Simon Property's (SPG) Q1 FFO & Revenues Beat Estimates

Simon Property Group, Inc.’s (NYSE:SPG) first-quarter 2019 funds from operations (FFO) per share of $3.04 per share exceeded the Zacks Consensus Estimate of $3.02. The FFO per share figure also surpassed the year-ago quarter’s reported tally of $2.87 by 5.9%.

Further, the company posted revenues of $1.45 billion for the quarter, which surpassed the Zacks Consensus Estimate by 0.4%. The revenue figure also came in 3.8% higher than the prior-year quarter’s reported tally.

Results reflect increased occupancy and leasing spread per square foot at the company’s U.S. malls and Premium Outlets. The company also reaffirmed its FFO per share outlook for the year.

Inside the Headline Numbers

For the U.S. Malls and Premium Outlets portfolio, occupancy was 95.1% as of Mar 31, 2019, expanding 50 basis points (bps) from the prior-quarter tally. Retailer sales per square foot came in at $660 for the trailing 12-month period, marking growth of 3.1%. Base minimum rent per square feet was $54.34 as of Mar 31, 2019. Furthermore, leasing spread per square foot for the trailing 12-month period ended Mar 31, 2019, increased 27.3% to $14.17.

Total portfolio net operating income (NOI) growth for the reported quarter came in at 1.7%. Comparable-property NOI growth for the same period came in at 1.6%.

During the January-March quarter, the company started construction on a 251,000-square-foot upscale outlet in Bangkok, Thailand, slated to open in February 2020. Simon is having 50% ownership of this project.

At the end of first-quarter 2019, Simon Property had redevelopment and expansion projects, including the redevelopment of former department store spaces, ongoing at more than 30 properties in the United States, Canada, Asia and Europe. The company’s share of costs of all new development and redevelopment projects under construction was more than $1.4 billion at the end of the first quarter.

The company exited first-quarter 2019 with cash and cash equivalents of $436.8 million, compared with $514.3 million reported at the end of December 2018.

Additionally, as of Mar 31, 2019, Simon Property had $7 billion of liquidity. This comprised cash on hand, including available capacity under the company’s revolving credit facilities, and its share of joint-venture cash. Further, the company ended the first quarter with net debt to NOI of 5.1X and fixed charge coverage of 5.1X.

Also, during the quarter, the company announced that its board of directors has authorized a new $2-billion common stock-repurchase program. The shares may be repurchased in the open market or in privately negotiated transactions, over the next 24 months, depending on market conditions.

Outlook

Simon Property reaffirmed its 2019 FFO per share guidance at $12.30-$12.40. The Zacks Consensus Estimate for the same is currently pinned at $12.45.

Dividend Update

Simon Property announced a quarterly dividend of $2.05 per share, unchanged sequentially and denoting an increase of 5.1% year over year. The dividend will be paid on May 31, to stockholders of record as of May 17, 2019.

Our Viewpoint

Simon Property has a strong and improving balance sheet, and is poised to gain from new development, redevelopment, expansion and acquisition efforts. The company is putting in every effort to enhance the value of its assets which are expected to contribute to its cash flow and revenues in the upcoming quarters.

Nonetheless, the implementation of such measures requires a decent upfront cost and therefore, may limit any robust growth in its near-term profit margins. Also, shrinking footfall at malls amid shift of consumers toward online channels, store closures and bankruptcy of retailers are expected to continue hinder the company’s growth.

Currently, Simon Property carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We now look forward to the earnings releases of other retail REITs like Realty Income Corporation (NYSE:O) , Macerich Company (NYSE:MAC) and Kimco Realty Corporation (NYSE:KIM) . While Realty Income is slated to report its quarterly numbers on May 1, Macerich and Kimco are scheduled to release earnings on May 2.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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