Simon Property's (SPG) Q1 FFO Beats Estimates, Guides Up

Simon Property Group, Inc. (NYSE:SPG) , a retail real estate investment trust (REIT), reported first-quarter 2018 funds from operations (FFO) of $2.87 per share, which surpassed the Zacks Consensus Estimate of $2.83. The FFO per share figure also came in 4.7% higher than the year-ago tally of $2.74.

Results highlight increase in base minimum rent per square foot and leasing spread per square foot at its U.S. malls and Premium Outlets. Moreover, the company recorded growth in net operating income (NOI) for the total portfolio that was backed by contribution from new development, redevelopment, expansion and acquisitions. Simon Property also raised its outlook for 2018.

During the quarter, the company posted revenues of around $1.4 billion, which outpaced the Zacks Consensus Estimate of $1.38 billion. It also compared favorably with the year-ago number of $1.35 billion.

Inside the Headline Numbers

For the U.S. Malls and Premium Outlets portfolio, occupancy was 94.6% as of Mar 31, 2018. Retailer sales per square foot came in at $641 for the trailing 12-month period, marking growth of 4.2%. Base minimum rent per square feet rose 3.2% year over year to $53.54 as of Mar 31, 2018. Further, leasing spread per square foot for the trailing 12-month period ended Mar 31, 2018, increased 12.6% to $8.45.

Total portfolio NOI growth for the reported quarter came in at 4.8%. This reflects increase in operating income from comparable properties, as well as additions from new development, redevelopment, expansion and acquisitions. Comparable-property NOI growth for the same period came in at 2.3%.

At the end of the reported quarter, Simon Property had redevelopment and expansion projects, including the addition of new anchors, in progress at 28 properties across the United States, Canada and Asia.

The company exited first-quarter 2018 with cash and cash equivalents of $367.2 million compared with nearly $1.5 billion reported at the prior-year end.

Additionally, as of Mar 31, 2018, Simon had more than $7.0 billion of liquidity. This comprised cash on hand, including its share of joint-venture cash, and available capacity under the company’s revolving credit facilities.

Moreover, the company repurchased 1,473,588 shares of its common stock during the quarter.

Outlook

Simon Property raised its outlook for 2018. The company, now, projects FFO per share of $11.95-$12.05. The Zacks Consensus Estimate for the same is currently pegged at $12.00.

Dividend Update

Simon Property announced a quarterly dividend of $1.95 per share, denoting an increase of 11.4% year over year. The dividend will be paid on May 31 to stockholders of record on May 17, 2018.

Our Viewpoint

Simon Property has a diversified exposure to retail assets in the United States and abroad. It boasts a strong and improving balance sheet. Moreover, the company is focusing on overhauling its properties and increasingly adopting omni-channel strategies. In fact, recently, Simon Property announced substantial redevelopment program at five properties. This move will help the retail REIT transform the former Sears stores and draw more traffic to these malls, in order to benefit the existing retailers.

Admittedly, Simon Property is putting in every effort to enhance the value of its assets. However, the implementation of such measures requires a decent upfront cost and therefore, would limit any robust growth in its profit margins in the near term. Also, rate hike has added to its woes.

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 REITs like Alexandria Real Estate Equities, Inc. (NYSE:ARE) , Essex Property Trust Inc. (NYSE:ESS) and Regency Centers Corporation (NYSE:REG) . Alexandria and Regency Centers are scheduled to release results on Apr 30, while Essex Property is slated to report its numbers on May 2.

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

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