Simon Property Group, Inc. — 2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010. The supplied filing text incorporates the company’s financial statements and management’s discussion by reference to its 2010 Annual Report, but does not include those materials. Accordingly, company revenue, net income, operating cash flow, margins, and several liquidity metrics are not clear from the supplied text.
Business context
Simon Property Group is a self-managed REIT that owns, develops, and operates retail real estate, principally regional malls, Premium Outlets, The Mills, and community/lifestyle centers. At year-end it reported interests in 338 U.S. income-producing properties and international holdings, including 45 Italian shopping centers and outlet centers in Japan, Mexico, and South Korea. U.S. properties had approximately 250.5 million square feet of GLA; estimated 2010 retail sales at those properties were approximately $62 billion. That figure is tenant/property retail sales, not Simon’s revenue.
Financial and operating metrics
- Debt: Consolidated mortgages and other indebtedness totaled $17.47 billion at December 31, 2010, excluding neither premiums nor discounts in the reported carrying amount; the face amount was $17.47 billion. Consolidated debt declined from $18.63 billion at year-end 2009. During 2010, the company reported $3.71 billion of new loan originations, $1.24 billion of debt assumed in acquisitions, and $6.05 billion of loan retirements.
- Debt mix and joint ventures: Consolidated secured debt was $6.60 billion and unsecured debt was $10.87 billion. Simon’s share of consolidated debt was $17.21 billion; its share of joint-venture debt was $6.56 billion. The Operating Partnership guaranteed or supported $60.7 million of joint-venture debt.
- Liquidity: The $3.9 billion unsecured revolving credit facility had $858.6 million outstanding at year-end, including $273.6 million equivalent of yen borrowings; $3.0 billion was available after borrowings and letters of credit. The facility matures March 31, 2013. Cash and other current-liquidity balances are not clear from the supplied text.
- Occupancy: Approximately 94.2% of owned GLA in regional malls and Premium Outlets and retail space in other properties was leased; occupancy was 93.7% at The Mills, 90.4% at Mills Regional Malls, and 91.6% at community/lifestyle centers.
- Cash distributions: 2010 common dividends totaled $2.60 per share, paid entirely in cash, versus $2.70 in 2009, part of which was paid in stock. The board approved a $0.80-per-share first-quarter 2011 dividend.
- Environmental efficiency: The company reported a 22% reduction in electricity use at comparable properties since 2003, representing more than $34 million in annual avoided operating costs.
Material changes versus prior periods
- Consolidated debt decreased by approximately $1.16 billion from year-end 2009, largely alongside substantial 2010 loan retirements.
- Real estate assets increased to $27.19 billion from $25.02 billion. The filing schedule attributes this primarily to $2.20 billion of acquisitions and consolidations, partly offset by $304.8 million of disposals.
- On July 15, 2010, Simon and its partner sold their interests in Simon Ivanhoe, which owned seven centers in France and Poland. Simon reported its share of the gain as approximately $281 million; part of the proceeds repaid about $215 million of euro-denominated credit-facility borrowings.
- Simon acquired multiple outlet properties during 2010, including properties identified in the filing as Prime Outlets acquisitions.
- Common dividends declined from $2.70 per share in 2009 to $2.60 in 2010; the 2010 fourth-quarter declared dividend was $0.80 per share versus $0.60 in the fourth quarter of 2009.
Outlook, risks, and unusual items
- Management described the economy and consumer spending as recovering from the recession, while noting that many retail tenants remained under economic stress. The supplied text provides no earnings or operating guidance.
- Key risks include substantial debt and refinancing needs, access to capital markets and credit, interest-rate exposure, retail tenant distress or bankruptcy, anchor-store closures, leasing and rent pressure, and competition from e-commerce and other retail formats.
- Real estate development and acquisitions carry construction, financing, approval, leasing, and execution risks. Joint-venture decisions such as sales and refinancing may require partner consent.
- Environmental remediation costs may be significant but were not estimable in the filing discussion. The company said its environmental reviews had not identified a liability it believed would materially harm results or financial condition, while cautioning that testing was limited.
- The filing says ordinary-course legal matters were not expected to have a material adverse effect on financial position or results. The Mills’ Opry Mills property was temporarily closed following May 2010 flood damage.
- Simon elected REIT treatment and must meet applicable qualification and distribution requirements. Failure to qualify could result in corporate-level tax and loss of REIT status.
Important facts for investors to verify
- Consult the incorporated 2010 Annual Report for full revenue, net income, funds from operations, cash flow, margins, and year-over-year operating results.
- Review debt maturities and refinancing plans, particularly near-term 2011 maturities, and confirm the terms and subsequent repayment status of notes marked as paid off in early 2011.
- Check property-level leasing, tenant sales, rent spreads, anchor exposure, and the effect of acquisitions on comparable-property performance.
- Assess the impact and insurance recovery, if any, from Opry Mills’ flood closure, as well as other contingencies and joint-venture guarantees.
- Verify the sustainability of dividends against cash available for distribution and the company’s REIT requirements.