Simon Property Group, Inc. — Q1 2023 Form 10-Q
Business context and period. The filing covers the three months ended March 31, 2023, and compares results with Q1 2022. Simon is a REIT whose operating business is conducted primarily through Simon Property Group, L.P. It owns, operates, develops and manages malls, outlet centers and other retail properties. At quarter-end, it owned or held interests in 196 U.S. income-producing properties and 34 international outlet properties; it also held an 80% interest in Taubman Realty Group and a 22.4% stake in Klépierre.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Total revenue | $1.351 billion | $1.296 billion; up 4.2% |
| Operating income before other items | $662.7 million | $620.4 million; up 6.8% |
| Operating margin before other items | 49.1% | 47.9% |
| Net income attributable to common stockholders | $451.8 million; $1.38 per diluted share | $426.6 million; $1.30 per diluted share |
| FFO per diluted share | $2.74 | $2.70 |
| Net cash provided by operating activities | $828.7 million | $791.9 million |
| Capital expenditures, net | $166.1 million | $154.6 million |
| Cash and cash equivalents | $1.155 billion | $621.6 million at December 31, 2022 |
| Mortgages and unsecured indebtedness | $25.570 billion | $24.960 billion at December 31, 2022 |
| Available borrowing capacity under credit facilities | $7.6 billion | At March 31, 2023; no commercial paper outstanding |
Q1 2023 cash flow from investing activities was negative $159.7 million and financing activities used $135.1 million. Debt comprised $20.4 billion of senior unsecured notes, $5.3 billion of mortgage debt, and outstanding revolving-facility borrowings. The effective average borrowing rate was 3.36%, versus 3.22% at year-end 2022; variable-rate debt was 2.0% of consolidated debt. Total equity was $3.453 billion.
Material changes and operating trends
- Lease income rose $40.3 million: fixed lease income increased $53.5 million, partly offset by a $13.2 million decline in variable lease income tied to tenant sales.
- Portfolio NOI increased 3.9% year over year. U.S. Malls and Premium Outlets occupancy rose to 94.4% from 93.3%, while average base minimum rent increased 3.1% to $55.84 per square foot.
- Operating expenses increased $12.6 million. Interest expense rose $14.3 million, primarily reflecting higher variable rates and new U.S. dollar bond issuances.
- Income from unconsolidated entities fell $59.3 million, mainly because of weaker year-over-year results from other platform investments. Unrealized gains on publicly traded equity instruments improved by $51.6 million versus Q1 2022, when the company recorded unrealized losses.
- Management reported diluted EPS growth of $0.08, citing improved property operations, the favorable equity-instrument valuation change and lower tax expense, partly offset by reduced income from unconsolidated entities and higher interest expense.
Liquidity, financing, outlook and risks
- On March 8, 2023, the Operating Partnership issued $650 million of 5.50% notes due 2033 and $650 million of 5.85% notes due 2053; part of the proceeds funded redemption of $500 million of floating-rate notes due January 2024.
- On March 14, Simon amended and extended its revolving credit facility, increasing initial capacity to $5.0 billion, with potential increases to $6.0 billion, and extending initial maturity to June 2027. A second facility has $3.5 billion capacity. The company reported $7.6 billion of aggregate available capacity under the credit facilities.
- Management said cash on hand and facility availability should meet debt maturities and capital needs through 2023. It expects positive operating cash flow in 2023 and believes operating cash will generally cover operating expenses, debt service, recurring capital expenditures and REIT-related distributions. These are expectations, not guarantees.
- Simon paid a Q1 2023 common dividend of $1.80 per share, up from $1.65 a year earlier. On May 2, 2023, the board declared a Q2 dividend of $1.85 per share, payable June 30, 2023.
- Simon’s share of costs for development, redevelopment and expansion projects under construction was approximately $974 million; estimated remaining net cash funding was $337 million. Management seeks stabilized returns of 7%–10% on these projects.
- The company reported compliance with debt covenants. It guaranteed $132 million of joint-venture mortgage debt; the filing says collateral fair value exceeded the guaranteed amount. Joint-venture debt is generally non-recourse, subject to disclosed guarantees.
- Management said ordinary-course legal and regulatory proceedings are not expected to have a material adverse effect and reported no material changes to the risk factors in its 2022 Form 10-K. Risks discussed include retail-market weakness, tenant vacancies or insolvencies, e-commerce competition, interest rates, substantial indebtedness and capital-market access, foreign-exchange exposure, development risks, environmental matters and cybersecurity threats.
Important facts for investors to verify
- Whether occupancy, rent growth and leasing activity continue to support the reported 3.9% portfolio NOI growth; these operating statistics cover specified property categories and may differ from GAAP results.
- Whether the increase in borrowing costs and variable-rate exposure affects future interest expense, and the timing and terms of upcoming debt maturities.
- Whether unconsolidated investments—particularly other platform investments—recover from the weaker year-over-year contribution reported this quarter.
- Whether operating cash flow can fund planned capital projects and distributions while maintaining liquidity and debt covenant compliance.
- Actual delivery costs and returns on development and redevelopment projects, including the stated $337 million of remaining net cash funding.