Q4 2024 Earnings Summary
- Simon Property Group has a history of exceeding its conservative guidance. While they have guided to at least 3% domestic property NOI growth for 2025, they have consistently achieved growth above 4% in past years, indicating potential for outperformance.
- The company sees significant upside potential in occupancy levels, aiming to return to their record-high occupancy of 97.1% from 2014. Achieving this would drive further revenue and NOI growth.
- SPG is investing in redevelopment and re-tenanting opportunities in their B malls, where they are achieving returns of around 12%, higher than the 8–9% returns in A projects. This indicates strong potential for value creation and NAV accretion.
- The company anticipates increased net interest expense of between $0.25 to $0.30 per share in 2025 due to current market interest rates and projected cash balances, which may negatively impact funds from operations (FFO).
- The performance of Catalyst Brands is uncertain, with expectations of roughly breakeven FFO in fiscal 2025 due to potential restructuring costs, which may not contribute positively to earnings in the near term.
- A higher percentage of leases (about 5%) are still month-to-month compared to pre-COVID levels, indicating potential leasing uncertainty and instability in occupancy rates.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +91% (from $1,527,438K in Q4 2023 to $2,914,871K in Q4 2024) | A dramatic increase in total revenue is observed in Q4 2024 compared to Q4 2023. While earlier quarters (e.g., Q3) benefited from higher lease and other income sources , the Q4 leap suggests an expansion of revenue streams, potential portfolio additions or reclassification of revenues that nearly doubled the recognized amount. |
Operating Income | +5.5% (from $792,139K in Q4 2023 to $835,746K in Q4 2024) | Operating income grew moderately due to sustained operational performance and efficiency improvements likely driven by similar drivers as seen in prior periods—such as increased lease income and controlled expenses—though the growth in revenue was not fully translated into operating profit, indicating rising operational costs remain a factor. |
Net Income | –62% (from $1,084,709K in Q4 2023 to $410,297K in Q4 2024) | Net income declined markedly despite higher top line growth. Previous periods benefited from one-time non-cash gains—such as the $118.1M gain from the partial sale of SPARC interest noted in Q3—that boosted net income, whereas Q4 2024 instead recorded significant non-cash losses (e.g. mark-to-market adjustments) that severely impacted bottom line profitability. |
EPS | –11% (from $2.30 in Q4 2023 to $2.04 in Q4 2024) | Earnings per share fell by 11% as a result of the decline in net income, reflecting the impact of non-cash adjustments and the absence of prior period gains. While operational performance metrics (like NOI improvements) remained robust, the dilution effect from losses (and possibly share count changes) contributed to the lower EPS compared to Q4 2023. |
Capital Expenditures | Shift from +$178,289K in Q4 2023 to –$1,293,298K in Q4 2024 | Capital expenditures reversed dramatically in Q4 2024. In previous periods, SPG was actively investing in redevelopment, new development, tenant allowances, and operations , but the Q4 2024 negative figure suggests either large-scale asset dispositions, reclassifications, or a strategic shift to curtail further capital outlays, reflecting optimized capital allocation. |
Net Change in Cash | From +$399,96K in Q4 2023 to –$769,757K in Q4 2024 | Net cash turned negative in Q4 2024 compared to a slight positive in Q4 2023. This reversal is likely the result of heavy capital deployment, changes in investing and/or financing activities, and lower operating cash generation—contrasting the more balanced cash flows seen in the prior period. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Real Estate FFO Guidance | FY 2025 | no prior guidance | $12.40 to $12.65 per share | no prior guidance |
Domestic Property NOI Growth | FY 2025 | no prior guidance | At least 3% | no prior guidance |
Net Interest Expense | FY 2025 | no prior guidance | Increase of $0.25 to $0.30 per share vs. 2024 | no prior guidance |
Diluted Share Count | FY 2025 | no prior guidance | Approximately 377 million shares/units | no prior guidance |
Catalyst Brands Contribution | FY 2025 | no prior guidance | Expected positive EBITDA and roughly breakeven FFO | no prior guidance |
-
2025 Guidance and Underlying Growth
Q: Is strong guidance due to internal growth?
