Earnings call: Simon Property Group reports Q3 results, raises full-year guidance for 2023

Simon Property Group (NYSE:SPG) reported its third quarter earnings, with funds from operations (FFO) of $1.2 billion, or $3.20 per share. The results were bolstered by strong performance in both domestic and international operations, contributing to an increase in rental income. However, the company faced challenges due to higher interest expenses and lower contributions from other property investments. The company also completed a significant transaction with SHEIN, reducing its ownership interest in SPARC, and increasing its ownership in Taubman Realty Group (TRG). SPG also announced a dividend increase and raised its full-year guidance for 2023.

Key takeaways from the call include:

The company’s domestic property net operating income (NOI) increased by 4.2% year-over-year, while portfolio NOI grew by 4.3%.
Occupancy rates improved, with mall and outlet occupancy at 95.2% and the mills’ occupancy at 97.4%.
Over 970 leases were signed in the quarter, generating approximately $4.3 million square feet and $1 billion in revenue.
The company increased its ownership in TRG by 4% through an exchange negotiated at appraised value.
CEO David Simon highlighted the company’s ability to negotiate favorable lease terms, attributing it to a balance of supply and demand.
Simon Property Group plans to continue monetizing investments and buying back stock to maximize shareholder value.
During the earnings call, CEO David Simon provided insights into the company’s malls and outlets performance, noting positive tenant sales growth and higher conversions than in 2019. Simon also discussed the company’s strategy to balance property investment with stock buybacks. CFO Brian McDade mentioned a temporary decrease in TRG’s occupancy due to two major spaces being taken out of commission but expects recovery in the fourth quarter.

Simon also discussed the recent issuance of stock to Taubman Centers (NYSE:TCO) and its impact on occupancy and appraised value. To offset the dilution caused by the issuance, Simon Property Group is buying back its stock. The company is also open to asset sales and other monetization opportunities to facilitate these buybacks.

Simon addressed the company’s plans for stock buybacks and asset sales, stating that the company intends to buy back its stock and is willing to sell assets at the right price. The company has lowered its guidance for Operating Partnership Income (OPI) due to owning less of SPARC. The guidance for the fourth quarter has been lowered by around $0.20 and for the full year by about $0.15. Simon also commented on the consumer retail sales outlook, stating that the company anticipates flat sales growth and is being cautious due to inflation and rising interest rates.

Finally, Simon discussed the company’s approach to building and selling residential apartment houses. The company is focusing on creating value and has a higher hurdle rate due to increased cost of capital. Simon also mentioned a watch list for retailers, stating that there are a few retailers the company is closely monitoring, but the list is relatively low compared to historical levels.