What's in Store for Simon Property (SPG) in Q2 Earnings?
Simon Property Group’s SPG second-quarter 2022 results are scheduled to be out on Aug 1 after market close. While the company’s quarterly results are likely to exhibit year-over-year growth in revenues, funds from operations (FFO) per share might have witnessed a marginal decline.
In the last reported quarter, this Indianapolis, IN-based retail real estate investment trust (“REIT”) delivered a surprise of 1.83% in terms of FFO per share. This performance was backed by a better-than-expected top line.
In the last four quarters, the company beat the Zacks Consensus Estimate on each occasion, the average surprise being 14.76%. This is depicted in the graph below:
Simon Property Group, Inc. Price and EPS Surprise
Simon Property Group, Inc. price-eps-surprise | Simon Property Group, Inc. Quote
Let’s see how things have shaped up before this announcement.
Factors at Play
Per a report from CBRE Group CBRE, retail real estate metrics remained strong in the second quarter, even amid weak retail sales growth. Total retail sales increased 3.8% year over year in the second quarter, lower than the five-year quarterly average of 7.0%. The average retail asking rent improved 2.4% year over year to $22.39 per square foot in the second quarter. It marked the highest annual growth rate since the first quarter of 2017. The retail availability rate in the second quarter hit a 10-year low of 5.1%.
Retail space absorption decreased 40% quarter over quarter and 20% year over year to 19.9 million square feet in the second quarter. Second-quarter absorptions were mainly driven by an expansion by existing retailers as new developments remained muted, per the CBRE Group report.
Simon Property too is anticipated to have benefited from the recovery in the retail real estate market. This retail REIT behemoth has wide exposure to different retail assets, including premium malls, lifestyle centers and other retail properties across the United States.
With the resumption of the economy and an improving leasing environment, SPG is likely to have benefited from its superior assets in premium locations. As such, Simon Property is expected to have witnessed growth in its earnings and cash flow during the quarter under consideration.
Further, the adoption of an omnichannel strategy and successful tie-ups with premium retailers have been Simon Property’s key focus. This retail REIT has also been tapping growth opportunities by assisting digital brands to enhance their brick-and-mortar presence. The company capitalized on buying recognized retail brands in bankruptcy. With brands generating a decent amount from digital sales, investments in the same seem strategic for SPG. Also, the company is anticipated to have maintained its decent financial strength during the June-end quarter.
The Zacks Consensus Estimate for the second-quarter lease income is pegged at $1.21 billion, up from the year-ago period’s $1.16 billion. The consensus mark for Management fees and other revenues is $27.11 million, up from $26.06 million in the year-ago quarter. In addition, the consensus mark for quarterly revenues currently stands at $1.30 billion, suggesting an increase of 3.4% year over year.
Simon Property’s activities during the April-June quarter were adequate to gain analysts’ confidence. The Zacks Consensus Estimate for FFO per share has moved 2 cents north in the past month and currently stands at $2.91. However, the figure calls for a 0.3% decline from the year-earlier period.
Here Is What Our Quantitative Model Predicts:
Our proven model does not conclusively predict a surprise in terms of FFO per share for Simon Property this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is not the case here.
Simon Property currently carries a Zacks Rank of 3 and has an Earnings ESP of -0.25%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Stocks That Warrant a Look
Here are some stocks from the broader REIT sector — Public Storage PSA and SBA Communications Corporation SBAC — that you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.
Public Storage, slated to release quarterly numbers on Aug 4, has an Earnings ESP of +0.31% and carries a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
SBA Communications Corporation, scheduled to report quarterly numbers on Aug 1, currently has an Earnings ESP of +0.95% and carries a Zacks Rank of 3.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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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