Simon Property Group, Inc. — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; filed February 28, 2012. Simon Property is a self-managed REIT focused on owning, developing and managing retail real estate. The supplied filing text incorporates the annual report’s financial statements and MD&A by reference but does not include their contents; therefore, revenue, net income, operating cash flow, margins and several liquidity measures are not clearly available here.
Business context and portfolio
- At year-end, the company owned or held interests in 326 U.S. income-producing properties, including regional malls, Premium Outlets, The Mills, community/lifestyle centers and other centers. It also held international joint venture and investment interests.
- U.S. properties totaled approximately 242.2 million square feet of GLA, of which Simon owned approximately 153.9 million square feet. Estimated 2011 retail sales at the properties were approximately $65 billion.
- Reported occupancy was 94.8% for owned GLA in regional malls and Premium Outlets and retail space in other properties; 95.0% for The Mills, 88.6% for Mills regional malls and 93.4% for community/lifestyle centers.
Financial and operating metrics
| Metric | 2011 / year-end | Comparison or context |
|---|---|---|
| Consolidated indebtedness | $18.446 billion | Up from $17.474 billion at year-end 2010, approximately 5.6%. Face amount was $18.421 billion. |
| Consolidated secured / unsecured debt | $6.799 billion / $11.623 billion | Substantially all mortgage and property-related debt was described as nonrecourse. |
| Simon’s share of consolidated debt | $18.175 billion | Excludes debt attributable to noncontrolling interests. |
| Joint venture indebtedness | $15.458 billion total; $6.502 billion Simon share | Simon reported $30.2 million of guarantees supporting its share of JV mortgage and other debt. |
| Revolving credit facility | $4.0 billion initial capacity; $952.7 million outstanding | $3.0 billion reported available at year-end after borrowings and letters of credit. Capacity could increase to $5.0 billion; facility had a one-year extension option. |
| Common dividends | $3.50 per share for 2011 | Compared with $2.60 in 2010; 2011 included a $0.20 special dividend. Board approved $0.95 per share for Q1 2012. |
| Real estate assets in Schedule III | $29.333 billion | Up from $27.192 billion in 2010. 2011 acquisitions and consolidations were $2.068 billion; improvements $552 million; disposals $480 million. |
| Leasing and tenant sales | 2011 property sales estimated at $65 billion | The filing text does not provide a comparable prior-period sales figure or a portfolio-wide same-store growth rate. |
Changes versus prior comparable period
- Consolidated debt rose about 5.6% from year-end 2010; the filing’s debt rollforward shows $1.866 billion of new originations and $619 million of debt assumed in acquisitions/consolidations, partly offset by $1.471 billion of retirements.
- Real estate assets increased approximately 7.9% from 2010. The filing reports higher improvements in 2011 than 2010 ($552 million versus $273 million) and lower acquisitions/consolidations ($2.068 billion versus $2.200 billion).
- Annual common dividends increased from $2.60 to $3.50 per share. Shareholders received the 2011 distributions entirely in cash.
- Simon entered a new unsecured revolving facility in October 2011, replacing a $3.9 billion facility, with initial capacity of $4.0 billion.
Outlook, commentary, risks and unusual items
- Management’s risk discussion said the economy and consumer spending appeared to be recovering from the recession, while noting that many retail tenants remained under economic stress. No numerical earnings or operating guidance is included in the supplied text.
- Key risks include substantial debt and refinancing needs; credit-market access and ratings; interest-rate and hedging exposure; tenant distress, bankruptcies and anchor closures; leasing and rent assumptions; competition from e-commerce and other retail formats; development execution; and environmental, insurance, international, joint venture and REIT-qualification risks.
- On January 9, 2012, Simon sold its entire 49% interest in Gallerie Commerciali Italia, which owned 45 Italian shopping centers. This occurred after the reporting date.
- Opry Mills remained partially closed following May 2010 flood damage; restoration and reopening were expected in March 2012.
- The company stated that ordinary-course legal proceedings were not expected to have a material adverse effect. Management concluded disclosure controls were effective at a reasonable-assurance level and reported no material fourth-quarter change in internal control over financial reporting.
Important facts for investors to verify
- Review Exhibit 13.1 and the audited financial statements for 2011 revenue, earnings, funds from operations, operating cash flow, capital spending, cash balances and full year-over-year performance; those figures are not present in the supplied text.
- Assess debt maturities, refinancing requirements, covenant headroom, ratings and the distinction between consolidated debt, Simon’s share of debt and joint venture obligations.
- Confirm the trend in comparable property occupancy, rents, tenant sales, leasing spreads and tenant credit quality, including exposure to major anchors.
- Evaluate whether cash generation supports the increased dividend and planned development, redevelopment and acquisition spending.
- Check the final accounting and financial impact of the post-year-end Italian venture sale, Opry Mills reopening and other subsequent events.