Simon Property Group, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2009. Simon is a REIT that owns, develops, and manages retail properties, including regional malls, outlet centers, and community/lifestyle centers. It reported interests in 325 U.S. income-producing properties and international shopping centers and outlet centers.
Financial performance
| Metric | Q3 2009 | Q3 2008 | Nine months 2009 | Nine months 2008 |
|---|---|---|---|---|
| Revenue | $924.9 million | $935.6 million | $2.747 billion | $2.754 billion |
| Operating income | $392.2 million | $383.4 million | $981.1 million | $1.114 billion |
| Operating margin | 42.4% | 41.0% | 35.7% | 40.5% |
| Net income attributable to common stockholders | $105.5 million | $112.8 million | $191.6 million | $277.3 million |
| Diluted EPS | $0.38 | $0.50 | $0.73 | $1.23 |
| FFO | $473.1 million | $463.9 million | $1.263 billion | $1.312 billion |
| Diluted FFO per share | $1.38 | $1.61 | $3.92 | $4.56 |
Operating margins are calculated from reported revenue and operating income. Nine-month diluted EPS declined 40.7%; nine-month FFO declined 3.7%, while Q3 FFO increased 2.0% year over year.
Cash flow, debt, and liquidity
- Nine-month operating cash flow was $1.341 billion, versus $1.215 billion in 2008. Investing activities used $370.7 million; financing activities provided $2.002 billion.
- Cash and cash equivalents were $3.746 billion at September 30, up from $773.5 million at December 31, 2008. The balance includes $30.9 million of gift-card funds not available for general working capital.
- Consolidated debt was $18.669 billion, up from $18.043 billion at year-end 2008. The effective weighted-average borrowing rate was 5.62%, versus 5.12% at year-end. Secured debt was $6.6 billion.
- The $3.5 billion credit facility had $456.2 million outstanding and matures January 11, 2010, with a one-year extension option. Management said cash and facility availability should cover debt maturities and capital needs through 2010.
- The company raised approximately $3.4 billion in public capital markets during the first nine months, including $1.6 billion from common-stock offerings. It issued $650 million of 10.35% notes due 2019 and $1.1 billion of 6.75% notes due 2014; it also borrowed $400 million secured at 8.00% due 2016.
Material changes and operating trends
- Revenue was nearly flat year over year for the first nine months, but operating income and common-stockholder earnings fell. Lower tenant sales and higher depreciation, interest expense, and an impairment charge contributed to the decline.
- For regional malls, portfolio occupancy fell to 91.4% from 92.5%, and comparable sales per square foot fell 11.2% to $438. Average base rent rose 2.0% to $40.05 per square foot. Management cited bankruptcies and lease terminations as occupancy pressures.
- Premium Outlet occupancy was 97.5% versus 98.8%; comparable sales declined 4.5% to $492 per square foot, while average base rent rose 21.5% to $32.95. Mills occupancy fell to 92.4% from 94.4%.
- Overage rent declined 25% in both the quarter and nine-month period, reflecting lower tenant sales. Cost controls reduced property operating costs and home and regional office costs.
- Common stock was issued in two public offerings, and the quarterly $0.60 dividend was paid 20% in cash and 80% in stock, subject to shareholder election. The company announced an intended fourth-quarter dividend of $0.60 per share, with a planned cash component not exceeding $0.12 per share, while reserving the right to pay entirely in cash.
Outlook, risks, and unusual items
- A $140.5 million non-cash impairment of the company’s Liberty International investment was recorded in Q2 2009. The filing describes the impact as approximately $0.42 per diluted share in the note and $0.45 per share in the MD&A; the per-share figures differ within the filing. The investment’s quoted value rose during Q3, with a $37.7 million mark-to-market gain recorded in other comprehensive income.
- Management substantially reduced development spending due to the economic downturn. It expected approximately $300 million of its share of 2009 renovation and expansion costs and approximately $140 million of international development costs. Management stated operating cash flow was expected to cover operating needs, debt service, recurring capital expenditures, and the cash portion of distributions.
- The $636 million loan to SPG-FCM, associated with the Mills acquisition, matures June 8, 2010 and has two one-year extension options. Its balance increased from $520.7 million at year-end 2008.
- Risks cited include access to financing and refinancing, interest and foreign-exchange rates, tenant bankruptcies and rent collection, retail-sector weakness, property development and joint ventures, and maintaining REIT status. The company had $48.2 million of loan guarantees supporting joint-venture debt. It reported no material new litigation developments and no significant changes to its previously disclosed risk factors.
- No formal earnings guidance was provided. The company cautioned that interim results may not indicate full-year results, partly due to seasonality.
Important facts for investors to verify
- Progress on refinancing or extending the credit facility before its January 2010 maturity and the company’s stated liquidity coverage through 2010.
- Tenant sales, occupancy, rent collections, bankruptcies, and lease renewals, particularly in regional malls.
- Valuation and performance of the Liberty investment, including the differing per-share impairment figures in the filing.
- Repayment or extension of the $636 million SPG-FCM loan due in 2010.
- Cash available for the announced dividend, planned development and renovation spending, and the effects of equity issuance on per-share results.