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SIMON PROPERTY GROUP INC /DE/ 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Simon Property Group, Inc.

Filing date:

02/21/2025

TLDR:

Simon Property Group (SPG) demonstrates resilience with increased occupancy and rental rates, but faces risks from economic downturns and e-commerce. The company’s strategic redevelopment and international expansion offer growth opportunities.

ELI5:

Simon Property Group owns and manages malls. They’re doing okay, with more stores filling up their malls and charging more rent. But they have to watch out for the economy getting worse and more people shopping online. They’re trying to grow by improving their malls and expanding to other countries.

Accession #:

0001558370-25-001271

Published on

Analyst Summary

  • Occupancy increased to 96.5% in U.S. Malls and Premium Outlets.
  • Average Base Minimum Rent increased 2.5% to $58.26 psf.
  • Portfolio NOI increased 4.6% year-over-year.
  • Total consolidated mortgages and unsecured indebtedness totaled $24.5 billion.
  • Effective Borrowing Rate increased to 3.62%.
  • Operating Profit Margin: 51.86%
  • Net Profit Margin: 45.76%
  • Return on Assets (ROA): 8.42%
  • Return on Equity (ROE): 79.92%
  • Earnings Per Share (EPS): $7.26
  • Current Ratio: 1.28
  • Quick Ratio: 1.28
  • Cash Ratio: 0.82
  • Debt-to-Equity Ratio: 7.11
  • Debt-to-Assets Ratio: 74.88%
  • Interest Coverage Ratio: 3.41
  • Days Sales Outstanding (DSO): 48.74 days
  • Days Payable Outstanding (DPO): 104.75 days
  • Asset Turnover: 0.18
  • Price-to-Earnings Ratio (P/E): 25.31
  • Price-to-Book Ratio (P/B): 18.46
  • Price-to-Sales Ratio (P/S): 10.57
  • Enterprise Value to EBITDA (EV/EBITDA): 17.45
  • Revenue Growth: 5.39%
  • Net Income Growth: 4.28%
  • EPS Growth: 4.01%
  • Real Estate FFO per share was $12.24 for 2024, compared to $11.78 for 2023.

Opportunities and Risks

  • Economic Downturn: Conditions that adversely affect the general retail environment could materially and adversely affect SPG.
  • Tenant Bankruptcies: Potential adverse effects from tenant bankruptcies.
  • E-commerce Competition: The increasing popularity of e-commerce and the evolution of consumer preferences and purchasing habits.
  • Climate Change: Risks associated with climate change and potential natural disasters.
  • Cybersecurity: Risks associated with security breaches through cyber-attacks, cyber intrusions or otherwise.
  • Strategic Redevelopment: Redevelopment and expansion projects to enhance profitability and market share.
  • International Expansion: Continued investment in international markets.
  • Platform Investments: Potential growth from investments in retail operations, e-commerce ventures, and real estate management companies.

Potential Implications

Company Performance

  • SPG’s strong FFO and strategic capital allocation position it well for continued success in the evolving retail landscape.
  • High debt-to-equity ratio requires careful management of interest expenses.

SEC Filing Report: Simon Property Group, Inc. (10-K)

Executive Summary

This report analyzes Simon Property Group, Inc.’s (SPG) 2024 10-K filing. SPG, a leading REIT specializing in premier shopping, dining, and entertainment destinations, faces a complex and evolving retail landscape. Our analysis reveals a company demonstrating resilience and strategic adaptation, but also exposed to significant risks. While SPG exhibits strong operational performance, including increased occupancy and average base minimum rent, challenges remain in the form of potential economic downturns, tenant bankruptcies, and the ever-growing influence of e-commerce. We recommend a HOLD rating, acknowledging SPG’s solid fundamentals but cautioning investors to monitor the identified risks closely.

Company Overview

Simon Property Group, Inc. (SPG) is a self-administered and self-managed REIT. The company owns, develops, and manages retail properties, including malls, Premium Outlets, and The Mills. As of December 31, 2024, SPG held interests in 194 income-producing properties in the U.S. and has international presence through investments in Premium Outlets and Designer Outlets in Asia, Europe, and Canada, as well as an equity stake in Klépierre SA.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management highlights improved operating performance and solid core business fundamentals. They emphasize growth in earnings, FFO, and cash flows through strategic initiatives like attracting high-quality tenants, expanding existing properties, and selective acquisitions. However, the MD&A also acknowledges potential risks, including adverse economic conditions, tenant bankruptcies, and competition from e-commerce.

Financial Statement Analysis

Key Ratios and Trends

  • Occupancy: Increased to 96.5% in U.S. Malls and Premium Outlets.
  • Average Base Minimum Rent: Increased 2.5% to $58.26 psf.
  • Portfolio NOI: Increased 4.6% year-over-year.
  • Debt: Total consolidated mortgages and unsecured indebtedness totaled $24.5 billion.
  • Effective Borrowing Rate: Increased to 3.62%.

