Simon Property Group, Inc. — 2023 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2023; quarterly figures below include the three months ended that date. Simon is a REIT whose operating partnership holds substantially all assets and conducts most of the business. The company owns, operates, develops and manages malls, Premium Outlets, Mills and other retail and mixed-use properties. At year-end, it owned or held interests in 195 U.S. income-producing properties and 35 international Premium Outlet and Designer Outlet properties, and held an 84% noncontrolling interest in Taubman Realty Group (TRG).
Financial and operating performance
- Revenue: $5.659 billion in 2023, up from $5.291 billion in 2022. Lease income was $5.164 billion, up $259.2 million, mainly from higher fixed rents and occupancy; variable lease income declined $27.5 million.
- Profit: Consolidated net income was $2.617 billion, versus $2.452 billion. Net income attributable to common stockholders was $2.280 billion; diluted EPS rose to $6.98 from $6.52.
- FFO: NAREIT FFO was $4.686 billion, compared with $4.481 billion; diluted FFO per share increased to $12.51 from $11.95. FFO is a non-GAAP measure and is not cash flow from operations.
- NOI and leasing: Portfolio NOI increased 4.9% to $5.571 billion. U.S. mall and Premium Outlet portfolio occupancy rose to 95.8% from 94.9%; average base minimum rent increased 3.1% to $56.82 per square foot. New-lease initial base rent averaged $66.39 per square foot, versus $55.41 in 2022.
- Cash flow and investment: Net cash provided by operations was $3.931 billion. Cash and cash equivalents were $1.169 billion, and short-term investments were $1.000 billion at year-end. Capital expenditures were $793.3 million, including $328.8 million for redevelopment and expansion. Cash dividends and unitholder distributions totaled approximately $2.8 billion.
- Debt and liquidity: Consolidated debt at face amount was $26.186 billion ($26.033 billion after premiums, discounts and issuance costs), up from $24.960 billion at year-end 2022. The effective weighted-average borrowing rate rose to 3.49% from 3.22%; variable-rate debt was 1.1% of consolidated debt. Cash plus available borrowing capacity under credit facilities was substantial: approximately $8.1 billion was available under the facilities, net of letters of credit. No commercial paper was outstanding.
- Balance sheet: Total assets were $34.283 billion and total equity was $3.492 billion. Consolidated net investment properties were $21.568 billion. Simon reported compliance with applicable debt covenants at year-end.
Material changes versus 2022
- Revenue, operating income before other items ($2.807 billion versus $2.584 billion), consolidated net income and diluted EPS increased. Occupancy and rents also improved.
- Interest expense increased $93.4 million to $854.6 million, reflecting new bond issuance, credit-facility activity and higher variable rates. The effective rate on variable-rate debt increased to 5.91% from 3.93%.
- Income from unconsolidated entities decreased $272.3 million to $375.7 million, primarily due to weaker year-over-year results from other platform investments.
- Reported results included $362.0 million of pre-tax gains on disposal, exchange or revaluation of equity interests, versus $121.2 million in 2022. Major 2023 items included a $145.8 million noncash deemed-disposal gain related to SPARC Group, $59.1 million of noncash deemed-disposal gains related to ABG, and a $157.1 million gain from selling part of the ABG investment.
- Capital expenditures increased to $793.3 million from $650.0 million. The company issued new U.S. dollar and euro debt and refinanced or repaid maturing obligations.
Outlook, commentary and risks
- Management expects positive operating cash flow in 2024 and stated that cash on hand and facility availability should be sufficient to address debt maturities and capital needs through 2024. The filing does not provide a specific 2024 earnings or FFO forecast.
- Simon reported approximately $1.344 billion as its share of costs for development, redevelopment and expansion projects under construction, with approximately $498 million of remaining net cash funding expected to complete current projects. Management targets stabilized returns on invested capital of 7%–10% for these projects.
- The board declared a first-quarter 2024 dividend of $1.95 per share. On February 8, 2024, it authorized a new $2.0 billion share-repurchase program for the following 24 months.
- Key risks include retail and tenant weakness, anchor or major-tenant closures and bankruptcies, e-commerce competition, leasing and re-tenanting costs, interest rates and refinancing, access to capital, substantial debt, joint-venture exposure, natural disasters and climate risks, insurance limits, environmental liabilities, cybersecurity, foreign-currency exposure, and maintaining REIT qualification.
- Simon guaranteed $139.2 million of joint-venture mortgage debt. Management said current legal and regulatory proceedings were not expected to materially adversely affect financial condition, liquidity or results. No material environmental condition or compliance cost was known at year-end, although potential liabilities remain possible.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Impairment assessments for investment properties and unconsolidated investments were identified as critical audit matters involving significant estimates and assumptions.
Most important facts for investors to verify
- Whether occupancy, rent growth and portfolio NOI remain strong, and whether the improvement translates into sustainable cash generation.
- The durability of earnings excluding the $362.0 million of equity-investment gains, and the operating trajectory of unconsolidated and other platform investments.
- The refinancing plan and cost for 2024–2026 maturities, including the effect of persistently high rates on new borrowing and interest expense.
- Whether operating cash flow can fund distributions, capital projects and debt service without materially increasing leverage or reducing liquidity.
- Project completion costs and returns, and the performance of lower-occupancy or redevelopment properties.
- Joint-venture debt exposure and guarantees, impairment assumptions, and any changes in tenant credit quality or uninsured property risks.