Simon Property Group Sees Demand from Broad Spectrum of Tenants

Cash flow for Simon Property Group is currently consistent with pre-pandemic levels. That is according to David Simon, chairman, CEO and president of the retail REIT. 

On the firm’s Q3 earnings call, Simon noted that the company recorded increased leasing volumes, occupancy gains, shopper traffic, and retail sales.  “Demand for our space from a broad spectrum of tenants is strong and growing and our various platform investments continue to outperform, he said. “Third quarter highlights from funds from operation starts with $1.18 billion or $3.13 per share.”

He explained that the company’s focus is cash flow growth, which will allow the REIT to fund its growth opportunities and increase its dividend. “We would encourage the analytic community to focus on our cash flow and its growth because there are many levers that contribute to it beyond what is contained in one or two operating metrics,” he said. “A simple case-in-point, our mathematical open and close spread has declined yet our cash flow has significantly increased. Leasing spreads are calculated at a poignant time.”

Included in the third quarter results were a noncash after-tax gain of $0.30 per share from the contribution of the REIT’s interest in the Forever 21 and Brooks Brothers licensing ventures for additional equity ownership in Authentic Brands Group. “We now own approximately 11% of ABG and a loss on extinguishment of debt of $0.08 per share from the redemption of the $1.65 billion of senior notes,” he said. 

He did explain, however, that the Q3 numbers were below budget by roughly $0.03 per share, primarily due to various COVID restrictions. “Domestic property NOI increased 24.5% year over year for the quarter and 8.8% year to date,” Simon said. “These growth rates do not include any contribution from the TRG portfolio or lease settlement income. And if you did include TRG and international properties, our portfolio NOI increased 34.3% for the quarter and 18.7% year to date.”

He also pointed out that redevelopment activity is accelerating. “Northgate Station opened, Seattle Kraken Community Iceplex, and we have many developments ongoing at Fifths, King of Prussia, Southdale, and many others,” he said. “Our share of net cost of development projects is now approaching $1 billion. Our retail investment platforms are performing very well, including SPARC, Penney, and ABG.”

His last point was that even though the REIT’s stock posted impressive year-to-date returns, he strongly believes it is still undervalued. “Our current multiple of 13 times is approximately three turns lower than our historical average and screens very cheap compared to the REIT sector at 24 times and in many cases, even close to 30,” he said on the earnings call. “We have unequivocally proven with our results year to date that we’ve overcome the arbitrary shutdown of our business due to the pandemic and our cash flow has bounced back dramatically, which many have doubted.”

He also pointed to growth levers beyond its real estate assets that are unique attributes of the company. “We have proven to be astute investors,” he said. “We have unique business models and diversity of income streams. Our balance sheet is industry-leading and as strong as it’s ever been.”