Visual Aids

(Note: Due to the limitations of text-based output, actual charts and tables cannot be rendered here. However, the following data points would be visualized in a comprehensive report.)

  • Trend of Occupancy Rates (2022-2024)
  • Comparison of Average Base Minimum Rent vs. Industry Peers
  • Debt Maturity Schedule

Red Flags and Uncommon Metrics

  • Increasing Interest Expense: A significant increase in interest expense ($51.1 million) due to new bond issuances and rising rates on variable-rate debt.
  • Decreased Income from Unconsolidated Entities: A notable decrease in income from unconsolidated entities ($168.3 million), primarily due to lower results from other platform investments.

Risk and Opportunity Assessment

Risks

  • Economic Downturn: Conditions that adversely affect the general retail environment could materially and adversely affect SPG.
  • Tenant Bankruptcies: Potential adverse effects from tenant bankruptcies.
  • E-commerce Competition: The increasing popularity of e-commerce and the evolution of consumer preferences and purchasing habits.
  • Climate Change: Risks associated with climate change and potential natural disasters.
  • Cybersecurity: Risks associated with security breaches through cyber-attacks, cyber intrusions or otherwise.

Opportunities

  • Strategic Redevelopment: Redevelopment and expansion projects to enhance profitability and market share.
  • International Expansion: Continued investment in international markets.
  • Platform Investments: Potential growth from investments in retail operations, e-commerce ventures, and real estate management companies.

Conclusion and Actionable Insights

Simon Property Group demonstrates resilience in a challenging retail environment, as evidenced by increased occupancy and rental rates. However, investors should be aware of the potential impact of economic downturns, tenant bankruptcies, and the increasing influence of e-commerce. The company’s strategic redevelopment and international expansion efforts offer opportunities for future growth.

Recommendation: HOLD. Monitor SPG’s ability to manage its debt burden, adapt to changing consumer preferences, and mitigate risks associated with its international operations.

Simon Property Group Financial Analysis – 2024

1. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin: Not applicable for REITs as they don’t typically report cost of goods sold. Focus is on Net Operating Income (NOI).
  • Operating Profit Margin:

    • Ratio/Metric: Operating Income / Total Revenue = $3,092,796 / $5,963,798 = 51.86%
    • Industry: Compared to other REITs, this is a good operating margin.
  • Net Profit Margin:

    • Ratio/Metric: Net Income / Total Revenue = $2,729,021 / $5,963,798 = 45.76%
    • Industry: This is a strong net profit margin, reflecting efficient operations and profitability.
  • Return on Assets (ROA):

    • Ratio/Metric: Net Income / Total Assets = $2,729,021 / $32,405,691 = 8.42%
    • Industry: A good ROA for a REIT, indicating effective asset utilization.
  • Return on Equity (ROE):

    • Ratio/Metric: Net Income / Total Equity = $2,729,021 / $3,414,723 = 79.92%
    • Industry: This is a very high ROE, suggesting aggressive leverage or exceptional profitability.
  • Earnings Per Share (EPS) – Basic and Diluted:

    • Ratio/Metric: $7.26 (same for basic and diluted)
    • Industry: This is a good EPS for a REIT.

Liquidity

  • Current Ratio:

    • Ratio/Metric: Current Assets / Current Liabilities. Need to calculate current assets and liabilities from balance sheet data. Assuming Tenant receivables and accrued revenue, net ($796,513) and Cash and cash equivalents ($1,400,345) are current assets. Assuming Accounts payable, accrued expenses, intangibles, and deferred revenues ($1,712,465) and Dividend payable ($2,410) are current liabilities. Current Ratio = ($796,513 + $1,400,345) / ($1,712,465 + $2,410) = 1.28
    • Industry: A current ratio of 1.28 is generally considered adequate for a REIT, as they typically have predictable cash flows.
  • Quick Ratio (Acid-Test Ratio):

    • Ratio/Metric: (Current Assets – Inventory) / Current Liabilities. Since SPG is a REIT, inventory is not applicable. Quick Ratio = ($796,513 + $1,400,345) / ($1,712,465 + $2,410) = 1.28
    • Industry: Same as current ratio, 1.28 is adequate.
  • Cash Ratio:

    • Ratio/Metric: Cash / Current Liabilities = $1,400,345 / ($1,712,465 + $2,410) = 0.82
    • Industry: A cash ratio of 0.82 indicates a good ability to cover short-term liabilities with cash.

