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Can Simon Property (SPG) Pull Off a Surprise in Q4 Earnings?

Zacks Equity Research

Simon Property Group SPG is scheduled to report fourth-quarter and full-year 2018 results on Feb 1, 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) delivered a positive surprise in terms of FFO per share. Results highlight increase in base minimum rent per square foot and leasing spread per square foot at its U.S. malls and Premium Outlets.

In addition, over the trailing four quarters, the company exceeded the Zacks Consensus Estimate in three occasions and met in the other, average beat being 1.20%. 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

For the full year, Simon Property projects FFO per share of $12.09-$12.13. The Zacks Consensus Estimate for the same is currently pinned at $12.13, indicating 8.2% rise year over year.

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

Factors at Play

A healthy U.S. economy, job-market gains, high consumer confidence and low gas prices have buoyed consumers’ spending power. This is evident from the 5.1% year-over-year growth in the retail sales figure for the 2018 holiday season, which marked the highest level in six years, according to Mastercard’s SpendingPulse. This is anticipated to send across encouraging signals within the retail real estate industry.

Moreover, the recent data from Reis shows that the neighborhood and community shopping center vacancy rate remained flat in the fourth quarter at 10.2%, but marginally inched up from 10% at year-end 2017. Mall vacancy rate slightly edged down to 9% in the quarter from 9.1% in the third quarter. At year-end 2017, the company’s vacancy was 8.3%. Despite the store-closure issue plaguing the market, the little stability indicates slowdown in new development.

Simon Property is navigating through the retail apocalypse by actively restructuring its portfolio, aiming at premium acquisitions and transformative redevelopments. Over the past years, the company has been investing billions to transform its properties focused on creating value and drive footfall at its properties. The transformational plans included addition of hotels, restaurants, residences and luxury stores.

Further, the company is undertaking strategic measures to help online retailers fortify their physical presence, besides taking steps to support omni-channel strategy. Such concerted efforts make its shopping malls appealing, and amid healthy economy and with an alluring range of deals, festive activities, dining and entertainment options at its properties, the company is likely to have witnessed an uptick in traffic at its properties during the recent holiday shopping season. All these are likely to be conducive to revenue growth in the to-be-reported quarter.

The Zacks Consensus Estimate for fourth-quarter revenues is currently pinned at $1.50 billion, reflecting a projected increase of 5.12% year over year. Moreover, the Zacks Consensus Estimate for FFO per share for the quarter is $3.24, indicating 3.9% 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 a cent in the last 90 days.

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 +0.07%.

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.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

AvalonBay Communities AVB, slated to report fourth-quarter results on Feb 4, has an Earnings ESP of +0.22% and holds a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Tower Corporation AMT, set to release earnings on Feb 27, has an Earnings ESP of +0.29% and carries a Zacks Rank of 3.

Omega Healthcare Investors, Inc. OHI, scheduled to report quarterly numbers on Feb 11, has an Earnings ESP of +0.26% and sports a Zacks Rank of 2.

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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