Simon Property Group's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Simon Property Group (SPG)

Q4 2011 Earnings Call

February 03, 2012 11:00 am ET

Executives

Shelly J. Doran - Vice President of Investor Relations

David E. Simon - Chairman, Chief Executive Officer and Chairman of Executive Committee

Richard S. Sokolov - President, Chief Operating Officer, Director and Member of Executive Committee

Stephen E. Sterrett - Chief Financial Officer and Executive Vice President

Analysts

Quentin Velleley - Citigroup Inc, Research Division

Michael Bilerman - Citigroup Inc, Research Division

Jonathan Habermann - Goldman Sachs Group Inc., Research Division

David Harris

Christy McElroy - UBS Investment Bank, Research Division

Steve Sakwa - ISI Group Inc., Research Division

Paul Morgan - Morgan Stanley, Research Division

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Ki Bin Kim - Macquarie Research

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Carol L. Kemple - Hilliard Lyons, Research Division

Cedrik Lachance - Green Street Advisors, Inc., Research Division

Benjamin Yang - Keefe, Bruyette, & Woods, Inc., Research Division

Gautam Desai

James W. Sullivan - Cowen and Company, LLC, Research Division

Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division

Wes Golladay - RBC Capital Markets, LLC, Research Division

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Jeffrey Spector - BofA Merrill Lynch, Research Division

Craig R. Schmidt - BofA Merrill Lynch, Research Division

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Simon Property Group Earnings Conference Call. My name is Cathy, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today's call to Ms. Shelly Doran, Vice President of Investor Relations. Please proceed.

Shelly J. Doran

Good morning, and welcome to Simon Property Group's Fourth Quarter 2011 Earnings Conference Call. Please be aware that statements made during this call may be deemed forward-looking statements, and actual results may differ materially from those indicated by forward-looking statements due to a variety of risks, uncertainties and other factors. Please refer to our filings with the SEC for detailed discussion. Acknowledging the fact that this call may be webcast for some time to come, we believe it is important to note that our call includes time sensitive information that may be accurate only as of today's date, February 3, 2012.

During today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included within the earnings release or the company's supplemental information package that was included in this morning's form 8-K. This package is also available on the Simon website, in the Investors section.

Participating in today's call will be David Simon, Chairman and Chief Executive Officer; Rick Sokolov, President and Chief Operating Officer; and Steve Sterrett, Chief Financial Officer. I will now turn the call over to Mr. Simon.

David E. Simon

Good morning. We reported FFO of $1.91 per diluted share for the quarter, which represents an increase of 6.1% over FFO in the fourth quarter of 2010. FFO for the fourth quarter was $0.065 higher than the midpoint of our increased guidance range provided in October of 2011 with our third quarter results. These results exceeded the First Call consensus by $0.01 per share, and we have now met or exceeded expectations for 30 of the past 32 quarters, which is an 8-year run. This quarter capped off a great 2011 for SPG, our FFO growth per share was 14% for the year, expected to be amongst the highest of all the REITs. Our FFO of $6.89 per share was $0.365 higher than the midpoint of our original guidance provided in February of 2011.

For our malls and outlets, total sales on a rolling 12-month basis were $536 per square foot, up 10.7% from $484 as of December 31, 2010. Occupancy was 94.8%, which was 30 basis points higher than the year-earlier period and 90 basis points higher than the end of the third quarter. The releasing spread for the rolling 12 months was $5.20 per square foot, a positive of 10.5%. Our releasing spread continues to grow at a steady pace as deal quality continues to improve. Resulting -- the following resulted in our comparable property net operating income growth of 4.5% for the quarter, which had a positive impact from overage rent and our year comp NOI growth came in at 3.4%.

During the fourth quarter and subsequent to year end, we completed several property transactions. We dissolved our joint venture with the Macerich Company and exchanged our 15% ownership interest in 6 malls and 1 community center with them for their ownership interest in 5 malls and 1 community center. No cash was exchanged other than customary net working capital adjustments. We disposed of our interest in 3 properties; Gwinnett Place, Factory Merchants Branson and Crystal River Mall, and this transaction led to a reported gain as disclosed in the financial statements.

For the full year 2011, we invested approximately $1.8 billion in acquisition activities with the acquisition of one property and the acquisition of initial ownership interest or increases in ownership interest in 12 properties. For the full year, we disposed of our interest in 10 malls, 3 outlets and one community center for a total value of $550 million. And during January 2012, we acquired an additional 25% ownership interest in Del Amo fashion center, which now increases our ownership interest to 50%. We're extremely excited about the upside potential from this transaction given the redevelopment opportunities that exist there. And also in January, we sold our 49% interest in GCI, which is our Italian interest investment. As a result of this transaction, we no longer own any interest or any assets in Italy. We received aggregate proceeds of $378 million for our equity interest, and we will report a gain in the first quarter of 2012 associated with this transaction.

On development, we opened one new development in the fourth quarter. Johor Premium Outlets in Malaysia, it's 100% leased. Initial sales are very good, and we plan on working on Phase 2 of that transaction -- that development. We also have, as you know, 2 new outlet projects under construction in Merrimack, New Hampshire and Southeast Houston, Texas. Both will open later this year. We currently have 23 renovation and expansion projects under construction in the U.S. with completion dates scheduled for 2012 and 2013, including which is the major restoration of Opry Mills, which is scheduled to open March 29 of this year. We are very excited about that. That event has been a long tough road to get that mall back to where it will be a very productive asset for us.

In 2011, we spent approximately $400 million in new development, redevelopment and renovation activities. We have identified 20 new development, expansion and renovations where we expect to begin construction in 2012. Three that I want to highlight, importantly, in our Premium Outlets projects. First, today in fact, or maybe yesterday, depending on how you're thinking about Korea's time zone, but we marked the groundbreaking of a 240,000 square-foot outlet center in Busan in Korea, which is scheduled to open in the fall of 2013. It will be our third project in Korea. We also will begin construction in April of our 360,000 square-foot Phoenix Premium Outlet Center, which will open in the spring of 2013. Additionally, we plan to begin construction of our 360,000 square-foot premium outlet in Toronto this spring with our partner Callaway, and that will open in summer of 2013.

We're seeing very good value creation opportunities in these new developments and redevelopment projects, and we are anticipating spending $1 billion in 2012 with all the activity that's going on. That estimated rate, at this point, we anticipate being approximately $1 billion in 2013 and $1 billion in 2014. As always, as construction commences, we'll detail all the cost returns and timing for these projects in our supplemental reporting package.

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