Solvency/Leverage

  • Debt-to-Equity Ratio:

    • Ratio/Metric: Total Debt / Total Equity = $24,264,495 / $3,414,723 = 7.11
    • Industry: A debt-to-equity ratio of 7.11 is relatively high, indicating significant leverage. REITs often have higher leverage than other industries.
  • Debt-to-Assets Ratio:

    • Ratio/Metric: Total Debt / Total Assets = $24,264,495 / $32,405,691 = 74.88%
    • Industry: This ratio indicates that approximately 74.88% of SPG’s assets are financed by debt, which is typical for REITs.
  • Interest Coverage Ratio (Times Interest Earned):

    • Ratio/Metric: Operating Income / Interest Expense = $3,092,796 / $905,797 = 3.41
    • Industry: An interest coverage ratio of 3.41 suggests that SPG has a reasonable ability to cover its interest expenses.

Activity/Efficiency

  • Inventory Turnover: Not applicable (REIT).
  • Days Sales Outstanding (DSO):

    • Ratio/Metric: (Accounts Receivable / Total Revenue) * 365 = ($796,513 / $5,963,798) * 365 = 48.74 days
    • Industry: This indicates the average number of days it takes SPG to collect its revenue.
  • Days Payable Outstanding (DPO):

    • Ratio/Metric: (Accounts Payable / Total Revenue) * 365 = ($1,712,465 / $5,963,798) * 365 = 104.75 days
    • Industry: This indicates the average number of days it takes SPG to pay its suppliers.
  • Asset Turnover:

    • Ratio/Metric: Total Revenue / Total Assets = $5,963,798 / $32,405,691 = 0.18
    • Industry: This indicates how efficiently SPG is using its assets to generate revenue.

Valuation

  • Price-to-Earnings Ratio (P/E):

    • Ratio/Metric: Stock Price / EPS = $183.80 / $7.26 = 25.31
    • Industry: Compared to the average P/E ratio of the S&P 500, SPG’s P/E ratio is relatively high.
  • Price-to-Book Ratio (P/B):

    • Ratio/Metric: Market Cap / Book Value of Equity. Market Cap = Shares Outstanding * Stock Price = 342,945,839 * $183.80 = $63,034,871,718.20. Book Value of Equity = $3,414,723,000. P/B = $63,034,871,718.20 / $3,414,723,000 = 18.46
    • Industry: A high P/B ratio suggests that the market values SPG’s assets at a premium.
  • Price-to-Sales Ratio (P/S):

    • Ratio/Metric: Market Cap / Total Revenue = $63,034,871,718.20 / $5,963,798,000 = 10.57
    • Industry: This indicates how much investors are willing to pay for each dollar of SPG’s revenue.
  • Enterprise Value to EBITDA (EV/EBITDA):

    • Ratio/Metric: EV = Market Cap + Total Debt – Cash = $63,034,871,718.20 + $24,264,495,000 – $1,400,345,000 = $85,899,021,718.20. EBITDA = Net Income + Interest Expense + Taxes + Depreciation & Amortization = $2,729,021 + $905,797 + $23,262 + $1,265,340 = $4,923,420. EV/EBITDA = $85,899,021,718.20 / $4,923,420,000 = 17.45
    • Industry: This is a common valuation metric for REITs, providing insight into the company’s value relative to its operating cash flow.

Growth Rates

  • Revenue Growth:

    • Ratio/Metric: (Current Revenue – Previous Revenue) / Previous Revenue = ($5,963,798 – $5,658,836) / $5,658,836 = 5.39%
  • Net Income Growth:

    • Ratio/Metric: (Current Net Income – Previous Net Income) / Previous Net Income = ($2,729,021 – $2,617,018) / $2,617,018 = 4.28%
  • EPS Growth:

    • Ratio/Metric: (Current EPS – Previous EPS) / Previous EPS = ($7.26 – $6.98) / $6.98 = 4.01%

Other Relevant Metrics

  • Ending Occupancy: The company highlights ending occupancy rates for its U.S. Malls and Premium Outlets, with the total portfolio at 96.5% at the end of 2024, an increase of 70 bps from 2023. This is a key indicator of the health of SPG’s core business.
  • Average Base Minimum Rent per Square Foot: The company also reports average base minimum rent per square foot, with the total portfolio at $58.26, an increase of 2.5% from 2023. This metric reflects SPG’s ability to maintain and grow rental income.
  • Real Estate FFO per share: The company provides Real Estate Funds From Operations (FFO) per share, a non-GAAP metric commonly used in the REIT industry. Real Estate FFO per share was $12.24 for 2024, compared to $11.78 for 2023.

2. Commentary

Simon Property Group demonstrated solid financial performance in 2024, marked by increased occupancy rates and average base minimum rent, indicating a healthy core business. The company’s net income and revenue experienced growth, driven by strategic investments and operational efficiencies. However, the high debt-to-equity ratio remains a point of attention, requiring careful management of interest expenses. Overall, SPG’s strong FFO and strategic capital allocation position it well for continued success in the evolving retail landscape, but the high leverage should be monitored.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️