Simon Property Group (SPG)
Simon Property Group (NYSE:SPG) is a real estate investment trust (REIT) that develops and leases retail real estate, specifically regional malls, shopping centers, and strip malls. Simon Property Group currently owns or has an interest in over 379 properties comprising over 256 million square feet of gross leasable area across investments in the U.S., Europe, and Asia,[1] making it the largest public U.S. real estate company.[2]
Simon Property Group's investments tend to be in large metropolitan areas with very high consumer traffic and are comprised of anchor department stores alongside smaller retailers. Since Simon Property Group's holdings are substantially retail properties, it is particularly affected by the willingness of retailers to lease space in shopping centers. Simon Property Group relies on high consumer retail demand so that retailers have high demand to lease space in its malls so that it can negotiate higher rents. This is especially true with tenants of smaller retail stores in Simon Property Group's malls, many of which are on short-term leases of several months to a year, as opposed to the tenants of anchor department stores that are under leases of 5-10 years.[3]
[edit] Company Overview
The company's major platforms include:
- Regional Malls - 171 generally enclosed centers that range in size from 400,000 to 2,000,000 square feet of gross leasable area and contain one or more anchor big box retailers alongside smaller stores (675 anchors and 17,800 retailers in aggregate).[4]
- Premium Outlet Centers® - 36 centers that range in size from 200,000 to 600,000 square feet of gross leasable area. These centers are generally located near metropolitan areas (e.g. New York City, Los Angeles, Chicago, Boston, Washington D.C., and San Francisco) or major tourist destinations (e.g. Palm Springs, Napa Valley, Orlando, Las Vegas, and Honolulu).[5]
- Community/lifestyle - 69 centers that range in size from 100,000 to 600,000 square feet. These are designed to serve a larger trade area, typically containing anchor stores and other tenants that are usually national retailers. Simon Property Group also includes within this division traditional community shopping centers that are anchored by a supermarket, discount retailer, or drugstore and are designed to service a neighborhood area; and open-air centers adjacent to regional malls designed to take advantage of the drawing power of its malls.[6]
 Operating Percentage of Owned Property by Gross Leasable Area - 2006 Data [7]- International Properties - European investments include 41 properties partially owned in Italy in a joint venture with Gallerie Commerciali Italia, S.p.A. ("GCI"), and 12 properties partially owned in France and Poland in a joint venture with Simon Ivanhoe S.à.r.l. Nearly all of Simon Property Group's European properties are anchored by a hypermart, such Auchan in Italy and Carrefour in France and Poland. Other foreign investments include five Premium Outlet Center joint ventures in Japan with 1.4 million square feet of gross leasable area in aggregate, and a Premium Outlet Center in Mexico.[8] Simon Property Group has also begun construction on a Premium Outlet center in which it will hold a 50% interest located in South Korea, and, through a joint venture arrangement, will have a 32.5% interest in five shopping centers in China.[9]
 Gross Leaseable Area by Country - 2006 Data [10]
Overall, Simon Property Group currently owns or has an interest in 379 properties comprising 256 million square feet of gross leasable area in North America, Europe, and Asia.[11]
Since 2002, Simon Property Group's revenues have been rising steadily although its operating income has remained roughly stable. This has been largely due to an increase in depreciation and amortization expense from the net effect of property transactions, and changes in market rents for its properties.[12]
 Operating Revenue vs. Operating Income 2002 - 2006 [13][edit] Key Trends and Forces
- Rising interest rates make SPG's debt more expensive: A significant increase in interest rates could lead holders of our Simon Property Group's securities to seek higher yields through other investments, which could adversely affect its stock price. Rising interest rates could also adversely affect the amount of interest Simon has to pay on loans it uses for real estate development. As of December 31, 2006, approximately $800 million of Simon's debt was subject to floating interest rates, about 5.2% of the total. Simon had paid $821 million in interest expense in 2006, which accounted for 29% of its total expenses for that year at about 2.75 billion and 25% of its total revenues at about 3.33 billion. [14] Total debt increased from 14.1 billion to 15.4 billion over 2006, leading to a $22.8 million increase in interest expense. This number was lower than the change is 2005 number, at a $145.3 million increase, perhaps due to Simon Property Group locking into new loans at more favorable rates while divesting in properties with higher rates.[15] $1.7 million of this debt matured in 2007. In a rising interest rate environment, such as between 2003 and 2007, these interest expense costs will increase.
- Retail climate affects demand for leased space: Since Simon Property Group's holdings are substantially retail properties, Simon Property Group is particularly affected by the cycles and risks inherent to the retail environment, such as levels of consumer spending, seasonality, the willingness of retailers to lease space in shopping centers, tenant bankruptcies, changes in economic conditions, and consumer confidence. These factors affect occupancy rates and ultimately rents collected for the properties Simon Property Group owns.[16] Although the company is somewhat shielded from cyclical effects by its larger tenants which have long-term contracts of 5 to 10+ years, many of its smaller clients have leases for a year or less.
