Simon Property Group Inc (SPG) 2022 CEO David Simon's Shareholder Letter: A Year of Resilience and Growth

Dear Shareholders, Over the last 30 years, our portfolio has not only grown in the number of malls we own, but also in other forms of complementary retail real estate, including our Premium Outlets®, The Mills® and our international business. Our scale and our quality have dramatically increased. We augmented our real estate with our fifth platform that includes opportunistic investments in leading companies and brands involved in retail operations, intellectual property assets and licensing, e-commerce marketplaces and recently, the asset and investment management businesses. The combination of our understanding of the evolving needs of the consumer and retailers, our access to capital and our thoughtful and flexible strategy has allowed us to construct a unique portfolio of thriving companies and property assets. Our growth over the years has clearly reinforced the strategy we have pursued and our operational excellence has been critical to achieving our leadership position. We have an unparalleled position to continue to build upon the success we have so far achieved. We will never be satisfied with the status quo and we will continue to push ourselves to perform and excel.

I am really pleased with our 2022 results and how we have positioned Simon Property Group (“SPG,” “Simon” or the “Company”) for future prosperity. We have fully bounced back from the toll of the COVID-19 pandemic. Retailer demand is strong. Our properties are getting better, excess supply is leaving the landscape, and e-commerce growth has decelerated as retailers acknowledge that it is simply not as profitable as physical stores (omnichannel is a must for retailers with a major emphasis on stores assuming profitability is a priority). This is leading to growth in our property cash flow. Importantly, we have proven on many fronts that our Company can handle adversity and bumps in the road. With that said, our well-located properties (whether enclosed or not) continue to lead the retail scene because they are properly maintained, leased and reinvigorated. Contrary to what the pundits have said, top malls have endured the growth of Walmart/Target, lifestyle centers, power centers, the proliferation of strip centers, e-commerce, retailer bankruptcies and the shut-down from the pandemic to name just a few. Don’t be discouraged by this at all, instead be comforted that our great malls have prospered in this ever-changing operating environment.

FROM THE CHAIRMAN, CEO & PRESIDENT

Dear Fellow Shareholders,

David Simon

Chairman, Chief Executive Officer & President

This is our 30th year as a public company, so the following will help illustrate my point:

• Our annual Funds From Operations (“FFO”), an important industry measure, has grown from $150 million at the time of our IPO to approximately $4.5 billion in 2022.
• We have increased the Company’s annual FFO generation by nearly 30 times since our IPO.
• Our beneficial interest of combined Net Operating Income (“NOI”) has increased from approximately $300 million to more than $6 billion over the last 30 years.
• In 1993, our portfolio consisted of 114 properties primarily middle-market malls in the Midwest. Today, our diversified portfolio includes over 250 properties across our platforms in 37 states and 14 countries.

Our current mixed-use redevelopment activities include the potential of adding more than 4,000 residential units and hotel rooms at high-quality centers including, for example, Brea Mall in Brea (Los Angeles), California; Northgate Station in Seattle, Washington; and St. Johns Town Center in Jacksonville, Florida.

At Phipps Plaza in Buckhead (Atlanta), Georgia, we opened a transformative redevelopment that redefines the future of modern, mixed-use luxury. This redevelopment features a 150-room Nobu Hotel and Nobu Restaurant; One Phipps Plaza, a new 13-story, 365,000 square-foot, Class A LEED Gold certified office building; Life Time Athletic and Life Time Work; and the food hall, Citizens Market. In the heart of these new additions is a lavish greenspace for outdoor events, dining and entertainment. This is a perfect example of a former department store being redeveloped profitably into place-making space.

Since 2013, we have invested more than $8 billion in redevelopment and new development projects to enhance our retail offerings and add complementary mixed-use components to our world-class properties.

FINANCIAL RESULTS AND OPERATING METRICS

We delivered impressive results.

• Consolidated revenues increased more than 3% to $5.29 billion.
• Net income was $2.14 billion, or $6.52 per diluted share.
• FFO was $4.48 billion or $11.95 per diluted share.
• Our share of Domestic Property NOI grew 4.8%, or $230 million year-over-year, to $5.04 billion.
• Our share of Portfolio NOI, including international properties on a constant currency basis, grew 5.7%, or $288 million, to $5.34 billion.
• We generated more than $1.5 billion in excess cash flow, after dividends.
• Occupancy for our U.S. Malls and Premium Outlets increased 150 basis points and ended the year at 94.9%, The Mills occupancy ended the year at 98.2% and Taubman Realty Group (“TRG”) ended at 94.5%.
• Reported retailer sales for our U.S. Malls and Premium Outlets were $753 per square foot (record), an increase of approximately 6% year-over-year. The Mills and TRG also achieved record sales levels of $679 per square foot and $1,095 per square foot, respectively.
• Retailer sales productivity is approximately 9% higher than pre-pandemic levels. This increase in retailer sales productivity further reinforces the importance of high-quality stores.

