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Simon Property Boosts Liquidity

Zacks Equity Research

Simon Property Group, Inc. (SPG) disclosed the amendment and extension of its unsecured multi-currency revolving credit facility worth $4.0 billion. The move will enable this retail real estate investment trust (:REIT) to reduce borrowing costs and extend its debt maturity.

In particular, this new facility has a reduced interest rate of LIBOR (London Inter-Bank Offer Rate) plus 80 bps (previous being LIBOR plus 95 bps). Through an accordion feature, the facility can be amplified to $5.0 billion. Moreover, the initial maturity date of Jun 30, 2018 can be extended to Jun 30, 2019, using the one additional year option.

Additionally, this new credit facility provides Simon Property a distinctive feature to borrow loan in other currencies, apart from U.S. Dollars, such as the Canadian Dollar, Euro, Australian Dollar, Sterling and Yen.

Notably, a consortium of leading financial giants assisted Simon Property in this transaction. Among them, JPMorgan Chase & Co. (JPM) and Bank of America Merrill Lynch of Bank of America Corporation (BAC) acted as joint lead arrangers and joint bookrunners.

We expect this strategic move to improve the company’s liquidity position. Moreover, with Simon Property's significant international presence, the multi-currency borrowing feature can help it to hedge the currency fluctuation risk to some extent. As a matter of fact, Simon Property has a strong balance sheet, with increasing cash level on a year-over-year basis. As of Dec 31, 2013, the company’s cash and cash equivalents stood at $1.7 billion, up from $1.2 billion as of Dec 31, 2012.

Simon Property is scheduled to report the first-quarter 2014 results on Apr 22, before the opening bell. The Zacks Consensus Estimate for funds from operations (:FFO) for the quarter is currently pegged at $2.24 per share, representing year-over-year growth of 9.09%.

Simon Property currently carries a Zacks Rank #2 (Buy). Another well performing stock in the retail REIT industry is General Growth Properties, Inc (GGP) that has the same rank as Simon Property.

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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