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Simon Property Group reports solid earnings for quarter, year

Showing resilience in the face of the economic downturn, Simon Property Group Inc. today reported a stronger-than-expected performance for the quarter and the year.

Despite relatively flat tenant sales, the Indianapolis-based shopping center REIT reported that its diluted FFO for the quarter increased 9%, to $1.12 per share from $1.03 per share in 2000. Diluted FFO for the fiscal year rose 7%, to $3.51 per share from $3.28 per share in 2000.

"We were delighted with the results because our fear was that they were going to be worse," said Louis Taylor of Deutsche Banc Alex. Brown.

Simon also reported that occupancy for stores in its portfolio rose slightly, to 91.9% at the end of December compared to 91.8% for the same period in 2000. That's noteworty, Taylor said, given that many companies in other property sectors expected to lose between 100 and 300 basis points of occupancy.

Simon CEO David Simon noted in a statement that 2001 was a challenging year for the shopping center industry. "I am very pleased that we continued to improve profitability and maintain strong operating performance in this environment," he said.

In the financials released today, Simon reported:

Retail sales were $378 per sq. ft. at the end of December compared to $377 the previous year, while comparable store retail sales were $383 per sq. ft. compared to $384 the previous year.

Average base rents for mall and freestanding stores in Simon’s portfolio were $29.28 per sq. ft. at the end of December, an increase of $0.97, or 3.4%, compared to the previous year. The average initial base rent for new mall store leases signed year-to-date was $34.88, an increase of $5.78, or 20%, over tenants who closed or whose leases expired, the retailer reported.

Taylor attributed Simon's strength in the down market to a number of factors. "The properties themselves are solid, and you simply have longer-term leases in the retail segment -- specifically in the mall segment vis-a-vis the other property types," Taylor said. "Also, Simon doesn't have that much of a development pipeline, which could be a drag on earnings."

Highlights of the year

During 2001, Simon acquired San Diego's Fashion Valley Mall, a 1.7 million-sq.-ft. open-air, super-regional center, and entered a joint agreement with The Rouse Co. and Westfield America to buy the assets of Rodamco North America N.V. (RNA) for $5.3 billion.

"The Rodamco deal makes sense," Taylor said. "We're pretty happy with it."

Simon’s share of the RNA portfolio is approximately $1.55 billion. The deal gives Simon ownership interests in 13 former RNA malls, including Copley Place in Boston, The Galleria in Houston and SouthPark Mall in Charlotte. The transaction is expected to close in the second quarter.

Simon’s only new development in 2001 was Bowie Town Center in Bowie, Md., a 556,600-sq.-ft. open-air regional shopping center that opened in October. The mall, which is 100% leased, is anchored by Hecht's and Sears and features Barnes & Noble, Bed Bath & Beyond and Old Navy. It also includes a 101,000-sq.-ft. grocery retail component anchored by Safeway that opened last month.

In the financing arena, Simon’s partnership subsidiary, Simon Property Group, L.P., in October completed the sale of $750 million of 6.375% senior unsecured notes due Nov. 15, 2007. Proceeds from the offering were used to reduce the balance of Simon's $1.25 billion in unsecured debt.

-- Joel Groover, Associate Editor

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