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Simon Property (SPG) Q3 FFO and Revenues Miss Estimates

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Zacks Equity Research
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Simon Property Group, Inc.’s SPG third-quarter 2020 funds from operations (FFO) per share of $2.05 missed the Zacks Consensus Estimate of $2.25. The reported figure also plunged 32.8% from the year-ago quarter’s $3.05.

Further, the company generated revenues of $1.06 billion during the quarter, lagging the Zacks Consensus Estimate of $1.12 billion. The revenue figure also comes in 25.1% lower than the prior-year quarter reported tally.

Results reflect the coronavirus pandemic’s adverse impact on the company’s domestic and international operations, with an impact of $1.10 per share, mainly on reduced revenues. However, these negatives were partly offset by roughly 23 cents per share from cost-reduction moves.

The company noted that all of its U.S. retail properties are presently open. However, during the third quarter, seven retail properties in California were temporarily closed on Jul 15 because of a restrictive governmental order. While six of these properties reopened on Aug 31, the seventh property reopened on Oct 7 on the easing of governmental restrictions in Los Angeles.

Finally, as of Nov 6, Simon Property’s rent collections from U.S. retail portfolio, amounted to 72% of its net billed rents for the second quarter and 85% of its net billed rents for the third.

“Despite COVID-19, we are encouraged by the increases we are seeing in shopper traffic, retailer sales and tenant rent collections across our portfolio” noted David Simon, the company’s chairman, chief executive officer and president.

Inside the Headline Numbers

For the U.S. Malls and Premium Outlets portfolio, occupancy was 91.4% as of Sep 30, 2020, shrinking 330 basis points, year on year. Base minimum rent per square feet was $56.13 as of Sep 30, 2020, up 2.9% year on year.

Comparable property net operating income (NOI) for the reported quarter fell 24.4% and portfolio NOI declined 22.4%. Reduced revenues from agreed upon tenant rent abatements, higher provisions for uncollectible rents, lower sales-based rents and a reduction in ancillary property income, including Simon Brand Ventures sponsorship income, chiefly resulted in this decrease, though cost-reduction efforts provided some support.

Portfolio Update

During the September-end quarter, the company accomplished the redevelopment of former department store spaces at Broadway Square and Cape Cod Mall. Moreover, the 110,000-square-foot phase V expansion of Rinku Premium Outlets (Izumisano, (Osaka, Japan) opened during the third quarter, resulting in Rinku Premium Outlets becoming western Japan's largest outlet center. Notably, Simon enjoys 40% ownership of this center.

Construction is on for some redevelopment and new development projects in the United States and internationally that are nearing completion. The company’s share of the remaining required cash funding is roughly $140 million for these projects that are slated for completion by the end of 2021.

Balance Sheet Position

Simon Property exited third-quarter 2020 with more than $9.7 billion of liquidity. This comprised $1.5 billion of cash on hand, including its share of joint-venture cash, as well as $8.2 billion of available capacity under its revolving credit facilities and term loan, net of $623 million outstanding under its U.S. commercial paper program.

During the reported quarter, the company accomplished a three tranche senior notes offering, aggregating $2 billion. It used cash on hand and proceeds from the offering for repayment of $2.5 billion outstanding under its credit facilities.

Dividend Update

Simon Property paid a third-quarter common stock cash dividend of $1.30 per share on Oct 23. The company’s board of directors noted that it will announce a common stock dividend for the fourth quarter on or before Dec 31, 2020.

Currently, Simon Property carries a Zacks Rank #4 (Sell).

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 and EPS Surprise

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

Performance of Other Retail REITs

Kimco Realty Corp.’s KIM third-quarter 2020 FFO per share came in at 25 cents, marginally missing the Zacks Consensus Estimate of 26 cents. Results reflect a decline in same-property NOI, mainly affected by a charge for potentially uncollectible accounts receivable. The company also witnessed a decline in occupancy due to the tenant bankruptcies.

Realty Income Corporation’s O third-quarter adjusted FFO per share of 81 cents lagged the Zacks Consensus Estimate of 84 cents. Remarkably, the theater industry, which represented 5.7% of annualized contractual rental revenues for Realty Income as of Sep 30, 2020, has been subject to disruption due to the coronavirus pandemic, raising concerns about collectability of rent. As such, the company reserved for 100% of the outstanding receivables for 37 out of 78 theater properties.

Federal Realty Investment Trust’s FRT FFO per share of $1.12 surpassed the Zacks Consensus Estimate of $1.10 during the July-September period. Further, quarterly revenues of $208.2 million topped the consensus mark of $206.3 million. Nevertheless, the FFO per share decreased from the $1.43 reported in the year-ago quarter. In addition, revenues fell 11% year on year. The pandemic’s adverse impact and the resultant collectability-related adjustment issues caused this year-over-year declines.

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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