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Simon Property (SPG) Q3 FFO Meets, Revenues Beat Estimates

Zacks Equity Research

Simon Property Group, Inc.’s SPG third-quarter 2019 funds from operations (FFO) per share of $3.05 per share came in line with the Zacks Consensus Estimate as well as the year-ago quarter’s reported tally.

Further, the company generated revenues of nearly $1.42 billion in the quarter, which surpassed the Zacks Consensus Estimate by 0.9%. The revenue figure also comes in marginally 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.

Inside the Headline Numbers

For the U.S. Malls and Premium Outlets portfolio, occupancy was 94.7% as of Sep 30, 2019. Retailer sales per square foot came in at $680 for the trailing 12-month period, marking 4.5% growth. Base minimum rent per square feet was $54.55 as of Sep 30, 2019. Furthermore, leasing spread per square foot for the trailing 12-month period ended Sep 30, 2019 increased 22.2% to $12.10.

Total portfolio net operating income (NOI) growth for the reported quarter came in at 1.3%. Comparable-property NOI growth for the same period came in at 1.6%.

During the July-September quarter, the company commenced construction on a 338,000-square-foot upscale outlet in Jenks (Tulsa), OK, slated to open in spring 2021. Simon Property owns 100% of this project.

At the end of third-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, Asia and Europe. The company’s share of costs of all new development and redevelopment projects under construction was around $1.8 billion at the end of the third quarter.

Balance Sheet Position

The company exited third-quarter 2019 with cash and cash equivalents of $3.6 billion compared with the $514.3 million reported at the end of December 2018.

Notably, during the third quarter, the company accomplished a three-tranche senior notes offering, aggregating $3.5 billion, having a weighted average coupon rate of 2.61% and weighted average term of 15.9 years. Moreover, following the quarter end, the company retired all or part of four series of senior notes totaling around $2.6 billion (USD equivalent).

Following the senior notes repayment, Simon Property had more than $7 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.

Moreover, during the third quarter, the company repurchased more than 1.15 million shares of its common stock.

Outlook

Simon Property expects 2019 FFO per share in the range of $12.00-$12.05. Further, the company estimates comparable FFO per share in the range of $12.33-$12.38, reflecting a 3-cent increase to the bottom end of the company’s prior guided range. The Zacks Consensus Estimate for the same is currently pinned at $12.23.

Dividend

Simon Property also announced a quarterly dividend of $2.10 per share, flat sequentially, and up 5% year over year. This dividend will be paid on Nov 29, to stockholders of record as of Nov 15, 2019.

Our Viewpoint

Simon Property’s healthy performance in the third quarter is encouraging. The company’s efforts to fortify balance-sheet strength and enhance its global platform augur well for long-term growth. With a strong and improving balance sheet, the company is poised to gain from its development, redevelopment, densification and expansion efforts. In fact, Simon Property is putting in every effort to enhance the value of its assets which are anticipated to contribute to the company’s cash flow and revenues in the upcoming quarters.

Nonetheless, the implementation of such measures requires a decent upfront cost and therefore, might 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 Realty Income Corporation O, Outfront Media Inc. OUT and Host Hotels & Resorts, Inc. HST, all of which are slated to report their quarterly numbers next week.

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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