We completed fourteen redevelopment projects across all our platforms in the U.S. during the year.

• Total investment in redevelopment projects completed was approximately $500 million.
• We opened 44 anchor/specialty tenants in 2022 and expect to open more than 40 in 2023.
• We also continued to add mixed-use components to our market-leading centers with the opening of a more than 330-unit residential community at Round Rock Premium Outlets in Round Rock (Austin), Texas with others under construction.
• We have added over 4,200 hotel and residential units to our portfolio in the last several years.

Our international portfolio includes 23 Premium Outlets and 11 Designer Outlets in 13 countries; a 22.4% interest in Klépierre (which owns more than 130 properties in 14 European countries); and four mall properties in Asia.

• We opened Fukaya-Hanazono Premium Outlets, a 296,000 square foot center located in Fukaya City (Saitama), our tenth Premium Outlet Center in Japan.
• We have one new international development project under construction: Paris-Giverny Designer Outlet (Normandy) in France, opening this spring.
• We have a significant expansion under construction in South Korea at the highly productive Busan Premium Outlets, expected to open in 2024.
• Our international portfolio is vastly undervalued.

We executed more than 4,100 leases totaling over 14 million square feet across the portfolio.

• It was another successful year for growing luxury and fashion brands across our portfolio. During 2022, we executed deals with many of the world’s best brands, including Dior, Fendi, Gucci, Louis Vuitton, Prada, Van Cleef & Arpels, Yves Saint Laurent and more.
• Restaurant activity is robust with leading world-class restaurateurs and best-in-class local operators.
• We opened 57 restaurants in 2022 with more than 50 to open in 2023.
• We also added a diverse mix of interactive entertainment operators to our properties.

Our marketing strategy is focused on creative storytelling tailored to individual platforms and targets that drive awareness, traffic and sales for the brands and retailers in our centers, while engaging with our shoppers.

• Our always-on initiatives keep our shoppers informed about what’s happening locally at each center. In addition, a robust calendar of seasonal campaigns offers compelling incentives to encourage visits.
• Launched a new annual shopping event: National Outlet Shopping DayTM (“NOSD”) celebrated at all our Premium Outlets and The Mills centers, with over 300 retailer brands participating. In its first year, NOSD generated over 3 million shopper visits and more than 40 million media impressions. Stay tuned for an even bigger event in 2023!
• Executed over 2,750 events and programs to engage community members, shoppers and visitors.
• Generated over 3 billion advertising Simon Shopper impressions across all media channels.
• Developed social media campaigns resulting in over 700 million impressions and 75 million video views.

We complement investments in our physical product with investments in technical innovations focused on improving the shopping experience and driving shopper traffic.

• Launched the first-of-its-kind Simon Search capability, providing shoppers with center-wide visibility into participating store inventory. Onboarded more than 40 retailers and continue to add more every month.
• Launched the Simon American Express Credit Card powered by Cardless. Unique to the industry, the card offers shoppers 3% to 5% discounts on spend at Simon centers.
• Expanded the number of live streaming shopping events from our tourism centers in partnership with ShopPremiumOutlets.com, expanding the reach of those stores in both domestic and international markets.
• We also invested in technology that helps drive our operating costs down, hence our best-in-class operating margin.
• We are making smart investments in companies that provide support services to our retailers, including delivery, returns and other logistical services.

We have made astute, opportunistic investments in brands involved in retail operations, intellectual property assets and licensing and e-commerce marketplaces.

• Our retail investments include SPARC Group and JCPenney. SPARC includes seven brands—Aéropostale, Brooks Brothers, Eddie Bauer, Forever 21, Lucky Brand, Nautica and Reebok. 2022 was a solid year for these brands following a terrific 2021. We purchased these brands at distressed prices and have been successful in stabilizing and growing them.
• We own approximately 12% of Authentic Brands Group (“ABG”), a world-class intellectual property, brand development, marketing and entertainment company. The ABG licensing platform includes more than 40 brands and generates more than $25 billion in global annual retail sales through its network of over 1,200 partners. Our relationship is both as a significant shareholder and as a partner in JCPenney and our SPARC joint venture. At ABG’s current valuation, we have a 9X profit on our cash investment.
• Created digital display and video campaigns to support local centers, resulting in over 400 million video views, more than 10 million clicks to Simon websites and over 5.5 million property visits.
• Expanded the VIP Shopper Club and Mall Insider programs to nearly 18 million members, with messaging focused on new store openings, local programs, retailer deals and special promotions.
• Generated nearly 1 million QR code scans from on-center signage, an increase of 168%, driving shoppers to retailer deals, sign-up for VIP Club access and special events.

