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Simon’s 4Q15 Earnings: Borrowing Cost Should Remain at Same Level

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Fundraising activities

In fiscal 2015, Simon Property Group (SPG) was active in both the unsecured and secured credit markets in order to lower its effective borrowing costs and extend the maturity profile. SPG completed two senior note offerings totaling $1.9 billion, with a weighted average coupon rate of 2.34% and a weighted average term of 7.5 years. The company also redeemed four series of senior notes totaling $1.7 billion at a weighted average coupon rate of 6%.

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Lower borrowing cost

The total debt of Simon Property Group (SPG) increased from $20.8 billion as of the end of 4Q14 to $22.5 billion as of the end of 4Q15. The company’s total debt to total assets was at 73.4% as of 4Q15 compared to 70.6% as of 4Q14. The weighted average interest rate on this debt declined to 3.87% as of 4Q15 compared to 4.4% as of 4Q14. The weighted average years to maturity also declined from 6.2 years as of 4Q14 to 5.9 years as of 4Q15.

The decline in borrowing costs on its debt bodes well for the company, as this should lead to lower interest costs, thus boosting the company’s earnings. However, if the lingering interest rate hike materializes, then the company’s borrowing cost may not see a further decline.

Liquidity levels

As of 4Q15, Simon Property Group (SPG) had $5.5 billion in liquidity consisting of cash on hand, including its share of joint venture cash, as well as available capacity under its revolving credit facilities. For fiscal 2015, Simon had cash and cash equivalents of $701.1 million compared to $612.3 million at the end of 4Q14.

The iShares US Real Estate ETF (IYR) invests 7.3% of its portfolio in Simon Property Group. Peers General Growth Properties (GGP), Taubman Centers (TCO), and Macerich (MAC) have weights of 2%, 0.5%, and 1.3%, respectively, in the same portfolio.

Continue to the next part of this series for a discussion on key takeaways from Simon Property Group’s conference call.

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