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SPG Q3 FFO Beats, Ups Div & View

Zacks Equity Research

Simon Property Group, Inc. (SPG) reported third-quarter 2013 funds from operations (:FFO) per share of $2.21, beating the Zacks Consensus Estimate by a nickel. Moreover, this was higher than the year-ago quarter figure of $1.99.

Quarterly FFO per share improved 11.1% year over year, primarily driven by an increase in revenues and occupancy rate. Prompted by its strong fundamentals, the company raised its FFO growth outlook for the third time this year. Simon Property also hiked its quarterly dividend payout by 4.3%.

Total revenue during the reported quarter increased 6% year-over-year to $1,302.3 million and also exceeded the Zacks Consensus Estimate of $1,249.0 million. The increase in revenues was attributable to a significant rise in overage rental and tenant reimbursement revenues.

Inside the Headlines

Minimum rental revenues climbed 4.8% year-over-year to $795.8 million. Also, overage rental revenues rose 10.4% year over year to $56.5 million. Moreover, revenues from tenant reimbursements increased 7.4% year over year to $367.7 million during the quarter.

Occupancy in the regional malls and premium outlet centers' combined portfolio rose 90 basis points (bps) to 95.5% at the quarter-end from 94.6% at the end of the year-ago quarter. Comparable sales in the combined portfolio increased 3.0% to $579 per square foot from $562 recorded in the prior-year quarter. In addition, average rent per square foot in the combined portfolio rose 3.5% to $41.73 from $40.33 in the prior-year quarter.

Developments and Redevelopments

In the said quarter, Simon Property opened 3 premium outlets, namely Toronto Premium Outlets in Canada, Busan Premium Outlets in Korea and St. Louis Premium Outlets in Missouri, after completion of their development.

Moreover, Simon Property continued the construction at 4 new Premium Outlet Centers. These are Charlotte Premium Outlets in North Carolina; Vancouver Designer Outlet and Montreal Premium Outlets, both in Canada; and Twin Cities Premium Outlets in Minnesota. The company owns 50%, 45%, 50% and 35% interest in these centers, respectively.

Currently, Simon Property has redevelopment and expansion projects in its pipeline for over 35 properties in the U.S. and Asia, of which Simon Property’s share of the project cost is about $1.1 billion. 

Also, at the start of this month, Simon Property opened a 750,000 square foot center – The Shops at Nanuet – in Rockland County, N.Y. Also, the company finished a 105,000 square foot extension of Orlando Premium Outlets-Vineland Ave.

Acquisitions & Divestitures

During the quarter, Simon Property divested 2 assets – Terrace at The Florida Mall in Orlando and Arsenal Mall and Office in Massachusetts – and generated around $76 million in proceeds.

In addition, subsequent to quarter end, this retail real estate investment trust (:REIT) closed the buyout of the ownership interests in four McArthurGlen Designer Outlets. Previously, the company, through a joint venture (:JV) deal with McArthurGlen Group, had bought a 50% ownership in McArthurGlen's management and development company. Also, Simon Property acquired interest in Ashford Designer Outlets in UK, and became a partner in a new designer outlet under development in Vancouver, Canada.


As of Sep 30, 2013, Simon Property had cash and cash equivalents worth $1.10 billion.

During the reported quarter, the company’s senior unsecured debt rating was upgraded to A2, with a stable outlook by Moody's Investors Service.

Dividend Hike

Concurrent with its earnings release, Simon Property increased the quarterly dividend by 4.3% to $1.20 per share from $1.15 in the last quarter. The dividend will be paid on Nov 29, 2013 to shareholders of record as of Nov 15.

2013 Outlook Raised

Impressively, Simon Property increased its 2013 FFO guidance to the range of $8.72–$8.78 per share from $8.60–8.70 forecasted earlier. Notably, this is the third guidance increase by Simon Property in this year.

Our Viewpoint

We are encouraged by Simon Property’s another strong quarterly result, which came on the back of strong financial and operational performances. The company’s aim to capitalize on growth opportunities in some top markets worldwide and its focus on enhancing its Premium Outlets portfolio bode well. Moreover, the dividend hike and increased full-year outlook for the third time will boost investors’ confidence. Going forward, we expect these activities to drive occupancy and tenant sales per square foot growth, thereby boosting the company’s top-line growth.

Simon Property currently carries a Zacks Rank #3 (Hold). Other retail REITs that are performing well include Regency Centers Corp. (REG), Cedar Realty Trust, Inc. (CDR) and Weingarten Realty Investors (WRI). All stocks carry a Zacks Rank #2 (Buy).

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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