Simon Brand Ventures continues to provide brands and retailers with unique opportunities to engage shoppers through a variety of media and activation opportunities, both online and in our centers.

• Brands want access to our large customer base and the millions of visitors to our portfolio.
• Our unmatched go-to-market strategy leads the industry, consistently outperforming industry benchmarks and delivering significant impact for our Company, including revenue growth of 22% in 2022.

With our global footprint of physical outlets, our complementary investment in Rue Gilt Groupe (“RGG”) allows our shopper to connect to world-class brands in a digital shopping environment. RGG operates three distinct brands—Rue La La, Gilt and Shop Premium Outlets (“SPO”). RGG is a trusted online fashion authority featuring over 5,000 premium and luxury brands up to 70% off full-price retail. Gross merchandise value through the SPO marketplace grew 124% in 2022 with more growth to come as we link our physical properties with the SPO marketplace.

We formed a strategic partnership with Jamestown, a global real estate investment and management firm. We see great opportunity together to capitalize on the growing asset and investment management businesses. The Jamestown team are experienced, mixed-use operators, developers, property managers and asset managers. We are pleased to expand our other investment platform with this best-in-class company, and we expect to grow their asset management business and accelerate our densification opportunities.

Engaging with our communities means creating positive social and economic impacts where we operate. We recognize the essential role our properties play in their communities.

• Our centers engaged in the planning and execution of more than 200 events that brought together shoppers and causes important to the neighboring communities. Through our localized approach, we raised money and collected thousands of donated items for these important causes. Additionally, our centers across the country held a Do Good With Denim drive during the back-to-school season resulting in close to 10,000 pieces of denim collected. The donated denim went back to local partners to distribute in our communities.
• Our centers, a source of pride for those that live and work in the communities we serve, hosted over 3,500 lifestyle events such as job fairs, farmers markets, fitness classes and movie nights, and fulfilled community needs with blood drives and vaccination locations.
• By supporting nonprofit organizations in a range of activities, we identify social initiatives to meet the specific needs of each community. In 2022, our people supported organizations including Pediatric Cancer Foundation, American Heart Association, United States Armed Forces, Make-A-Wish, Autism Speaks, Susan G. Komen, Feeding America, Salvation Army, and American Red Cross, among others.
• Since its inception in 1998, Simon Youth Foundation (“SYF”) has helped more than 26,000 students graduate from our nationwide network of 44 Simon Youth Academies in 16 states. In the 2021-2022 academic year, SYF students achieved a 93% graduation rate—eclipsing the national average. Each year, SYF awards up to $1 million in Simon Youth Scholarships to high school students in every community that is home to a Simon Mall. SYF has awarded more than $21 million in scholarships to nearly 6,000 students thus far. Please support SYF.

Capital returned to shareholders in 2022 totaled approximately $2.8 billion, comprised of $2.6 billion in dividends and $180 million in share buybacks.

• Common stock dividends paid in 2022 were $6.90 per share, an increase of 17.9% from 2021.
• We have paid more than $39 billion in dividends over our history as a public company.

I want to thank our Board of Directors for their input and guidance. I want to especially thank Karen Horn and Al Smith for their 20 and 30 years, respectively, of distinguished service to our Company. Karen and Al will be retiring from our Board of Directors later this year. I am grateful for their invaluable contributions and exceptional guidance over the years. I cannot conclude this letter without thanking all my Simon colleagues for their continued commitment, dedication and hard work. Finally, I also thank you, our shareholders, for your support and confidence. Your comments and thoughts are always welcome and appreciated.

DAVID SIMON

Chairman, CEO & President

March 21, 2023

Prudent balance sheet management is a trademark of our Company and central to our ability to execute our long-term strategy.

• We completed more than $3.5 billion of financing activities:
• Completed two U.S. dollar senior notes offerings totaling $1.2 billion.
• Completed twenty secured loan refinancings for more than $2.3 billion.
• Our liquidity was nearly $8 billion at year-end.
• Our balance sheet continues to differentiate us within our industry, given our strong investment grade credit ratings of A-/A3 and access to multiple forms of capital.

In summary, 2022 was a very successful year, but we never rest. We are always focused on improving. It is in our DNA. We are committed to our proven long-term strategy, and we have conviction in what we do. We will continue to be innovative, creating memorable, unique experiences for shoppers and retailers alike. Our strong financial position will enable us to invest in the future. I am optimistic that we will continue to produce impressive financial results. Please do not underestimate the importance of physical retail, it is where the action is. We will appropriately deal with our rising cost of capital from increasing interest rates, just like other past challenges that we have successfully dealt with. On that front, we have already been proactive in 2023 with two senior notes issuances totaling $1.3 billion and closing on a new $5.0 billion revolving credit facility. A ringing endorsement of SPG.

Read the original letter here.