Overview

Simon Property Group, Inc. is a real estate investment trust (REIT) that owns, develops, and manages premier shopping, dining, entertainment, and mixed-use destinations, primarily consisting of malls, Premium Outlets, and The Mills. As of June 30, 2024, the company owned or held an interest in 195 income-producing properties in the United States and 35 Premium Outlets and Designer Outlet properties internationally.

Simon generates the majority of its lease income from retail tenants, including fixed minimum lease consideration, fixed common area maintenance (CAM) reimbursements, and variable lease consideration primarily based on tenants’ sales. The company also earns revenue from its management company and supplemental activities such as payment systems, national marketing alliances, and property operating services.

Simon focuses on high-quality real estate and seeks to enhance the profitability and market share of existing assets through expansion and redevelopment. The company also selectively develops new properties and acquires or increases interests in high-quality real estate assets or portfolios. Simon employs a three-fold capital strategy to provide the necessary capital for growth, maintain flexibility to access capital, and preserve its investment-grade credit ratings.

Results Overview

Diluted earnings per share and diluted earnings per unit increased $0.89 during the first six months of 2024 to $3.76, primarily due to improved operating performance, a gain on the sale of interests in Authentic Brands Group (ABG), increased lease and other income, partially offset by decreased income from unconsolidated entities and increased interest expense and taxes.

Portfolio NOI increased 4.4% for the six-month period in 2024 over the prior year, driven by improved operations in the domestic and international portfolios. Average base minimum rent for U.S. Malls and Premium Outlets increased 3.0% to $57.94 per square foot, and ending occupancy increased 0.9% to 95.6%.

The company’s effective overall borrowing rate on consolidated indebtedness increased 13 basis points to 3.51% as of June 30, 2024, primarily due to higher rates on variable-rate debt.

United States Portfolio Data

The following table summarizes key operating statistics for Simon’s U.S. Malls and Premium Outlets:

Ending occupancy and average base minimum rent per square foot improved year-over-year for both consolidated and unconsolidated properties.

Current Leasing Activities

During the six months ended June 30, 2024, Simon signed 572 new leases and 1,251 renewal leases (excluding short-term leases) across its U.S. Malls and Premium Outlets portfolio, comprising approximately 6.6 million square feet, of which 5.1 million square feet related to consolidated properties.

Japan Data

Simon’s Premium Outlets in Japan maintained high occupancy of 100.0% as of June 30, 2024, with average base minimum rent per square foot decreasing 2.16% to ¥5,486.

Results of Operations

Lease income increased $60.8 million in the second quarter of 2024 and $115.3 million in the first six months of 2024, primarily due to higher fixed minimum lease consideration and tenant sales-based variable lease income. Total other income increased $28.2 million in the second quarter and $65.0 million in the first six months, mainly driven by higher interest income.

Property operating expense increased $13.0 million in the second quarter due to inflationary cost increases, while real estate taxes decreased $15.2 million primarily due to successful property tax appeals. Interest expense increased $3.2 million in the second quarter and $34.4 million in the first six months, primarily related to new bond issuances.

Simon recognized a $414.8 million pre-tax gain on the sale of its remaining interests in ABG in the first quarter of 2024. Income from unconsolidated entities decreased $48.2 million in the second quarter and $104.5 million in the first six months, primarily due to lower results from other platform investments.

Liquidity and Capital Resources

Simon maintains a strong liquidity position, with $1.2 billion in cash and cash equivalents and $1.3 billion in short-term investments as of June 30, 2024. The company has an aggregate available borrowing capacity of $8.1 billion under its unsecured credit facilities.

Simon’s business model and REIT status require regular access to debt and equity markets to fund growth, development, and refinancing activities. The company believes it has sufficient cash and available financing to address its capital needs through 2024.

Dividends, Distributions and Stock Repurchase Program

Simon paid a common stock dividend of $2.00 per share for the second quarter of 2024 and $3.95 per share for the six months ended June 30, 2024. The company’s Board of Directors declared a quarterly cash dividend for the third quarter of 2024 of $2.05 per share.

On February 8, 2024, Simon’s Board authorized a new $2.0 billion common stock repurchase plan for the next two years.

Outlook

Simon remains focused on enhancing the profitability and operation of its properties, selectively acquiring or increasing interests in high-quality real estate, and generating supplemental revenues from various activities. The company believes it has the necessary liquidity and access to capital markets to fund its growth and development plans.