What's in Store for Simon Property (SPG) This Earnings Season?
Simon Property Group SPG is slated to report fourth-quarter and full-year 2023 results on Feb 5 after market close. The company’s quarterly results are likely to display year-over-year growth in revenues and funds from operations (FFO) per share.
In the last reported quarter, this Indianapolis, IN-based retail real estate investment trust (REIT) delivered a surprise of 7.38% in terms of FFO per share. Results reflected better-than-anticipated revenues on healthy leasing activity and a rise in the base rent per square foot and occupancy levels. However, higher property operating expenses and interest expenses partly offset the upsides.
Over the preceding four quarters, Simon Property’s FFO per share surpassed the Zacks Consensus Estimate on two occasions for as many misses, the average surprise being 1.13%. 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
In this article, we will dive deep into the U.S. retail real estate market environment and the company's fundamentals and analyze the factors that may have contributed to its fourth-quarter 2023 performance.
US Retail Real Estate Market in Q4
Per a report from CBRE Group CBRE, the U.S. overall retail availability rate hit a record-low 4.7% at year-end, down 10 basis points (bps) quarter over quarter and 31 bps year over year. Among the categories, the neighborhood, community & strip center segment tightened the most. This property type continues to experience positive net absorption, with the fourth quarter net absorption of 12.5 million square feet, bringing the 2023 annual total to 40 million square feet.
There is a dearth of supply, and elevated construction costs and interest rates are likely to continue to keep new supply in check. Fourth-quarter and full-year construction completions of 5.3 million and 27 million square feet, respectively, marked record lows. The average asking rent was up by 0.8% in the fourth quarter and 2.4% for the year to $23.76 per square foot, and both the growth rates were higher than their 10-year averages, per the CBRE report.
Factors at Play
The favorable retail real estate climate is anticipated to have boosted Simon Property's collection of high-quality assets, both domestically and abroad. As consumers increasingly favored in-person shopping experiences after the pandemic lull, it is likely that the demand for SPG's properties remained strong during the fourth quarter. This is expected to have positively impacted occupancy rates and leasing activities. We estimate the total portfolio ending occupancy of 95.4% in the fourth quarter, indicating a 20-bps improvement sequentially.
The implementation of an omnichannel approach and successful partnerships with top-tier retailers are expected to have yielded significant returns for Simon Property. The exploration of mixed-use development, a concept that has garnered widespread popularity in recent years, is likely to have allowed SPG to seize growth prospects in locations where individuals desire to reside, work and enjoy recreational activities.
The Zacks Consensus Estimate for fourth-quarter lease income is pegged at $1.35 billion, up from $1.29 billion reported in the year-ago quarter. The consensus mark for management fees and other revenues stands at $31.99 million, up from the prior-year quarter’s reported figure of $31.85 million. In addition, the consensus estimate for quarterly revenues is presently pegged at $1.46 billion, indicating an increase of 4.02% year over year.
We also expect the company’s robust balance sheet position to have supported its strategic expansions during the quarter to be reported.
However, the macroeconomic uncertainty and higher e-commerce adoption may have cast a pall on SPG’s performance in the to-be-reported quarter. Also, elevated interest rates may have kept expenses higher in the to-be-reported quarter. We estimate a 2.2% and 15.1% year-over-year increase in interest expenses for the fourth quarter and full year 2023.
The Zacks Consensus Estimate for FFO per share has been revised a cent upward to $3.34 over the past two months. The figure also indicates an increase of 6.03% from the year-ago quarter’s reported figure.
For the full year 2023, Simon Property projected FFO per share in the range of $12.15-$12.25.
For the full year, the Zacks Consensus Estimate for FFO per share has been revised 2 cents upward in the past month to $12.16. The figure indicates a 2.4% increase year over year on 5.85% year-over-year growth in revenues to $5.60 billion.
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 -1.24%. 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 three stocks from the broader REIT sector — Welltower Inc. WELL, VICI Properties Inc. VICI and Kimco Realty Corporation KIM — you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.
Welltower is slated to report quarterly numbers on Feb 13. WELL has an Earnings ESP of +0.80% and carries a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
VICI Properties, scheduled to report quarterly numbers on Feb 22, has an Earnings ESP of +2.16% and carries a Zacks Rank of 3.
Kimco Realty, slated to release quarterly numbers on Feb 8, has an Earnings ESP of +2.56% and carries a Zacks Rank of 2 at present.
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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Simon Property Group, Inc. (SPG) : Free Stock Analysis Report
Kimco Realty Corporation (KIM) : Free Stock Analysis Report
Welltower Inc. (WELL) : Free Stock Analysis Report
CBRE Group, Inc. (CBRE) : Free Stock Analysis Report
VICI Properties Inc. (VICI) : Free Stock Analysis Report
