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Simon Property’s Cost Structure Breakdown in 2014

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Sep. 22 2015, Updated 11:05 a.m. ET

Cost structure of Simon

The consolidated cost of Simon Property Group (SPG) was $2.48 billion for fiscal 2014, up by 5.5% from 2013. This rise came in the wake of a 4.7% rise in total cost in 2013. Depreciation and amortization comprised 46% of the total cost in 2014, followed by property operating expenses, which were at 16%, and real estate taxes, which came in at 15.5% of total costs.

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Cost components

Simon Property’s property operating expense, which has been on a steady decline since 2008, increased by 7.4% to $399 million in 2014, compared to 2013. The rise in property expenses was mainly related to increases in property transactions and utility expenses. Depreciation and amortization expenses, which increased by 3.3% to $1.14 billion in 2014, was primarily due to the additional depreciable assets related to the property transactions and to continued redevelopment and expansion activities.

Higher promotional cost

Simon Property’s advertising and promotion expenses increased by 15.9% to $137 million in 2014, the highest in the past seven years. The sharp rise in promotion expenses was attributed to costs incurred during a property rebranding initiative, which increased digital and social media advertising costs.

The rise in home and regional office costs—by 12.6% to $159 million in 2014—was primarily related to higher personnel costs, including incentive compensations and one-time expenses related to the spin-off of Washington Prime.

Other company expenses rose by 9.5% in 2014 to $92 million, from 2013. The rise in these expenses was primarily due to the net foreign currency impact of the change in foreign currency rates from 2013 to 2014.

Simon Property recorded an EBITDA margin of 75.4% in 2014, compared to 77.5% in the previous year. The EBITDA margin recorded by the company in 2013 was highest in two decades.

Investors looking for exposure in commercial real estate can invest in REIT ETFs. Simon Property Group and Public Storage (PSA) make up 8.16% and 4.06% of the Vanguard REIT ETF (VNQ), respectively. Equity Residential (EQR) comprised 6.7% of the iShares Cohen & Steers REIT ETF (ICF).

In the next part of this series, we’ll discuss the capital expenditure incurred by Simon.

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