- International expansion leads to new opportunities: Simon Property Group has increasingly been making investments outside the U.S. to take advantage of booming real estate markets abroad. It owns an interest in approximately 50 European shopping centers in France, Italy, and Poland; six Premium Outlet Centers in Japan; and one Premium Outlet Center in both South Korea and Mexico. The Company also has seven international development projects under construction: three in Italy and four in China.[17] International expansion helps Simon Property Group hedge its risk against downturns in U.S. real estate markets.
[edit] Competition
Simon Property Group's direct competition comes from other United States Retail REITs. Competing REITs with significant retail holdings in the U.S. include:
- General Growth Properties (GGP) has ownership interests in and/or management responsibility across regional shopping malls totaling over 200 million square feet of retail space with 24,000 retail stores and anchor department stores, as well as theaters, sit-down restaurants, ice skating rinks, and other forms of family entertainment.[24]
- Vornado Realty Trust (VNO) is a diversified REIT with a portfolio of approximately 64 million square feet, primarily located in the New York and Washington, DC metro areas, markets with high barriers to entry due to limited buildable land and tough building regulations. Entry into these difficult markets helps give Vornado its competitive advantage. [25]
- Macerich Company (MAC) focuses on shopping centers particularly in Arizona, California, the New York City metropolitan area, and suburban Washington, D.C. Its holdings include 73 centers with over 77 million square feet of space.[26]
- Taubman Centers (TCO) has a portfolio of 20 properties mostly consisting of super-regional malls with more than 800,000 square feet. Taubman also has a significant division in Asia, where it develops malls with local partners.[27]
- CBL & Associates Properties (CBL) is an active developer of new regional malls, open-air centers, lifestyle and community centers that owns, holds interests in, or manages 136 properties including 83 enclosed malls and open-air centers. Their strategy focuses on acquisition of regional malls.[28]
- Glimcher Realty Trust (GRT) owns and/or manages a total of 28 properties in 15 states aggregating approximately 22.7 million square feet of gross leasable area. Of the 28 properties, 24 are enclosed regional or super-regional malls aggregating 21.7 million square feet.[29]
2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available
[edit] Market Share
Globally among retail REITs, Simon Property Group's market share is about 17%.
- Westfield Group is the largest retail property group is the world with a portfolio of 119 shopping centers across Austrailia, the U.S., New Zealand, and the United Kingdom, valued at $53.2 billion.[34]
- General Growth Properties (GGP) has ownership interests in and/or management responsibility across regional shopping malls totaling over 200 million square feet of retail space with 24,000 retail stores and anchor department stores, as well as theaters, sit-down restaurants, ice skating rinks, and other forms of family entertainment.[35]
- Kimco Realty (KIM) is largest publicly traded owner and operator of neighborhood and community shopping centers in the U.S., with more than 1,519 properties comprising 180 million square feet of leasable space across 45 states, Puerto Rico, Canada, Mexico and Chile.[36]
[edit] References
- ↑ Simon Property Group company website - About Us
- ↑ Simon Property Group company website - About Us
- ↑ SPG 2006 10-K, Item:1A, page 12
- ↑ SPG 2006 10-K, Item:2, page 15
- ↑ SPG 2006 10-K, Item:2, page 16
- ↑ SPG 2006 10-K, Item:2, page 16
- ↑ SPG 2006 10-K, Item:2, pages 30-36
- ↑ SPG 2006 10-K, Item:2, page 33
- ↑ SPG 2006 10-K, Item:1, page 3
- ↑ SPG 2006 10-K, Item:2, page 16
- ↑ Simon Property Group company website - About Us
- ↑ SPG 2006 10-K, Exhibit 13, Management's Discussion and Analysis of Financial Condition and Results of Operations, page 73
- ↑ SPG 2006 10-K, Exhibit 13, Selected Financial Data, page 63
- ↑ SPG 2006 10-K, Exhibit 13, Management's Discussion and Analysis of Financial Condition and Results of Operations, page 73
- ↑ SPG 2006 10-K, Exhibit 13, Management's Discussion and Analysis of Financial Condition and Results of Operations, page 75-76
- ↑ SPG 2006 10-K, Item:1A, page 12
- ↑ Simon Property Group company website- International Properties page
- ↑ SPG 2006 10-K, Exhibit 13, United States Portfolio Data, page 66
- ↑ VNO 2006 10-K, Item:2, page 34
- ↑ MAC 2006 10-K, Item:2, page 26
- ↑ TCO 2006 10-K, Item:2, page 7
- ↑ CBL 2006 10-K, Item:7, page 42
- ↑ GRT 2006 10-K, Item:1, page 4
- ↑ VNO Company Site - About Us
- ↑ VNO Company Site - About Us
- ↑ Macerich Company website - About Us
- ↑ Hoovers: Taubman Centers company overview
- ↑ CBL Properties company website - About Us
- ↑ Glimcher company website - Company Profile
- ↑ 30.0 30.1 30.2 KIM,2007,10-K,Item-6,Page-38
- ↑ 31.0 31.1 KIM,2007,10-K,Item-8,Page-70
- ↑ 32.0 32.1 32.2 32.3 32.4 MAC,2007,10-K,Item-6,Page-34
- ↑ Datamonitor Industry Market Research: Global - Retail REIT's
- ↑ Westfield Group company website - Company Profile
- ↑ VNO Company Site - About Us
- ↑ Kimco Company Website - About Kimco
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