on property dispositions and equity interests, and a 2021 non-cash deferred-tax benefit at Klépierre. 2022 also included a $159.0 million non-cash gain from exchanging the Eddie Bauer licensing venture interest for additional ABG interests.
- Operating cash flow increased to $3.767 billion from $3.637 billion. Consolidated debt decreased, while the effective borrowing rate increased, principally because of higher variable rates.
- In 2022 Simon acquired a 50% noncontrolling interest in Jamestown for $173.4 million, consolidated Gloucester Premium Outlets after acquiring an additional interest, and repurchased 1.83 million common shares for $180.4 million.
Outlook, risks and unusual items
- Management expects positive operating cash flow in 2023 and said available cash and credit capacity were sufficient to address 2023 debt maturities and capital needs. No specific earnings or FFO guidance is provided in the filing text.
- Simon expects to fund its share of remaining costs for projects under construction—approximately $239 million—from operating cash flows; it targets stabilized returns on new development, expansion and redevelopment projects of 7%–10%.
- The board declared a first-quarter 2023 dividend of $1.80 per share/unit. Future distributions remain subject to board discretion, liquidity, operating results, capital needs and financing covenants.
- Key risks include tenant distress, bankruptcies and anchor closures; leasing and occupancy pressure; e-commerce competition; inflation, higher interest rates and refinancing access; substantial debt and covenant restrictions; joint-venture exposure and guarantees; natural disasters, climate and insurance risks; cyber incidents; foreign-exchange and international risks; and maintaining REIT qualification.
- Unusual comparisons include the 2021 $51.8 million debt-extinguishment charge and property/equity gains, and 2022 non-cash gains and losses from equity-interest transactions and fair-value movements. Management identified investment-property and unconsolidated-investment impairment assessments as critical audit matters because they depend on forecast cash flows and valuation assumptions.
- Simon and the Operating Partnership reported compliance with debt covenants and effective disclosure controls and internal controls. The auditor issued unqualified opinions on the financial statements and internal controls. Management said ordinary-course legal proceedings are not expected to materially affect financial condition, liquidity or results.
Important facts for investors to verify
- Whether occupancy, rents, tenant sales and rent collections continue to support NOI and comparable FFO growth.
- The debt maturity schedule, borrowing costs, variable-rate exposure and refinancing needs, particularly as interest rates change.
- Whether available liquidity and operating cash flow cover 2023 maturities, committed projects, dividends and other capital requirements.
- The durability of reported earnings after adjusting for non-cash gains, investment revaluations, tax items and prior-year disposition gains.
- Exposure to tenant bankruptcies, anchor closures, joint-venture debt and guarantees, and assumptions underlying property and investment valuations.