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Simon Property Cuts Outlook on Spin-off

Zacks Equity Research

Simon Property Group Inc. (SPG) has cut its outlook for full-year 2014 on the Washington Prime Group Inc. (WPG) spin-off. The company now expects its full-year 2014 FFO (Funds from Operations) to come in the range of $8.96 – $9.06, as against the prior range of $9.60 – $9.70 (as of Apr 22, 2014).

This revision incorporates the adverse impact of 54 cents per share from the spin-off of Washington Prime properties as well as 10 cents per share transaction costs associated with this spin-off. For the second quarter, the company expects FFO per share to be around $2.10–$2.12, reflecting the spin-off and it includes roughly 10 cents of spin-off related transaction expenses.     

While the spin-off move (effective May 28) comes with an upfront cost for Simon Property, we believe that the long-term benefits of this decision are quite solid. Simon Property can now increase utilization of resources for expanding its global portfolio of larger malls, mills and premium outlets and effectively leverage on the improving spending habits of wealthier customers with the economy showing signs of recovery.

Riding on the growth trajectory, this retail real estate invest trust came up with a solid operating performance during first-quarter 2014, with FFO of $2.38 per share, 14 cents ahead of the Zacks Consensus Estimate and 33 cents above the year-ago quarter figure.

The 16.1% year-over-year improvement in quarterly FFO per share was primarily driven by an increase in revenues and occupancy rate. The company also hiked its quarterly dividend by 4% to $1.30 per share from $1.25 paid in the prior quarter.

Simon currently holds a Zacks Rank #3 (Hold). Investors interested in the retail REIT industry may consider stocks like Acadia Realty Trust (AKR) and General Growth Properties, Inc (GGP). Both the stocks sport a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation and amortization and other non-cash expenses to net income.

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