2013 REIT report

Q&A with Steve Sterrett, Simon Property Group

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Rick Sinkuler, EY’s Global Real Estate Markets Leader, recently sat down with Steve Sterrett, the Chief Financial Officer and Senior Executive Vice President of Simon Property Group (Simon), an S&P 100 company and a leader in the global retail real estate industry.

They discussed the current state and future outlook of the REIT sector, and Simon’s place in it. Highlights of their conversation follow below.

EY - Rick Sinkuler and Steve Sterrett

Rick Sinkuler: You now have 20 years as a leading public company — what has Simon done to help set itself apart?

Steve Sterrett: There are two or three things that stick out in my mind. First, over the past 20 years, we have had a consistency of strategy and leadership. That’s only a positive if the leadership delivers positive results, of course, but David Simon, our CEO, has run the company very well for 20 years, and other key positions have been stable, as well. There is a lot to be said for the quality of our leadership.

Second, our growth has been smart growth. When we went public, we knew who we were and that we had a retail-only focus. Our projects have always gone through a rigorous underwriting process, and while we’ve made mistakes, overall we’ve had a clear and consistent vision, and that’s helped.

Third, we also were and are aware that our business is very capital intensive and that access to capital is important, so we built a strong, fortress-like balance sheet and obtained an investment-grade rating early on to increase our ability to access capital, and we continue to make that a priority.

Sinkuler: What is Simon’s future outlook for the REIT industry?

Sterrett: The sector has clearly become much more mainstream than it was 20 years ago. We’re seeing new types of REITs being created and new types of real estate being securitized, which I think is a good thing. The fact that the REIT sector is larger as a percentage of the US GDP is good.

The industry has been successful at doing what it was created to do — it’s given the average investor a chance to invest in commercial real estate, and to do it in a tax-efficient manner that has also produced returns. If you look at 15- to 20-year returns, real estate has outperformed the broader market. Based on that past history of success, I expect the industry to continue to grow.

Sinkuler: If there was one message about Simon that you’d want readers to take away from this interview, what would it be?

Sterrett: It would be this: that because of everything we’ve talked about, Simon truly is a world-class company today. We think about it a lot in the context of the real estate industry, but if you look at our equity market cap, we are the size of some of the largest and most-respected brands in the world. We’ve been able to create a company that is truly world class — among all companies, not just real estate.

REITs were relatively new to the public markets 20 years ago, and the industry was small. Over the last two decades REITs in general and Simon in particular have been a very good place to be invested.