On Monday, S&P Global (NYSE:SPGI) Ratings revised its outlook on Simon Property Group Inc. (NYSE: NYSE:SPG) to positive, up from stable, while affirming the company’s ’A-’ issuer credit rating. The upgrade reflects Simon Property’s resilient operating performance and the expectation that trends contributing to this performance will persist.
Simon Property Group’s strong performance in the fourth quarter of 2024, with a 4.7% year-over-year increase in domestic net operating income (NOI) and an occupancy rate improvement to 96.5%, underpins the positive outlook. The company also reported a 2.5% increase in average base minimum rent and higher retailer sales per square foot at $739. Over the year, Simon signed leases for over 21 million square feet, expected to generate over $1 billion in revenue, enhancing cash flow visibility.
The company’s strategic investments, including opening a new Premium Outlet and completing 16 redevelopment projects, alongside a forecasted $610 million investment in development and redevelopment projects over the next two years, are anticipated to yield an 8% return rate. These projects are seen as a key to Simon’s success, targeting consumers with more disposable income.
Simon’s capital market activities in 2024 also showcased its ability to adapt to a higher interest rate environment, with a $1 billion senior notes offering and successful amendments and extensions to its $3.5 billion unsecured multicurrency revolving credit facility. The company completed 33 secured loan transactions totaling approximately $6.8 billion, with a weighted average interest rate of 6.11%.
The outlook is buoyed by a rebound in mall fundamentals over the past three years, with demand for high-quality space and low tenant bankruptcies contributing to stable credit metrics. Simon’s high-quality malls have surpassed pre-pandemic NOI levels and are performing better than most REIT subsectors. The company’s properties are expected to benefit from limited availability of high-quality space, supporting current credit metrics.
S&P Global Ratings could revise the outlook back to stable if Simon adopts more aggressive financial policies or if credit protection measures significantly deviate from current levels. Conversely, a rating increase could occur if Simon maintains its conservative financial policies and debt to EBITDA below 6x, along with fixed-charge coverage above 3.1x.
As of December 31, 2024, Simon owned or had interests in 229 properties globally and held significant stakes in other real estate ventures. The company’s strong liquidity is supported by $3.1 billion in cash, $8.1 billion of available credit facility capacity, and manageable near-term debt maturities. Simon’s short-term rating is ’A-2’, reflecting a strong liquidity profile and cash sources expected to cover liquidity uses by more than 1.5x over the next 12 months. Simon’s compliance with all applicable covenants on its unsecured lines of credit is expected to continue, maintaining a sufficient cushion over the next 12-24 months.
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