Simon Property Group
Simon Property Group, the largest mall owner in the United States reported first quarter earnings which showed that despite loosening lockdown regulations, and vaccine rollouts, foot traffic at malls had not yet returned to pre-pandemic levels.
The company generated revenue of $1.24 billion, down 8.15% year over year. But it was an increase on the previous quarter’s $1.13 billion. Funds From Operations (FFO), a REIT metric which excludes real-estate depreciation costs and accounts for other adjustments, was $934.0 million, or $2.48 per diluted share for the three months ended March 31, 2021. This compares to FFO of $2.78 per share in the year-ago period. Over the last four quarters, the company has surpassed consensus FFO estimates just once.
For the fiscal first quarter, Simon reported an occupancy rate across its US malls and outlet properties of 90.8%, compared with 94% a year earlier. The top tenants in terms rental payments were Gap, L Brands and PVH, as well as department store chains Macy’s and J.C. Penney. The base minimum rent per square foot improved to $56.07 from $55.76 a year ago. The Company reported Net income attributable to common stockholders of $445.9 million, or $1.36 per diluted share.
During the quarter, the Company completed a two tranche senior notes offering totaling $1.5 billion. Combined, they have a weighted average term of 8.4 years and a weighted average coupon rate of 1.96%. The Company, through one of its subsidiaries, also completed a Euro senior notes offering totaling €750 million with a 1.125% coupon rate and term of 12 years. The proceeds were used to fund the redemption of the Company's $550 million aggregate principal amount of 2.50% notes due July 2021 and fully repay the $2.0 billion unsecured delayed-draw term loan facility. The Company also closed six mortgage loans where their share totaled $589 million with an interest rate of 3.36%. Despite the debt restructuring the company still has a significant amount of debt, with a debt to equity ratio of 650% having increase from 416% over the past 5 years. Debt does not appear to be well covered by operating cash flow (9.4%) and interest payments on debt are not well covered by EBIT(2.4x). This is reflected in the negative outlook for its credit rating by Standard & Poors.
· As at the end of the quarter, Simon had $8.4 billion of liquidity consisting of $1.5 billion of cash on hand, including its share of joint venture cash, and $6.9 billion of available capacity under its revolving credit facilities.
Chief executive David Simon said that sales and shopper visits have improved week over week, but remained conservative in his outlook given the uncertainties over pandemic regulations. He cited California and New York as examples where store traffic is still suppressed by Covid-related restrictions. He also added that International tourism had not yet returned to malls and outlet centers. In spite of these factors Simon increased guidance for the full year 2021.
The Company estimates net income to be within a range of $4.47 to $4.57 per diluted share and FFO of between $9.70 to $9.80 per diluted share. The FFO is an increase from the $9.50 to $9.75 per diluted share range provided in February.
The Company paid its first quarter dividend of $1.30 per share in April. This puts it on an attractive dividend yield of 4.41%. The share is up 42% this year giving the property group a market cap of $42 billion. It is 90% owned by institutions with Vangaurd, Blackrock and Cohen & Steers Capital management owning nearly 33% of the company. This is a very well run business, which appears to have made it through peak pandemic regulations quite well. It is trading at a 40% discount to fair value and is attractively priced, on a 33.2x price to earnings multiple, relative to the industry average of 43.5x. It will benefit from the economic reopening as folks are almost euphoric to get out of their homes (and engage in some retail therapy). However, as highlighted by the CEO, uncertainty over lockdown rules do remain a risk. The share is still trading 30% below its pre-pandemic levels.