1 Elephant & Other Key Takeaways- Simon Property Group Q4 Earnings Call

Simon Property Group

Chairman and CEO David Simon was pleased to discuss in minute detail what some analysts viewed as "a mixed bag" when it came to the announced numbers for Q4 and FY 2014. However, when it came to the "elephant in the room," Simon's recent 3.6 percent stake in mall rival The Macerich Company

, his answers were more circumspect as he has apparently chosen to continue to play those cards close to the vest. The Big Picture From management's perspective, Simon Property Group had a strong quarter and a great year. The company beat guidance for "an unprecedented 10 plus years in a row. Highlights included: • Record occupancy of Malls and Premium Outlets at 97.1 percent as of Dec. 31, 2014. • Overall portfolio re-leasing spreads of $9.59 per square foot, an increase of 16.6%. • Record FFO per share of $8.90, net of the Washington Prime Group

spin-out, foreign exchange and debt extinguishment charges. • Record dividend payout in 2014 of $5.20 per share. • Weighted average sales of $620 per square foot. As of December 31, 2014, Simon had over $6 billion of liquidity consisting of $1.133 billion of cash on hand, including its share of joint venture cash, and its available revolving credit capacity. Guidance - FY 2015

Dividends On Jan. 30, 2015 the quarterly dividend was increased by $0.10 to $1.40, a year-over-year increase of 12 percent. During 2015, no less than $5.60 per share will be paid to shareholders, which represents an increase of 8.7 percent over FY 2014. Balance Sheet Highlights The Simon Property Group balance sheet is "industry leading" in these four categories: 1. Ended 2014 with a debt to market cap ratio of 29 percent. 2. Net debt to EBITDA of 5.4 times. 3. Interest coverage of 3.8 times. 4. Long-term debt issuer rating of "A" and "A2." Simon became the first U.S. REIT to establish a global commercial paper program, with an initial issuance of $400 million. Notable Quotes - CEO Simon "The portfolio has never been stronger or better." Regarding more announced retailer bankruptcies compared to the same time period last year: "It doesn't change the fundamentals of our business… but 2015 is going to be a lot of work…" On guidance of 4 percent increase in same store NOI (vs 5.1 percent actual in 2014), "so it's appropriate to be conservative, we don't know when we will get the space back" [from bankrupt tenants]. Regarding the acquisitions of Jersey Gardens and University Park Village for ~$1 billion from Glimcher, "both have sales of $850 per square foot." Regarding the first new full price mall development in several years currently underway in Fort Worth featuring a flagship Neiman Marcus: "we want to build a stock that at the end of the day is certainly going to fit in the top-half of our portfolio in the long-run." Regarding the Houston Galleria and oil prices "we don't think it will have any impact." "Texas is so much more diversified than it was 20 years ago." Parsing The "Elephant In The Room" The ritualized dance of conference call questions and answers proved to be more intriguing than informative regarding additional color on the Simon investment in rival Macerich. When pressed by analyst Russ Nussbaum of UBS about "a little California company called Macerich, what can you tell us about that?" Simon's comments included: "The original stake was 4.1 percent, it got diluted down to 3.6 percent, and there is nothing more I can add to that…" However, there actually was a bit more implied in Simon's further clarification: "…we never comment on M&A activity, and we still own the stake." If it were just a passive investment, that could have been revealed, and in so doing ended any more speculation. So, at the very least, the M&A possibility remains on the table. Simon is significantly in the money on the Macerich stake, however it won't show up in the Simon P&L, (with the exception of dividends paid to Simon by Macerich).