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Here's How Simon Property (SPG) is Placed Ahead of Q1 Earnings

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Simon Property Group SPG is scheduled to report first-quarter 2021 results on May 10, after the bell. The company’s quarterly results will likely display declines in both revenues and funds from operations (FFO) per share.

In the last reported quarter, this Indianapolis, IN-based retail real estate investment trust (REIT) reported a negative surprise of 0.91% in terms of FFO per share. Results reflected the pandemic’s adverse impact on the company’s domestic and international operations.

In the last four quarters, the company missed the Zacks Consensus Estimate on each occasion. It has a trailing four-quarter negative surprise of 5.54%, on average. 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. Price and EPS Surprise

Simon Property Group, Inc. price-eps-surprise | Simon Property Group, Inc. Quote

Let’s see how things have shaped up prior to this announcement.

Factors at Play

The retail real estate market had already been battling dwindling traffic issues, store closures and retailer bankruptcies, and the pandemic has only further aggravated its woes. However, per a report from Cushman & Wakefield CWK, the retail market conditions seemed to have improved in first-quarter 2021, thanks to the distribution of government stimulus payments and vaccinations acceleration that led to shoppers becoming more active.

Particularly, net absorption registered at -740,000 square feet, representing the lowest negative absorption recorded by far since the onset of the pandemic, while leasing activity, though down somewhat at 25 million square feet (msf), was still above the second-quarter 2020 low level. Moreover, retail vacancy expanded 10 basis points (bps) from the prior quarter to 7.3%.

Simon Property too is not immune to move-outs, store closures and retailer bankruptcies. The choppy retail real estate environment is expected to have prevailed, hindering its growth momentum during the March-end quarter, as secular industry headwinds have been casting a pall on industry fundamentals. These have been further aggravated by the pandemic.

Moreover, the pandemic-induced headwinds have continued to translate to financial stress on retail tenants, impacting their ability to pay rent, affecting the company’s ability to recognize revenues in terms of rent collection and lease income.

However, the retail REIT has a wide exposure to different retail assets, including premium malls, lifestyle centers and other retail properties across the United States. Encouragingly, the vaccination acceleration, government stimulus measures, and the reopening of the retail sector in several parts of the nation came as a relief. This is because, with more reopening of stores, tenants stand in a better position to generate revenues and meet their rent payments.Therefore, the pressure on the retail landlord is likely to have reduced to some extent and its rent-collection figures are anticipated to have improved.

Furthermore, amid the retail apocalypse, adoption of an omni-channel strategy and successful tie-ups with premium retailers has been a saving grace for Simon Property. Also, the REIT is now focused on tapping growth opportunities by assisting digital brands enhance their brick-and-mortar presence.

Additionally, Simon Property is exploring the mixed-use development option, which has gained immense popularity in recent years as it helps catch the attention of people who prefer to live, work and play in the same area. The company capitalized on buying recognized retail brands in bankruptcy. With the brands generating decent amount from digital sales, investments in the same seem strategic for Simon Property.

Furthermore, focus on controlling expenses is estimated to have partly alleviated pressure on the bottom line during the quarter to be reported. Also, the company is expected to have maintained its decent financial strength in the March-end quarter.

The Zacks Consensus Estimate for first-quarter lease income is pegged at $1.08 billion and indicates a decline of 14.3% from the prior-year quarter. Also, the consensus estimate for quarterly revenues is currently pinned at $1.11 billion, suggesting a decline of 18.3% year over year. Occupancy of its total portfolio is expected to be 91% in the quarter.

Lastly, Simon Property’s activities during the January-March quarter were adequate to gain analyst confidence. The Zacks Consensus Estimate for the FFO per share moved nearly 1% north in the past month and is currently pinned at $2.25. However, the figure suggests a 19.1% decline from the year-ago quarter.

Here is What our Quantitative Model Predicts

Our proven model does not conclusively predict a beat in terms of FFO per share for Simon Property this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Simon Property currently carries a Zacks Rank #3 and has Earnings ESP of -1.22%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of other Retail REITs

Kimco Realty Corp.’s KIM first-quarter NAREIT FFO came in at 33 cents per share, surpassing the Zacks Consensus Estimate of 30 cents. Results highlighted better-than-anticipated top-line numbers. Moreover, the retail REIT raised the outlook for 2021. With a well-located and largely grocery-anchored portfolio that offers essential goods and services, the retail REIT witnessed decent leasing activity during the first quarter. Rent-collection figures were also healthy. The company collected 94% of total pro-rata base rents billed during the first quarter.

Realty Income Corporation’s O first-quarter 2021 adjusted funds from operations (AFFO) per share of 86 cents surpassed the Zacks Consensus Estimate of 85 cents. The encouraging performance reflected improved revenues in the quarter. The retail REIT also apprised of its rental receipts through Mar 31, 2021, and noted that it has collected 94.1% of contractual rent due for the first quarter across the total portfolio.

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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Kimco Realty Corporation (KIM) : Free Stock Analysis Report

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

Realty Income Corporation (O) : Free Stock Analysis Report

Cushman & Wakefield PLC (CWK) : Free Stock Analysis Report

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