Simon Property Group, Inc. — FY2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. Simon is a self-managed REIT whose operating partnership owns its real estate. It owns, develops and manages malls, Premium Outlets, The Mills and community/lifestyle centers. The filing incorporates the full financial statements and MD&A by reference; the supplied text does not include clear values for revenue, net income, operating cash flow, FFO, or margins.
Business and operating profile
- At year-end, Simon owned or held interests in 317 U.S. income-producing properties, plus 12 international Premium Outlets and a 28.9% stake in European property company Klépierre.
- U.S. properties comprised approximately 239.2 million square feet of GLA. Leased occupancy was 95.3% for malls and Premium Outlets and other retail space, 97.2% for The Mills, and 94.7% for community/lifestyle centers.
- Redevelopment and expansion work was underway at 24 U.S. properties. Fifty-six new anchor and big-box tenants opened in 2012; another 30 were scheduled for 2013.
Financial position and selected metrics
| Metric | FY2012 / year-end | Comparable or context |
|---|---|---|
| Consolidated debt | $23.1 billion at face-value-adjusted carrying amount | $18.4 billion at December 31, 2011 |
| Real estate assets | $33.9 billion gross carrying amount | $29.3 billion at December 31, 2011 |
| Revolving credit facilities | $6.0 billion combined initial capacity; $4.4 billion available after borrowings and letters of credit | Borrowings at year-end included $1.6 billion across facilities, principally euro- and yen-denominated |
| Common dividends | $4.10 per share for 2012 | $3.50 per share for 2011 |
| International properties | 6.3% of 2012 NOI | NOI growth or consolidated margins are not provided clearly in the supplied text |
Simon’s share of consolidated indebtedness was approximately $23.0 billion. Its share of joint-venture indebtedness was approximately $5.4 billion; most property-level debt is nonrecourse, though the Operating Partnership guaranteed $84.9 million of joint-venture debt. In 2012, the company reported $4.9 billion of new loan originations and $2.6 billion of loans assumed in acquisitions and consolidation, offset by $2.8 billion of loan retirements.
Material changes and unusual items
- Simon acquired an approximately 28.7% interest in Klépierre on March 14, 2012 for about $2.0 billion; its year-end ownership was approximately 28.9%.
- Reported real estate acquisitions and consolidations totaled $4.44 billion in 2012, compared with $2.07 billion in 2011. Improvements were $833 million, versus $552 million in 2011.
- Common dividends rose to $4.10 per share from $3.50. The 2011 amount included a special $0.20 dividend. In February 2013, the board declared a $1.15-per-share dividend.
- At year-end, Simon had a $4.0 billion revolving facility and a new $2.0 billion supplemental facility, entered into in June 2012. Both could be increased subject to facility terms.
Outlook, risks and contingencies
- No quantified earnings, revenue, cash-flow or FFO guidance is included in the supplied text. Management described the economy and consumer spending as recovering from recession, while noting continued economic stress among some retail tenants.
- Key risks include substantial leverage and refinancing needs; dependence on debt-market access and credit ratings; interest-rate and foreign-currency exposure; tenant bankruptcies, anchor closures and e-commerce competition; and execution, financing, cost and approval risks for development and redevelopment.
- Joint-venture ownership can limit Simon’s control over budgets, sales, refinancing and redevelopment. Environmental liabilities may arise despite audits and limited testing; potential remediation costs are not estimable in the text.
- The company reported ordinary-course legal proceedings and stated it did not expect them to have a material adverse impact. Disclosure controls were judged effective at a reasonable-assurance level, and no material fourth-quarter change in internal control was reported.
Important facts for investors to verify
- Review the incorporated 2012 Annual Report for revenue, net income, FFO, operating cash flow, margins, liquidity details and management’s full year-over-year analysis.
- Assess debt maturities, refinancing plans, covenant headroom, interest-rate hedges and foreign-currency exposure, alongside the $4.4 billion reported facility availability.
- Check comparable-property leasing, rents, tenant sales, occupancy trends, and the impact of anchor vacancies and lease expirations.
- Evaluate the returns and financing implications of the Klépierre investment, 2012 property acquisitions, and the active redevelopment pipeline.
- Confirm dividend coverage using recurring cash flow and capital requirements; REIT distribution requirements and the board’s discretion affect future distributions.