Simon Property Group, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; balance-sheet figures are as of March 31, 2021. Simon is a REIT that owns, develops and manages malls, outlet centers and mixed-use destinations. It reported 202 U.S. income-producing properties, an 80% interest in Taubman Realty Group (TRG), international outlet properties, and a 22.4% interest in Klépierre. The filing combines Simon and its operating partnership; the figures below are consolidated.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Total revenue | $1,240 million | $1,353 million; down 8.4% |
| Lease income | $1,145 million | $1,262 million; down 9.3% |
| Operating income before other items | $605 million | $655 million; down 7.7% |
| Consolidated net income | $510 million | $505 million; up 1.0% |
| Net income attributable to common stockholders | $446 million | $438 million |
| Diluted EPS | $1.36 | $1.43 |
| Funds from operations (FFO, non-GAAP) | $934 million; $2.48 diluted per share | $981 million; $2.78 per share |
| Net cash from operating activities | $876 million | $741 million |
| Cash and cash equivalents | $936 million | $1,012 million at Dec. 31, 2020 |
| Mortgages and unsecured indebtedness | $26.2 billion | $26.7 billion at Dec. 31, 2020 |
| Total assets / total equity | $34.4 billion / $3.5 billion | $34.8 billion / $3.5 billion at Dec. 31, 2020 |
Operating income was approximately 48.8% of revenue, versus 48.4% in Q1 2020. Interest expense increased to $202 million from $188 million. Operating cash flow improved year over year; investing activities used $138 million and financing activities used $813 million, including net debt repayments and distributions. Simon declared a $1.30-per-share quarterly dividend, paid April 23, 2021.
Material changes and operating trends
- Comparable lease income declined 9.0%, principally due to lower fixed minimum rent and common-area maintenance consideration amid COVID-19 disruption. Fixed lease income fell $117.5 million; variable lease income was nearly unchanged.
- Portfolio NOI increased 4.0%, primarily reflecting TRG, acquired in December 2020. Excluding TRG, portfolio NOI decreased 8.4%. FFO declined 4.8%.
- U.S. Malls and Premium Outlets occupancy was 90.8%, down 3.2 percentage points year over year; average base minimum rent rose 0.6% to $56.07 per square foot. Leasing spreads fell 13.6%.
- Lower property and corporate costs partly offset weaker rents. Other income included higher lease settlement income, while income from unconsolidated entities fell $35.4 million, reflecting TRG investment amortization and pandemic-affected operations.
- Common dividends were $1.30 per share in Q1 2021 versus $2.10 in Q1 2020.
Debt, liquidity and unusual items
- At quarter-end, Simon had $18.8 billion of senior unsecured notes, $6.8 billion of mortgage debt, $125 million drawn on its revolving credit facility and $500 million of commercial paper. Available borrowing capacity under credit facilities was approximately $6.9 billion.
- During the quarter, the operating partnership issued $1.5 billion of U.S. notes and €750 million of notes, and repaid the $2.0 billion term facility. Floating-rate debt was 4.6% of consolidated debt; the effective overall borrowing rate was 3.04%. The company reported compliance with debt covenants.
- A $93.1 million gain on asset transactions boosted reported earnings: $89.3 million related to foreclosure of a property in satisfaction of its $180 million non-recourse mortgage, and $3.7 million was a non-cash gain on consolidating a European property. These gains are not equivalent to recurring operating performance.
- A sponsored SPAC completed a $345 million IPO, with proceeds held in trust. Simon also invested $56.3 million for additional interests in Forever 21 ventures, which were subsequently merged into SPARC Group.
Outlook, commentary and risks
Management expected positive operating cash flow in 2021 and said cash on hand and facility availability were sufficient for debt maturities and capital needs through 2021. It expected operating cash flow to cover operating expenses, debt service, recurring capital spending and REIT-related distributions over the long term, while noting the pandemic’s ultimate effects remained difficult to predict. Remaining Simon share of costs for new development and redevelopment projects under construction was approximately $191 million; management cited a target stabilized return on invested capital of 7%–10%.
COVID-19 continued to affect retail activity and rent collection. Tenant abatements, deferrals, lease changes or terminations, litigation over unpaid rent, and potential impairments could affect results. Other disclosed risks include tenant bankruptcies and vacancies, retail competition and e-commerce, substantial indebtedness and capital-market access, interest-rate and foreign-exchange exposure, joint-venture guarantees, and development risks. Joint-venture mortgage debt guaranteed by the operating partnership was $225 million. Management said ordinary-course legal proceedings were not expected to have a material adverse effect; no material risk-factor changes from the 2020 Form 10-K were reported.
Key facts for investors to verify
- Whether tenant collections, lease income and occupancy recover, and whether further rent concessions or write-offs are required.
- How recurring results compare after excluding the $93.1 million of Q1 property-related gains; review FFO and NOI alongside GAAP earnings.
- Debt refinancing and commercial-paper repayment needs, borrowing costs, covenant headroom and access to the stated $6.9 billion of facility capacity.
- Whether distributions remain supportable as operating cash flow and capital requirements evolve.
- Performance and returns from TRG, retailer investments and redevelopment projects, including the assumptions underlying management’s outlook.