Simon Property Group's (SPG) CEO David Simon on Q2 2014 Results - Earnings Call Transcript

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Simon Property Group, Inc. (SPG) Q2 2014 Earnings Conference Call July 23, 2014 11:00 AM ET

Executives

Liz Zale – Senior Vice President - Corporate Affairs and Communications

David Simon – Chairman and Chief Executive Officer

Stephen Sterrett – Senior Executive Vice President and Chief Financial Officer

Richard Sokolov – Director, President and Chief Operating Officer

Analysts

Christy McElroy – Citigroup Global Markets Inc.

Jeff Spector – Bank of America Merrill Lynch

Craig Schmidt – Bank of America Merrill Lynch

Ki Bin Kim – SunTrust Robinson Humphrey

Ross Nussbaum – UBS Securities LLC

Alexander Goldfarb - Sandler O’Neill

Jeff Donnelly – Wells Fargo Securities LLC

Haendel St. Juste – Morgan Stanley

Tayo Okusanya – Jefferies LLC

Andrew Rosivach – Goldman Sachs

Paul Morgan – MLV & Co.

Michael Mueller – JPMorgan

Jeremy Roane – Hilliard Lyons

Ben Yang – Evercore Partners

Richard Moore – RBC Capital Markets

Michael Bilerman – Citigroup Global Markets Inc.

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2014 Simon Property Group Incorporated Earnings Conference Call. My name is Katina and I’ll be your coordinator for today. At this time all participants are in listen-only mode. Later, we will facilitate a question-and-answer session. (Operator Instructions)

As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call, Ms. Liz Zale, Senior Vice President of Corporate Affairs. Please proceed.

Liz Zale

Thank you. Good morning, everyone. Welcome to Simon Property Group Second Quarter 2014 earnings conference call.

Presenting on today’s call is David Simon, our Chairman and Chief Executive Officer, Rick Sokolov, our President and Chief Operating Officer and Steve Sterrett, our Chief Financial Officer, and we are also joined by Andy Juster, our current Treasurer and incoming CFO.

Before we begin, just a quick reminder that statements made during this call may be deemed forward-looking statements within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995 and actual results may differ materially due to a variety of risks, uncertainties and other factors. We refer you to today’s press release and our SEC filings for a detailed discussion of forward-looking statements.

Please note that this call includes information that may be accurate only as of today’s date and reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today’s Form 8-K filing. Both the press release and the supplemental information are also available on our IR website at investors.simon.com.

Also due to the completion of the Washington Prime spin-off during the second quarter we are providing operating statistics for the prior year period to show performance on a comparable basis, excluding the Washington Prime properties which is in our supplemental 8-K.

And now for our prepared remarks I’m pleased to introduce David Simon.

David Simon

Good morning. It was a very eventful and productive quarter. We completed the spin-off of Washington Prime Group. We re-launched our brand to create a whole new way to engage with consumers and most important we continue to produce strong operating and financial performance.

Results in the quarter were led by FFO of $2.16 per share exceeding the first call consensus estimate by $0.03 per share. Excluding the operating results from the WPG properties and the transaction costs related to that spend, FFO increased 12.8% year-over-year for the second quarter.

As a point of interest if we exclude the transaction costs related to the spin, our FFO would have been approximately $2.26 for the quarter. And I would like to take a moment and put that number into perspective.

I’ll remind you that our second quarter 2010 FFO was $1.38 per share. So the quarterly profitability of Simon Property Group has increased by $0.88 per share, or $320 million quarter-over-quarter since then. Overall, business conditions remain favorable, driving the increases in our key operating metrics in our cash flow. We continue to see strong demand for space across our portfolio, occupancy ended up in malls, premium outlets and the mills.

The Malls and Premium Outlets recorded increased leasing spreads to $11.06 per square foot. The mills recorded leasing spreads of $12.74 per square foot. And for those of you, who are interested, comparable property sales were up 90 basis points for the quarter and the movement from sales per square foot of $6.12 – I’m sorry, $612 a year ago to $608 is solely related to bringing on several new projects totaling 2.16 million square feet.

Comp NOI, of course, which I’m more interested increased 5.6% in the second quarter and is up 5.5% year-to-date and over 95% of our domestic NOI is included in our comp NOI calculation. And as a reminder, our comp NOI in 2013 Q2 was over 5%. So that’s 5.6% over 5%. These results are a testament to the strength of our assets, the desirability of our locations, and our ability to execute.

So let’s look a little forward, Charlotte Premium Outlets is opening on July 31, and is fully leased. Twin Cities Premium Outlets in Minneapolis will open August 14, and is fully leased. Construction continues on new Premium Outlet developments in Montreal and Vancouver, both high quality major markets, and Montreal will open in the fourth quarter.

Formal groundbreaking at Gloucester Premium Outlets, a new 375,000 square foot center in Southern New Jersey that serves a greater Philadelphia area is scheduled for August 7. Other new outlet projects in our development pipeline are moving forward, but we are being very selective and focus on major markets and where there is clear demand from the retailers and manufacturers that matter.

Now, in the quarter, just turning to redevelopment and expansion, we did open successfully a 147,000 square foot expansion in Desert Hills Premium Outlets making it one of the 10 largest outlet centers in the world. Lenox had its re-grand opening including the renovation of the exterior and The Fashion Cafés and the addition of several new restaurants including True Foods, redevelopment expansions, are ongoing at 32 properties across all of our three platforms in the U.S., Asia, and Mexico, which will continue to expand and enhance some of our most productive properties.

As a reminder, construction is ongoing in some of our most productive properties including Del Amo, Roosevelt Field, Woodbury Common Premium Outlets, Houston Galleria, Stanford Shopping Center, and St. Johns Town Center. We also started construction on a significant mall redevelopment at Fashion Center at Pentagon City, which will add 50,000 square feet of small shop space including restaurants.

And as you’ve seen recently, we’ve started the construction of the expansion of Chicago Premium Outlets, which will add 260,000 square feet, as well as a Shisui Premium Outlet in Japan that will add a 130,000 square feet. So put it altogether as we said, it’s over $1 billion through 2016. And it’s affecting some of the most productive assets, not only in this country but in the world.

Now, capital markets, just briefly we did amend and extend our $4 billion unsecured multi-currency revolving credit facility with a June 2019 final maturity at LIBOR plus 80 basis points which is a tighter spread in our industry. We as planned, we retain $1 billion of cash proceeds from the debt placed on the WP assets prior to the spin.

We also announced a dividend of a $1.30 per share for this quarter, which is a 13% year-over-year increase. We will pay at least at SPG $5.15 per common share at SPG and we revised our guidance that we issued May 29, 2014 to a $1 – to $9.01 to $9.11 from a range of $8.96 to a $9.06 which raises both the top and bottom range by $0.05.

Just to turn to management, Andy is here, will be our next CFO. Steve Yalof will join as CEO of our premium outlet business. Andy has been instrumental building the strength of our industry leading balance sheet, will maintain that focus. And Steve is a well respected retail real-estate executive who enhances our team and brings a unique perspective with his diverse retail background. I look forward to working closely with both of them.

So, sum it up, great first-half of the year and we’re absolutely focused on enhancing the value of our real estate which is being executed on daily, producing the results that we’re hoping for. Questions?

Liz Zale

Operator, (inaudible) for questions, thank you.

Operator

Thank you.

Earnings Call Part 2:

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