Nation's largest owner of malls posts strong performance
If the fourth quarter financial results of Indiana-based Simon Property Group Inc. – the nation’s largest owner of shopping malls in the US – are any indication, commercial real estate remains strong even amid inflationary pressures.
The company reported $1.4 billion in revenue for the quarter ended December 2022, a year-over-year increase of 5.6%. Earnings per share rose to $3.15 for the period, versus $1.53 the year prior. The company posted gains in other key measures, including revenue - management fees and other revenues of $31.85 million – beating Wall Street expectations of $28.79 million; and revenue - other income of $80.90 million, beating expectations of $71.59 million in a year-over-year change of +10.6%.
Top executive details financial results
David Simon, the company’s chairman, president, and chief executive officer, detailed certain aspects of financial performance in an earnings call. “We generated approximately $4.5 billion in FFO [funds from operations] in 2022 or $11.95 per share,” he began. “On a comparable basis, full year FFO per share was $11.87, an increase of 3.8% year over year.”
Simon credited the strong performance to the quality of the company’s portfolio, a “relentless focus on operational and cost structure,” disciplined capital allocation and a commitment to the company’s shoppers and communities.
Inflation’s impact was minimal
Yet the specter of inflation emerged last year after a banner year for retail, and the company didn’t emerge fully unscathed, he suggested: “2021 was a great year for our retailers,” Simon noted. “However, in 2022, Forever 21 and JCPenney were affected by inflationary pressures, and consumers reducing their spend. Despite not achieving the same profitability that we did in 2021, we are pleased on how we and the management teams dealt with the unanticipated external environment.”
Mall vacancy levels remained low: “Occupancy for malls and outlets at the end of the fourth quarter was 94.9%, an increase of 150 basis points compared to prior year and an increase of 40 basis points sequentially,” Simon said. “Renewals occupancy was 98.2%, and TRG was 94.5%. Average base minimum rent was $55.13 per foot, an increase of 2.3% year over year. For the year, we signed 4,100 leases for more than 14 million square feet.”
Simon provided context to illustrate company growth: “Over two years, we’ve now signed 8,000 leases for more than 29 million square feet, and we have a significant number of leases in our pipeline that will open for late 2023 and 2024 openings,” he told shareholders. “Reported retailer sales momentum continued. We reached another record in the fourth quarter at $753 per square foot with the malls and outlets combined, an increase of 6% year over year. All platforms achieved record sales levels, including the mills - it’s $679 per square foot which was a 5% increase.”
Foreign developments part of the mix
The company hasn’t limited its commercial real estate development efforts to the US, and Simon mentioned a couple of international milestones during his talk with shareholders. A tenth premium outlet was opened last year in Japan, and construction continued for a new outlet just west of Paris in Normandy, France, that will be the firm’s second outlet in that European market and its 35th international outlet.
The company was also busy with refinancing: “We completed refinancing on 20 property mortgages for a total of $2.3 billion at an average interest rate of 5.33%,” Simon said. “Our A-rated balance sheet is as strong as ever. Our fixed coverage ratio is 4.8 times, and we ended the year with approximately $7.8 billion of liquidity. In 2022, we paid approximately $2.6 billion of common stock dividends in cash.”
In summation, Simon seemed gratified to have posted a strong quarter despite the shifting economic landscape: “To conclude, we had another excellent year, effectively navigating external headwinds and that included rising interest rates, strong US dollars inflation, and a somewhat softening economy,” he said. “We have consistently posted industry-leading results through our hard work, innovation, great people, and great assets, and we continue to be excited about our plans for 2023.”
