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Is a Beat in Store for Simon Property (SPG) in Q1 Earnings?

Zacks Equity Research

Simon Property Group SPG is scheduled to report first-quarter 2019 results on Apr 30, before the market opens. The company’s results are anticipated to reflect year-over-year rise in funds from operations (FFO) per share and revenues.

In the last reported quarter, this Indianapolis, IN-based retail real estate investment trust (REIT) posted a negative surprise in terms of FFO per share. Nonetheless, revenues improved year over year on account on increased occupancy and leasing spread per square foot at the company’s U.S. malls and Premium Outlets. 

In addition, over the trailing four quarters, the company exceeded the Zacks Consensus Estimate on three occasions and met in the other, the average beat being 1.13%. This is depicted in the graph below:

Simon Property Group, Inc. Price and EPS Surprise

Simon Property Group, Inc. Price and EPS Surprise | Simon Property Group, Inc. Quote

Let’s see how things are shaping up for this announcement.

Factors at Play

Recent data from Reis shows that the neighborhood and community shopping center vacancy rate remained flat in the first quarter at 10.2%, but marginally inched up from the prior year’s 10%. Additionally, the regional mall vacancy rate witnessed an uptick of 0.3% to 9.3% during the quarter.

Nonetheless, national average asking rent and effective rent inched up 0.4% on a sequential basis and 1.6% year over year.

Understandably, retail REITs continue to be affected by secular industry headwinds, including retailer downsizing and tenant bankruptcies.  In fact, a report by Coresight Research indicates that store closings have picked up pace this year as retail bankruptcy filings in the first six weeks of 2019 were already at one-third of 2018’s total.

Amid this retail apocalypse narrative, adoption of an omni-channel strategy and successful tie-ups with premium retailers has been a saving grace for Simon Property. Additionally, in efforts to lure shoppers, and boost both online and retail-store business of participating retailers, Simon Property announced the beta launch of its online outlet shopping platform. Importantly, the company’s Premium Outlets enjoy solid footfall and contribute billions of dollars of sales each year. Hence, the well-planned platform can use the mall’s pre-established customer base and drive sales.

Furthermore, its portfolio-restructuring efforts aiming at premium acquisitions and transformative redevelopments have enabled the company to attract new tenant and extend relationships with existing retailers. In fact, the company announced the opening of seven additional stores of UNTUCKit at Simon Malls in March. The first set of stores already debuted at Simon Property in 2018. Other than this, we anticipate the company to have witnessed decent leasing at its properties during the quarter.

The Zacks Consensus Estimate for first-quarter revenues is currently pinned at $1.49 billion, indicating a projected increase of 6.5% year over year. Moreover, the Zacks Consensus Estimate for FFO per share for the quarter is $3.02, suggesting a 5.2% rise from the year-ago quarter.

The company’s activities during the quarter have helped analysts gain confidence to some extent. As such, the Zacks Consensus Estimate moved up 2.7% in the last 30 days.

Earnings Whispers

Here is what our quantitative model predicts:

Simon Property has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Simon Property is +0.15%.

Zacks Rank: Simon Property carries a Zacks Rank #3, currently.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

Other Stocks That Warrant a Look

Alexandria Real Estate Equities, Inc. ARE, scheduled to release earnings on Apr 29, has an Earnings ESP of +0.3% and currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Mack-Cali Realty Corporation CLI, slated to report first-quarter results on May 1, has an Earnings ESP of +1.2% and holds a Zacks Rank of 3.

Welltower, Inc. WELL, scheduled to release earnings on Apr 30, has an Earnings ESP of +0.09% and a carries a Zacks Rank of 3.

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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Simon Property Group, Inc. (SPG) : Free Stock Analysis Report
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