A: David Simon explained that the 2025 guidance of $12.40 to $12.65 per share excludes Catalyst and that they expect to grow the portfolio by at least 3%, aiming to beat that target through leasing, operational focus, and expanding the portfolio. This indicates that the business is returning to pre-pandemic levels. -
NOI Growth Expectations
Q: Why did NOI growth drop from 4% to 3%?
A: Brian McDade stated they have historically guided to at least 3% NOI growth and then exceeded it. The lower expectation accounts for conservative budgeting with flat sales, potential downtime from tenant mix changes, and consideration of historical bad debt levels. -
Investing in B Malls
Q: How will you invest in B malls for returns?
A: David Simon discussed plans to reinvest in B malls by renovating properties, adding new tenants, and improving the tenant mix. For example, at Smith Haven, they expect a 12% return over the next couple of years. The higher returns are due to investing in empty spaces with no existing income, making the investments NAV accretive. -
Kering Acquisition Impact
Q: What are details of the Kering acquisition in Italy?
A: David Simon shared that they acquired top assets in Italy at the right price. The acquisition is accretive to NAV and earnings, with Kering remaining a long-term tenant. Assets in Italy typically have higher cap rates than comparable U.S. assets. -
Capital Allocation After Kering
Q: How are you balancing acquisitions with other uses?
A: David Simon said there are no big deals planned that would affect leverage. They plan to focus on high-quality transactions, redevelopment projects, stock buybacks, and development—effectively doing a bit of everything. -
Consumer Trends
Q: How do you feel about the consumer now?
A: David Simon is cautious about the European consumer and nervous about the lower-end U.S. consumer. However, he is bullish on the upper to high-end U.S. consumer. -
Tariff Impact and De Minimis Rule
Q: What is the potential impact of tariffs and de minimis changes?
A: David Simon noted that tariffs have minimal impact as retailers have moved production out of China. The more material issue is the de minimis rule; eliminating it would benefit domestic retailers by leveling the playing field against companies like Temu. -
Leasing and Occupancy
Q: How will month-to-month leases evolve over time?
A: Brian McDade said they expect the percentage of month-to-month leases to decrease as renewals are processed. David Simon added they're ahead of where they were last year on renewals. -
Mixed-Use Projects
Q: What are the plans for mixed-use projects in 2025?
A: David Simon outlined plans to spend $400 to $500 million on mixed-use projects, all in joint ventures. Projects include residential, hotels, and office spaces at locations like Roosevelt Field, Brea, Clearfork, and The Domain. -
Catalyst and OPI Impact
Q: What is the impact of Catalyst and OPI on guidance?
A: David Simon clarified that the guidance excludes Catalyst, and investments in OPI are small. Catalyst will have positive EBITDA but is not included in the guidance of $12.40 to $12.65 per share. -
Outlet vs. Mall Performance
Q: Any performance differences between outlets and malls?
A: Brian McDade stated that all platforms performed well, with outlets and Mills slightly outperforming due to their value orientation. They have not yet seen any impact from the strong dollar on tourist centers. -
Joint Venture Structures
Q: What is Simon's ownership in mixed-use JVs?
A: David Simon said they are usually 50-50 partners in these joint ventures. -
Operations Across Asset Classes
Q: Is focus only on malls or across the portfolio?
A: David Simon emphasized that reenergizing efforts are across the entire domestic portfolio, including outlets and Mills, not just malls. -
Impact of Strong Dollar
Q: Is the strong dollar affecting tourist centers?
A: Brian McDade indicated they have not seen any real-time impact yet, but continued dollar strength could affect earnings translations over the year. -
Tariffs and Retailer Impact
Q: How are tariffs impacting retailers?
A: David Simon explained that retailers have minimized China's sourcing, so tariffs have minimal effect. Eliminating the de minimis rule is more significant and could benefit domestic retailers.
Research analysts covering SPGJ.