Simon Property Group's IDR safe
Global rating agency Fitch has affirmed the credit ratings of Simon Property Group Inc and its operating partnership, Simon Property Group, L.P. ( collectively, Simon).The Rating Outlook is Stable.
The affirmation of Simon's IDR at 'A-' reflects the resilient cash flow of the company's large, high-quality mall and premium outlet portfolio as well as other retail real estate interests, which underpin a fixed-charge coverage ratio appropriate for the 'A-' rating. Credit strengths also include the company's strong management team and track record of accessing multiple sources of capital.
Leverage, though elevated in recent periods, is expected remain consistent with the 'A-' IDR for a large capitalization retail REIT. The rating is balanced by Simon's growing development pipeline (largely re-development projects), although this risk is mitigated by adequate liquidity coverage. The rating takes into consideration the company's continued appetite for large acquisitions that temporarily weaken certain debt metrics.
Same-store net operating income growth remained positive throughout the recent cycle and increased by 4.8% in the mall and premium outlet segment in 2012, driven by stable occupancy and re-leasing spreads of 10.8% in 2012. Fitch expects positive samestore results to continue over the next 12-to-24 months as lease rollover remains positive driven in part by limited new supply. Looking forward, lease expirations are staggered with small shop revenues expirations of 6.5%, 7.2% and 7.6% in 2013, 2014 and 2015, respectively. Anchor lease revenue expirations are immaterial at 0.8% through 2015.
Simon is well positioned to withstand the constantly changing retailer landscape given the diversification of its tenant roster.
Simon's top inline tenants as of Dec. 31, 2012 were The Gap, Inc. (Fitch IDR of ' BBB' with a Stable Outlook), which represented 3.2% of base minimum rent, followed by Limited Brands, Inc. at 2.2% and Abercrombie & Fitch Co. at 1.6%. Top anchor tenants have a more limited contribution to base minimum rents and as of Dec. 31, 2012 included Macy's, Inc. (Fitch IDR of ' BBB' with a Stable Outlook) at 0.5%, J. C. Penney Co., Inc. (Fitch IDR of ' B-' with a Negative Outlook) at 0.5%, and Sears Holdings Corporation (Fitch IDR of ' CCC' with a Negative Outlook) at 0.2%. Many of Simon's tenants are unrated; however, retailer health as measured by sales per square foot in Simon's mall and premium outlet portfolio continued an upward trend to $568 in 4Q'12 from $533 in 4Q'11. Continued growth in tenant sales supports Simon's ability to achieve positive same-store NOI growth. The above-mentioned favorable operating fundamentals led to fixedcharge coverage of 2.9x in 2012, compared with 2.9x in 2011 and 2.7x in 2010. Positive comparable results, coupled with the company's increased interest in The Mills Limited Partnership assets, cash flows from Simon's 28.9% ownership interest in Klepierre, and lower cost of debt capital, drove the sustained increase in coverage.