Simon Property Group, Inc. — FY2020 Form 10-K
Reporting period: Year ended December 31, 2020; filed February 25, 2021. The filing combines Simon Property Group, Inc. and its operating partnership. Unless noted, financial amounts below are U.S. dollars.
Business context
Simon is a REIT that owns, develops and manages malls, Premium Outlets, The Mills and other retail and mixed-use properties. At year-end, it held interests in 203 U.S. income-producing properties, had an 80% interest in Taubman Realty Group (TRG), and held interests in 31 international outlet properties. The business depends primarily on retail tenants’ rent, reimbursements and sales-based rent.
Financial and operating performance
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $4.608 billion | $5.755 billion | Down 19.9% |
| Net income attributable to common stockholders | $1.109 billion | $2.098 billion | Down 47.1% |
| Diluted earnings per share | $3.59 | $6.81 | Down $3.22 |
| Funds from operations (FFO) | $3.237 billion | $4.272 billion | Down 24.2% |
| Diluted FFO per share | $9.11 | $12.04 | Down 24.3% |
| Portfolio NOI | $5.055 billion | $6.096 billion | Down 17.1% |
| Cash from operating activities | $2.327 billion | $3.808 billion | Down $1.481 billion |
| Cash and cash equivalents, year-end | $1.012 billion | $669 million | Up $342 million |
| Consolidated debt, year-end | $26.723 billion | $24.163 billion | Up $2.560 billion |
Operating income before other items was $1.972 billion, or about 42.8% of revenue, versus $2.908 billion, or about 50.5%, in 2019. Net income attributable to common stockholders was about 24.1% of revenue versus 36.5% in 2019. These ratios are calculated from reported figures.
Lease income fell $941 million, including a $519 million decline in variable lease income and a $422 million decline in fixed lease income. Ending occupancy for U.S. malls and Premium Outlets decreased to 91.3% from 95.1%; average base minimum rent per square foot increased 2.2% to $55.80. Leasing spreads declined 6.8%, and new-lease average initial base rent fell to $53.97 per square foot from $56.80.
Investing cash outflow was $3.978 billion, mainly reflecting acquisitions; financing cash inflow was $1.994 billion. Simon raised approximately $1.6 billion net through a common-stock offering and reported $6.7 billion of available borrowing capacity under its Facilities at year-end. Its effective average borrowing rate was 2.98%, versus 3.16% in 2019; approximately 12.1% of consolidated debt was floating-rate.
Material changes and unusual items
- COVID-19-related closures and restrictions materially reduced rent, tenant sales, occupancy and property activity. Simon closed all U.S. retail properties on March 18, 2020, reopened them gradually beginning May 1, and reported all domestic properties open by October 7. The company estimated approximately 13,500 domestic shopping days were lost.
- Simon agreed to rent deferrals and abatements with tenants. Most deferred rent was expected to be collected during 2021; abatements covered less than 16% of U.S. portfolio gross contractual rent for the second through fourth quarters of 2020. Further negotiations, write-offs or lease changes remained possible.
- Simon completed its approximately $3.5 billion acquisition of an 80% interest in TRG on December 29, 2020. It also invested in ventures acquiring assets of Forever 21 and J.C. Penney from bankruptcy. A $35 million pre-tax bargain-purchase gain was recorded for Forever 21.
- 2020 included $125.6 million of impairment charges, including charges related to a consolidated property, joint venture properties, HBS and Klépierre; these were partly offset by disposition and insurance-related gains. A $34.4 million consolidated-property impairment and $55.2 million impairment of three joint venture investments were specifically disclosed.
- Simon suspended more than $1 billion of development and redevelopment projects in response to the pandemic. Its share of costs for projects still under construction was about $829 million, with approximately $89 million of remaining net funding required.
- Simon paid $4.70 per common share in cash dividends during 2020, compared with $8.30 in 2019. The filing’s selected financial data separately reports $6.00 of dividends per share for 2020; the excerpt does not clearly reconcile this declared-versus-paid presentation.
Liquidity, debt and outlook
Year-end debt comprised approximately $7.0 billion of consolidated secured debt and $19.8 billion of unsecured debt, including $2.0 billion drawn on the term facility and $623 million of commercial paper. Debt maturities included $2.323 billion in 2021, of which $623 million was commercial paper. Simon reported covenant compliance at year-end. The Operating Partnership guaranteed $219.2 million of joint-venture mortgage debt.
Management said it expected cash on hand and available facilities to address debt maturities and capital needs through 2021, and expected positive operating cash flow in 2021. It also cautioned that the pandemic’s ultimate impact was difficult to predict and that renewed closures, weak tenant collections, bankruptcies, e-commerce, capital-market disruption and refinancing conditions could impair results and liquidity. In January 2021, the Operating Partnership issued $1.5 billion of notes; it also redeemed $550 million of notes and repaid $750 million under the term facility shortly after year-end.
Other disclosed risks include substantial leverage, interest-rate and LIBOR-transition exposure, retail competition, tenant and anchor failures, joint-venture control and guarantees, environmental and climate risks, natural disasters, and cybersecurity. Management reported no legal proceedings expected to materially affect financial condition, liquidity or results. The auditor gave an unqualified opinion, and management and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- Tenant rent collections, deferred-rent recovery and any subsequent lease abatements, restructurings, terminations or receivable write-offs.
- Whether occupancy, leasing spreads and tenant sales recover, and whether the increase in average base rent persists.
- Liquidity after 2021 maturities, commercial-paper refinancing and subsequent debt repayments; review debt covenant headroom and ratings.
- TRG acquisition accounting, integration and performance, plus the financial exposure and returns of retailer investments and joint ventures.
- The assumptions supporting property and investment valuations, including the $125.6 million of impairment charges and future impairment sensitivity.
- The dividend disclosure: reconcile $4.70 of cash dividends paid with the $6.00 per-share figure reported as dividends for 2020.
- Development-project restart decisions, remaining funding requirements and whether management’s expected 2021 cash generation is achieved.