Simon Property Group, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021, compared with the corresponding 2020 periods. Amounts are U.S. dollars. Simon is a REIT operating primarily through Simon Property Group, L.P.; its portfolio includes malls, outlet centers and other retail properties, plus joint-venture and international investments.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $1,296.6 million | $1,060.7 million | $3,790.7 million | $3,476.1 million |
| Operating income before other items | $612.3 million | $404.0 million | $1,821.7 million | $1,509.8 million |
| Consolidated net income | $778.6 million | $168.6 million | $1,995.0 million | $964.6 million |
| Net income attributable to common stockholders | $679.9 million | $145.9 million | $1,743.1 million | $837.7 million |
| Diluted earnings per share | $2.07 | $0.48 | $5.30 | $2.74 |
| FFO, non-GAAP | $1,175.9 million | $723.2 million | $3,326.8 million | $2,450.3 million |
| Diluted FFO per share, non-GAAP | $3.13 | $2.05 | $8.85 | $6.95 |
Revenue increased 22.2% in Q3 and 9.0% for the first nine months. Operating income before other items was approximately 47.2% of revenue in Q3 versus 38.1% in Q3 2020; for the nine-month periods it was approximately 48.1% versus 43.4%. These ratios are calculated from reported figures and are not company-reported margin measures.
- Lease income increased 22.2% in Q3 and 7.8% year to date on a comparable basis. The increase primarily reflected stronger variable rent tied to tenant sales and less COVID-related rent-abatement impact than in 2020.
- Portfolio NOI increased 18.7% year to date, primarily reflecting the acquired TRG interest; excluding TRG, management reported a 9.0% increase.
- Operating cash flow was $2.75 billion for the first nine months, versus $1.43 billion in 2020. Investing activities used $498.9 million and financing activities used $2.83 billion. Cash declined $573.2 million to $438.4 million.
- At September 30, total debt was $25.58 billion, down from $26.72 billion at December 31, 2020. Debt comprised $6.6 billion of mortgages and substantial unsecured borrowings. The effective weighted-average borrowing rate was 2.97%; floating-rate debt was 4.7% of consolidated debt.
- Available borrowing capacity under credit facilities was approximately $6.9 billion, net of borrowings, commercial paper and letters of credit. Simon reported compliance with debt covenants.
- Total assets were $33.95 billion and total equity was $3.87 billion at quarter-end. The filing does not provide a conventional current ratio or a single overall liquidity ratio.
Material changes and unusual items
- U.S. malls and Premium Outlets occupancy rose to 92.8% from 91.4% year over year, while average base minimum rent declined 4.0% to $53.91 per square foot. The Mills’ occupancy was 97.0%, up 250 basis points.
- Net income included a $159.8 million non-cash gain from exchanging Forever 21 and Brooks Brothers licensing interests for additional ABG interests. The transaction also generated $47.9 million of deferred tax expense.
- Other reported gains included $177.3 million from foreclosures of two consolidated properties in satisfaction of non-recourse mortgages, approximately $21.0 million from insurance recoveries, and a $14.9 million gain on a multi-family investment sale. Simon’s share of a Klépierre tax-basis step-up benefit contributed a non-cash gain of $118.4 million through income from unconsolidated entities.
- Early debt redemptions resulted in a $31.6 million loss on extinguishment of debt. The company issued new long-dated notes and repaid its $2.0 billion term facility during the period.
- Q3 2021 lease income included $286.4 million of variable lease income versus $64.5 million in Q3 2020; fixed lease income was $921.5 million versus $929.3 million.
FFO and NOI are non-GAAP measures and should not be treated as substitutes for GAAP earnings or operating cash flow. Reported earnings growth also reflects material gains, investment income and recovery from pandemic-affected 2020 results.
Outlook, risks and contingencies
- Management expected positive operating cash flow in 2021 and stated it believed available cash and credit capacity were sufficient for debt maturities and capital needs through 2021. It expected operating cash flow to fund ordinary expenses, debt service, recurring capital expenditures and REIT distributions, while noting the pandemic’s ultimate effects remained difficult to predict.
- No formal earnings or FFO guidance was provided in the supplied filing text. Management reported approximately $937 million as its share of costs for new development, redevelopment and expansion projects under construction, with about $285 million of remaining net cash funding required.
- COVID-19 could affect rent collection, lease-income recognition, property values and impairments. Tenant bankruptcies, retail competition including e-commerce, vacancies, leasing conditions, substantial indebtedness, interest rates, capital-market access, foreign exchange, joint-venture guarantees and natural disasters are among the disclosed risks.
- Simon’s board declared a fourth-quarter 2021 dividend of $1.65 per share on November 1, 2021. Ordinary-course legal and regulatory proceedings were disclosed; management did not expect current proceedings to materially affect financial condition, liquidity or results.
- The October 2021 amendment extended the $3.5 billion Supplemental Facility, with initial maturity in January 2026 and a one-year extension option. This is a subsequent event after quarter-end.
Important facts for investors to verify
- How much of the earnings and FFO improvement reflects recurring property operations versus one-time gains, tax items and investment results.
- Whether stronger tenant sales and occupancy translate into sustained rent growth, given the year-over-year decline in average base rent and continuing collection and bankruptcy risks.
- Debt maturities, refinancing costs and actual liquidity after quarter-end, including the effect of the October credit-facility extension and benchmark-rate transition.
- The performance and valuation of retailer, TRG, Klépierre and other unconsolidated investments, and the terms and potential outcomes of the SPAC trust and business-combination process.
- Future cash available for dividends, redevelopment commitments and other capital needs if pandemic-related or broader retail conditions weaken.