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Simon Property Tops, Hikes Dividend

Zacks Equity Research

Simon Property Group Inc (SPG) – a retail real estate investment trust (:REIT) – reported fourth quarter 2012 FFO (funds from operations) per share of $2.29, substantially beating the Zacks Consensus Estimate by 12 cents. This also compares favorably with the year-ago quarter’s FFO per share of $1.91.

The 19.9% year over year increase in quarterly FFO per share was aided by increase in rental revenue and occupancy. The company also announced a 4.5% sequential hike in its dividend.

For full year 2012, FFO stood at $2.9 billion or $7.98 per share, well ahead of $2.4 billion or $6.89 per share reported last year. The full-year earnings also surpassed the Zacks Consensus Estimate of $7.56 per share.

Behind the Headlines

Total revenue during the quarter came in at $1,344.4 million, up from $1,171.3 million reported in the year-ago quarter. The quarterly revenues reached well above the Zacks Consensus Estimate of $1,269 million.

For the full year 2012, the company reported revenues of $4,880.1 million, higher than the $4,306.4 million in last year. This also surpassed the Zacks Consensus Estimate of $4,659 million. The increases in both quarterly and yearly revenues were attributable to substantial rises in minimum and average rental revenues.

Rental revenues climbed 14.5% to $808.5 million during the quarter, and for 2012 it jumped 13.2% to $3,015.9 million. On the other hand, average rent for the quarter soared 31.3% to $85.4 million and surged 39% to $195.7 million for full year 2012.

Occupancy in the regional malls and premium outlet centers' combined portfolio expanded 70 bps (basis points) to 95.3% at the end of the year from 94.6% in 2011. Comparable sales in the combined portfolio increased 6.6% to $568 per square foot from $533 recorded last year.

Moreover, average rent per square foot in the combined portfolio advanced 3.4% to $40.73 from $39.40 in 2011.


During the reported quarter, Simon Property acquired 2 upscale outlet centers in Grand Prairie, Texas and Livermore, Calif. from an unnamed seller for an undisclosed amount. Post-acquisition, Simon Property will handle the managerial responsibilities with 100% ownership in these two centers.

Spanning 417,000 square feet, the acquired property in Texas was branded as Grand Prairie Premium Outlets. The center in California, which was branded as Livermore Valley Premium Outlets, aggregates approximately 512,000 square feet. Both the properties are presently 100% leased.

Also, Simon Property formed a joint venture (:JV) with Institutional Mall Investors (‘IMI’) during the quarter to own and operate 2 properties – Woodfield Mall in Illinois and The Shops at Mission Viejo in California. Woodfield Mall, a 2.2 million square feet shopping center, is positioned in the northwest Chicago suburb of Schaumburg.

The Shops at Mission Viejo – an upscale mall spanning 1.2 million square feet – is located in Mission Viejo, California. As per the deal, Simon Property and IMI each will hold 50% stake in Woodfield Mall and 51% and 49% stake in The Shops at Mission Viejo, respectively. Both the companies will manage and lease the two properties.

Developments and Redevelopments

During the fourth quarter, Simon Property in JV with Tanger Factory Outlet Centers Inc. (SKT) opened an upscale outlet center in Texas. The center was 97% leased at opening and spans 353,000 square feet.

Simon property continued construction on 5 new Premium Outlet Centers that are scheduled to open in 2013. The centers are located in Arizona, Japan, Canada, Missouri and Korea. The company owns 100%, 40%, 50%, 60% and 50% interest in these centers, respectively. Two centers are slated to open by April and rest by September this year.

Currently, the company has redevelopment and expansion projects in its pipeline for 24 properties in the U.S. and 2 in Asia.  Moreover, Simon Property anchored 56 new tenants in its U.S. portfolio and over 30 are slated to open in 2013.


During the quarter, Simon Property’s majority-owned operating partnership subsidiary closed two debt offerings – a public offering of 2.75% senior unsecured notes worth $500 million having maturity date on Feb 1, 2023 and a private offering of 1.50% senior unsecured notes worth $750 million having maturity date on Feb 1, 2018.

At the end of 2012, the company had cash and cash equivalents worth $1.2 billion.


Concurrent with its earnings release, Simon Property increased its dividend for the sixth consecutive quarter by 21.1% from the year-ago period (4.5% sequentially) to $1.15 per share. The dividend will be paid on Feb 28 to shareholders of record as of Feb 14.


With strong quarterly and full year results, Simon Property expects 2013 FFO in the range of $8.40–$8.50 per share.

Our Take

We are impressed with the strong results at Simon Property. The significant acquisitions during the quarter will likely strengthen the company’s presence in both national and international markets. Also, the addition of premium development and redevelopment projects as well as industry-leading retailers as tenants is remarkable. We expect these activities to provide Simon Property a competitive advantage and boost its top-line growth going forward. 

One of the company’s peers, Regency Centers Corporation (REG) reported its fourth quarter 2012 results last week, with core FFO per share of 63 cents beating the Zacks Consensus Estimate by a nickel.

Simon Property currently holds a Zacks Rank #2 (Buy).  One of its peers – Ventas Inc. (VTR) – also has the same rank.

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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