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Simon Property Group reports Q3 results, 33% increase in quarterly dividend

Simon (SPG) LogoINDIANAPOLIS, Ind. — Simon Property Group, Inc. (NYSE: SPG) today announced results for the quarter ended September 30, 2010.

Net income attributable to common stockholders was $230.6 million, or $0.79 per diluted share, in the third quarter of 2010 as compared to $105.5 million, or $0.38 per diluted share, in the prior year period. Third quarter 2010 results reflect the impact of transaction expenses of $47.6 million, or $0.14 per share, as well as the following transactions:

  • In July, Simon sold its interests in a European joint venture resulting in a gain of $281.3 million, or $0.80 per diluted share.
  • In August, the company completed the successful tender of $1.3 billion of unsecured debt resulting in a loss on extinguishment of debt of $185.1 million, or $0.53 per diluted share.

Funds from Operations (“FFO”) as adjusted was $503.6 million, or $1.43 per diluted share, in the third quarter of 2010 as compared to $473.1 million, or $1.38 per diluted share, in the prior year period. FFO as adjusted reflects the impact of the above-described transaction expenses of $0.14 p er share, but excludes the gain on sale of interests in a European joint venture of $0.80 per share and the debt extinguishment charge of $0.53 per share.  FFO including the debt extinguishment charge was $318.5 million, or $0.90 per diluted share.

“I am very pleased with our quarterly results and with today’s significant dividend increase,” said David Simon, Chairman and Chief Executive Officer. “Operating performance was strong as our U.S. regional mall and Premium Outlet portfolio generated comparable property net operating income growth of 3.6% in the third quarter. Our tenants also experienced a strong 10.6% increase in sales in the quarter as compared to the third quarter of 2009.”

“It was also an eventful quarter, with the completion of several significant transactions including the acquisition of the Prime Outlets portfolio and the sale of our interests in Simon Ivanhoe. In addition, we continued enhancing our conservative balance sheet with the August $1.3 billion senior unsecured notes tender and $900 million notes issuance, extending the duration of our senior notes portfolio while decreasing the weighted average interest,” Simon said.

    
    U.S. Operational Statistics(1) 
    
    
                                       As of             As of
                                   September 30,     September 30,
                                        2010              2009
                                  --------------    --------------
    Occupancy(2)                        93.6%             92.8%
    Comparable Sales per 
     Sq. Ft. (3)                        $483              $449
    Average Rent per Sq. Ft. (2)      $38.69            $38.35
    
  1. Combined information for U.S. regional malls and U.S. Premium Outlets. Does not include information for properties owned by SPG-FCM (the Mills portfolio) or the properties included in the Prime Outlets Acquisition Company transaction.
  2. Represents mall stores in regional malls and all owned gross leasable area in Premium Outlets.
  3. Rolling 12 month comparable sales per square foot for mall stores less than 10,000 square feet in regional malls and all owned gross leasable area in Premium Outlets.

Dividends

Today the Company announced that the Board of Directors approved the declaration of a quarterly common stock dividend of $0.80 per share, an increase of 33%. This dividend is payable on November 30, 2010 to stockholders of record on November 16, 2010.

The Company also declared the quarterly dividend on its 8 3/8% Series J Cumulative Redeemable Preferred (NYSE: SPGPrJ) Stock of $1.046875 per share, payable on December 31, 2010 to stockholders of record on December 17, 2010.

Acquisitions

On August 30th, the Company announced the completion of its transaction with Prime Outlets Acquisition Company and certain of its affiliated entities (“Prime”). The Prime transaction consists of 21 outlet center properties, including the Barceloneta, Puerto Rico outlet center which Simon acquired in May of this year. As of September 30, 2010, the centers were 94.7% occupied with average base rents of $24.52 per square foot, and they generated sales per square foot of $406.

The completed transaction was valued at approximately $2.3 billion including the assumption of approximately $1.2 billion of existing mortgage debt.

In connection with the transaction, the Company signed a proposed Consent Agreement with the Staff of the Federal Trade Commission (“FTC”). The Consent Agreement is subject to review and approval by the Commissioners of the FTC.

Dispositions

On July 15th, the Company and Ivanhoe Cambridge completed the sale of their interests in Simon Ivanhoe to Unibail-Rodamco. The Company and Ivanhoe Cambridge each owned 50% interests in Simon Ivanhoe, which owns seven shopping centers in France and Poland. Simon and Ivanhoe Cambridge received consideration of euro 715 million for their interests. Simon recorded a gain on this transaction of $281.3 million in the third quarter.

Simon and Ivanhoe Cambridge entered into a joint venture with Unibail-Rodamco to pursue the development of four new retail projects in France. The Company has a 25% interest in this venture with the ability to determine, on a project by project basis, whether to retain its ownership interest in each project.

