OREANDA-NEWS. Fitch Ratings has affirmed the ratings for Simon Property Group, Inc. (NYSE: SPG) and the obligations of its subsidiaries (detailed at the end of this release), including the Issuer Default Rating (IDR) at 'A'. The Rating Outlook is Stable.

KEY RATING DRIVERS

SPG's 'A' IDR reflects the company's high-quality retail real estate portfolio, cycle-tested management team, its market-leading access to capital, and its significant scale which influences efficiencies and the aforementioned access to capital. Other strengths include its financial flexibility that stems from a low dividend payout ratio and a sizable unencumbered pool. Partially offsetting these strengths is leverage that is low on an absolute basis but high relative to the rating sensitivities for the 'A' rating. Moreover, SPG is unspecific about its financial policies and credit rating targets and has demonstrated a willingness to flex the balance sheet for external growth opportunities.

LEVERAGE STABILIZING AT CURRENT LEVELS

Fitch expects leverage will be in the 5x-5.5x range over the next 12-to-24 months but closer to 5.5x for 2016, following the stabilization of development and re-development projects. Leverage sustaining between 4.5x-5.5x is appropriate for the 'A' rating and thus Fitch's projections are towards the high-end of the range. These levels are largely unchanged from where SPG has operated recently with leverage at 5.4x and 5.5x for the trailing 12 months (TTM) and quarter ended March 31, 2016, compared to 5.4x and 5.2x for full years 2015 and 2014.

Fitch defines leverage as debt less readily available cash to recurring operating EBITDA including cash distributions from unconsolidated entities, which includes dividends from its investment in Klepierre shares. Leverage when including 50% of preferred stock and preferred units was 5.5x, 5.4x and 5.2x for the quarter ended March 31, 2016 and the years 2015 and 2014, respectively.

Fitch projects that fixed-charge coverage will sustain in the mid-to-high 4x range over the next 12-to-24 months as compared to 4.1x for the TTM ended March 31, 2016. Fitch defines fixed-charge coverage as recurring operating EBITDA including cash distributions from unconsolidated entities less recurring capital expenditures and straight-line rent adjustments divided by total interest incurred and preferred stock dividends.

STRONG ASSET QUALITY DRIVING OPERATING PERFORMANCE

Fitch considers SPG's portfolio to be prime with notable trophy assets, which has supported operating performance despite tenant headwinds and should be more financeable on a relative basis. The portfolio has scale and diversity with interests in properties in North America, Asia and Europe, ranging from Premium Outlets to luxury malls. Fitch views SPG's 1Q16 $613 sales per square foot and outperformance relative to other mall REITs (as measured by SSNOI growth) as further indications of the portfolio's quality. Simon has consistently outperformed its U. S. mall REIT peers, with comparable NOI growth exceeding peers by an average of 240 basis points (bps) from 2005-2015 and occupancy outperforming peers by 100 bps from 2005-2015.

SPG has sought to address secular tenant pressures by reducing exposure to smaller and/or weaker assets through the Washington Prime Group spin-off and reinvesting in its portfolio through expansion and redevelopment projects. Fitch notes nonetheless that persistent tenant headwinds could affect the productivity and financeability of SPG's portfolio.

MARKET-LEADING ACCESS TO CAPITAL

Fitch views SPG as having sector-leading and durable access to capital, and its relative and absolute access to debt capital are primary factors behind the 'A' rating. Substantiating this view are the diversity of SPG's capital sources. SPG has demonstrated access to debt capital in multiple currencies (USD and EUR), across a wide range of tenors (commercial paper through 30-year notes) and at all points in the cycle. SPG re-opened the REIT unsecured debt market in 2009 when it issued $650 million of 10-year notes at 10.4%.

SUFFICIENT LIQUIDITY RELATIVE TO OBLIGATIONS

SPG has appropriate financial flexibility considering the size of its obligations. SPG's primary sources of liquidity are its unrestricted cash and availability under the two revolving credit facilities totalling $7.5 billion and the contingent liquidity in the unencumbered asset pool.

Liquidity coverage is consistent with the sector at 1.2x for the period April 1, 2016 through Dec. 31, 2017 pro forma for the EUR-denominated notes issued in May 2016, the exercised accordion option on the revolving line of credit and the acquisition and financing of The Shops at Crystals. Liquidity sources include unrestricted cash, availability under revolving credit facilities and projected retained cash flows from operating activities. Liquidity uses include pro rata debt maturities, projected recurring capital expenditures and development expenditures. If 80% of secured debt maturities through 2017 are refinanced, liquidity coverage would improve to 1.9x.

Liquidity is enhanced by Simon's consistently low adjusted funds from operations (AFFO) payout ratio, which was 64.5% in 1Q16 and 66.7% in 2015, compared with 64% in 2014 and 59.2% in 2013. Fitch estimates that the company generates greater than $1 billion of internally generated liquidity per year, which can be deployed for future investments, development and/or debt repayment. Unencumbered assets (based on a stressed 7% capitalization rate) cover net unsecured debt by 2.7x, which is appropriate for the rating.

STABLE OUTLOOK

The Stable Outlook reflects Fitch's view that SPG's operating fundamentals will remain favorable over the next 12-to-24 months and that the issuer will maintain leverage consistent with the 'A' rating. Beyond the rating horizon, Fitch considers the mall's long-term competitive position as a key determinant of SPG's operating fundamentals, the financeability of its assets and its overall access to capital.

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuer include:

--Operating fundamentals remain accommodative but decelerate modestly from mid-single-digit SSNOI growth to reflect retailer headwinds;

--SPG continues to match redevelopment and expansion capex to retained cash flow from operations after dividends;

--SPG maintains market-leading access to capital, refinancing all secured and unsecured debt with like amounts but does not issue equity.

RATING SENSITIVITIES

The following factors may have a positive impact on SPG's Ratings and/or Outlook:

--Fitch's expectation of leverage sustaining below 4.5x (TTM leverage was 5.4x at March 31, 2016)

--Fitch's expectation of fixed charge coverage sustaining above 3.5x (TTM coverage was 4.1x at March 31, 2016).

The following factors may have a negative impact on SPG's Ratings and/or Outlook:

--Should SPG demonstrate or speak to more flexible financial policies that result in a deterioration in the company's market-leading access to capital on an absolute or relative basis;

--A leveraging transaction that materially weakens the company's credit profile and/or aggressive utilization of the company's common stock repurchase program, resulting in Fitch's expectation of leverage sustaining above 5.5x;

--Should the competitive position of malls generally or SPG's portfolio specifically deteriorate due to factors such as retailer headwinds or changing distribution channels, resulting in weaker operating fundamentals and financeability of SPG's portfolio;

--Fitch's expectation of fixed charge coverage sustaining below 3x.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings:

Simon Property Group, Inc.

--Long-Term IDR at 'A';

--Preferred stock at 'BBB+'.

Simon Property Group, L. P.

--Long-Term IDR at 'A';

--Short-Term IDR at 'F1';

--Senior unsecured revolving credit facilities at 'A';

--Senior unsecured notes at 'A';

--CP notes at 'F1'.

Simon CP 2

--CP notes at 'F1'.

Simon International Finance, S. C.A.

--Unsecured guaranteed notes at 'A'.

The Rating Outlook is Stable.

Fitch has affirmed and withdrawn the 'A' rating on term loans as a class of obligations for Simon Property Group, L. P., as the obligation ($240 million senior unsecured term loan) was repaid early.