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Simon Property (SPG) Beats Q2 FFO Estimates, Hikes Dividend

Zacks Equity Research

Simon Property Group, Inc.’s SPG second-quarter 2019 funds from operations (FFO) per share of $2.99 per share exceeded the Zacks Consensus Estimate by a whisker. The FFO per share figure also surpassed the year-ago quarter’s reported tally of $2.98.

Further, the company generated revenues of nearly $1.4 billion in the quarter, which surpassed the Zacks Consensus Estimate by 0.5%. The revenue figure also came in 0.9% higher than the prior-year quarter’s reported tally.

Results reflect increase in leasing spread per square foot at the company’s U.S. malls and Premium Outlets. The company reaffirmed its FFO per share outlook for the year as well as announced a hike in its quarterly dividend.

Inside the Headline Numbers

For the U.S. Malls and Premium Outlets portfolio, occupancy was 94.4% as of Jun 30, 2019. Retailer sales per square foot came in at $669 for the trailing 12-month period, marking 3.5% growth. Base minimum rent per square feet was $54.52 as of Jun 30, 2019. Furthermore, leasing spread per square foot for the trailing 12-month period ended Jun 30, 2019 increased 32.3% to $16.53.

Total portfolio net operating income (NOI) growth for the reported quarter came in at 1.6%. Comparable-property NOI growth for the same period came in at 2.0%.

During the April-June quarter, the company commenced construction on a 229,000-square-foot upscale outlet in Normandy, France, slated to open in summer 2021. Simon Property owns 81% of this project.

At the end of second-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 around $1.7 billion at the end of the second quarter.

The company exited second-quarter 2019 with cash and cash equivalents of $479.8 million compared with the $514.3 million reported at the end of December 2018.

Additionally, as of Jun 30, 2019, Simon Property had more than $6.8 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 quarter with net debt to NOI of 5.1X and fixed charge coverage of 5.1X.

Moreover, during the second quarter, the company repurchased nearly 1.05 million shares of its common stock.

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 $12.38.

Dividend Raised

Simon Property also announced a quarterly dividend of $2.10 per share, up 2.4% sequentially and 5% year over year. This dividend will be paid on Aug 30, to stockholders of record as of Aug 16, 2019.

Our Viewpoint

We are encouraged with Simon Property’s impressive performance in the second quarter. The company, with a strong and improving balance sheet, is poised to gain from its development, redevelopment, densification and expansion efforts. In fact, following completion of the four new outlets currently under construction, the company will have interests in 42 international outlets, which is impressive. It also reflects the company’s focus on enhancing its global platform.

Simon Property is putting in every effort to enhance the value of its assets which are anticipated to contribute to its cash flow and revenues in the upcoming quarters. Also, the latest hike in dividend is a positive for shareholders.

Nonetheless, the implementation of such measures requires a decent upfront cost and therefore, may limit any robust growth in its near-term profit margins. Additionally, shrinking footfall at malls amid shift of consumers toward online channels, store closures and bankruptcy of retailers will likely keep denting any robust growth of the company.

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.

Simon Property Group, Inc. Price, Consensus and EPS Surprise
 

Simon Property Group, Inc. Price, Consensus and EPS Surprise

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

We, now, look forward to the earnings releases of other REITs like Regency Centers Corporation REG, Apartment Investment and Management Company AIV and Federal Realty Investment Trust FRT, which are slated to report their quarterly numbers tomorrow.

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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