Capital Markets

On August 9th, the Company commenced an any and all cash tender offer for three issues of outstanding senior unsecured notes of its operating partnership subsidiary, Simon Property Group, L.P., or SPGLP, maturing in 2013 and 2014. On August 17th, the Company announced that approximately $1.33 billion of notes were tendered and accepted for purchase. These notes had a weighted average remaining duration of 3.5 years and a weighted average coupon of 6.06%. A $185.1 million charge to earnings and FFO was recorded in August of 2010 in connection with this transaction.

Also, on August 9th, the Company announced the sale by SPGLP of $900 million of senior unsecured notes in an underwritten public offering. The offering consisted of $900 million of 4.375% notes due 2021. The notes were priced at 99.605% of the principal amount to yield 4.42% to maturity. This was the lowest coupon for a 10-year REIT bond offering in history. Net proceeds from the offering were used to partially fund the cash purchase of the senior unsecured notes tendered.

The aggregate result of the tender offer, combined with the sale of unsecured notes, was an extension of the duration of our senior notes portfolio from 6.8 years to 7.5 years and a decrease in the weighted average interest rate of the Company’s bond portfolio.

As of September 30, 2010, the Company had approximately $1.3 billion of cash on hand, including its share of joint venture cash, and an additional $3 billion of available capacity on SPGLP’s corporate credit facility.

Development Activity

The 100% leased, 62,000 square foot expansion of Toki Premium Outlets in Toki, Japan, opened on July 14, 2010. The Company owns a 40% interest in this center.

During the third quarter, construction started on two upscale outlet centers:

  • Johor Premium Outlets, a 175,000 square foot center located in Johor, Malaysia. The center is located one hour’s drive from Singapore and is projected to open in November of 2011.  The Company owns 50% of this center in a joint venture with the Genting Group.
  • Merrimack Premium Outlets in Merrimack, New Hampshire. This 380,000 square foot center is located one hour north of metropolitan Boston and is projected to open in June of 2012. The Company owns 100% of this center.

Construction continues on the following projects:

  • A 116,000 square foot expansion of Houston Premium Outlets in Cypress (Houston), Texas. The expansion will be anchored by Saks Fifth Avenue Off 5th and is scheduled to be completed in November of 2010. The Company owns 100% of this center.
  • A 70,000 square foot expansion of Las Vegas Outlet Center in Las Vegas, Nevada, expected to open in March of 2011.  The Company owns 100% of this center.
  • Paju Premium Outlets, a new 328,000 square foot upscale outlet center with approximately 160 shops, located north of Seoul, South Korea. This will be the Company’s second Premium Outlet Center in South Korea and is expected to open in April of 2011.  The Company owns a 50% interest in this project.
  • A 52,000 square foot expansion of Tosu Premium Outlets in Fukuoka, Japan, expected to open in July of 2011. The Company owns a 40% interest in this project.

2010 Guidance

Today the Company provided updated guidance for 2010, estimating that FFO as adjusted will be within a range of $5.90 to $5.95 per diluted share for the year ending December 31, 2010, an increase of $0.13 in the low end and an increase of $0.08 in the high end of guidance provided on July 30, 2010. FFO as adjusted excludes the loss on extinguishment of debt charges of $350.7 million ($1.00 per diluted share) related to SPGLP’s January and August tender offers. After giving effect to these charges, the Company expects 2010 FFO per diluted share to be within a range of $4.90 to $4.95. Diluted net income is expected to be within a range of $2.03 to $2.08 per share.

This guidance is a forward-looking statement and is subject to the risks and other factors described elsewhere in this release.

The following table provides the reconciliation of the range of estimated diluted net income available to common stockholders per share to estimated diluted FFO per share and estimated diluted FFO per share to estimated diluted FFO as adjusted per share.

    
    For the year ending December 31, 2010
    -------------------------------------
                                                         Low        High
                                                         End         End
                                                         ---         ---
    
    Estimated diluted net income available to common
     stockholders per share                             $2.03       $2.08
    
    Depreciation and amortization including the
     Company's share of joint ventures                   3.80        3.80
    
    Gain upon acquisition of controlling interest, and
     on sale or disposal of assets and interests in
     unconsolidated entities                            (0.92)      (0.92)
    
    Impact of additional dilutive securities            (0.01)      (0.01)
                                                         -----       -----
    
    Estimated diluted FFO per share                     $4.90       $4.95
    
    Charges in connection with January and August 
     2010 tender offers                                  1.00        1.00
                                                         ----        ----
    
    Estimated diluted FFO as adjusted per share         $5.90       $5.95
                                                        =====       =====
    

Conference Call

The Company will provide an online simulcast of its quarterly conference call at www.simon.com (Investors tab), www.earnings.com, and www.streetevents.com. To listen to the live call, please go to any of these websites at least fifteen minutes prior to the call to register, download and install any necessary audio software. The call will begin at 11:00 a.m. Eastern Time (New York time) today, November 1, 2010. An online replay will be available for approximately 90 days at www.simon.com, www.earnings.com, and www.streetevents.com. A fully searchable podcast of the conference call will also be available at www.REITca fe.com.

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