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Simon Property Reports Jump in Profit, Raises Forecast

Tuesday, 24 July 2012 02:02 PM

Simon Property Group Inc reported second-quarter funds from operations jumped more than 18 percent, on greater rents and sales at its malls and outlet centers, easily beating estimates, and raised its outlook and dividend.

For more than a year, Simon, the largest U.S. owner of malls and outlet centers, has consistently posted increased growth in tenant sales and comparative net operating income, but gains slowed in the second quarter. Still, rents posted their highest increase in five quarters.

"This is the second time this year that the company's raised guidance, the fourth quarter in a row that they've raised the dividend, and in the past 34 quarters, this is the 32nd time they've either met or beat estimates. I think that's pretty telling in of itself," Sandler O'Neill and Partners analyst Alexander Goldfarb said.

The stock rose 1.3 percent in early trading Tuesday. Shares of Simon as well as the entire sector have outperformed the S&P 500 index.

Simon said second-quarter funds from operations (FFO) rose to $688.8 million, or $1.89 per share, from $583.0 million, or $1.65 per share, a year earlier. Revenue gained 14 percent to $1.19 billion.

Analysts, on average, expected second-quarter FFO of $1.81 a share, on revenue of $1.16 billion, according to Thomson Reuters I/B/E/S.

FFO is a real estate investment trust performance measure that usually excludes gains or losses from property sales and removes the effect that depreciation has on earnings.

Simon again raised its FFO forecast for the year to a range of $7.60 to $7.70 per share from the previous $7.50 to $7.60. The company's forecasts tend to be conservative, and Simon more often than not raises them each quarter. Analysts expect $7.63 per share, according to Thomson Reuters I/B/E/S.

The company, based in Indianapolis, raised its dividend for the fourth consecutive quarter, to $1.05 per share from $1.00 per share.

During the second quarter, sales at tenants' stores at U.S. core portfolio malls and outlet centers rose 9 percent to $554 per square foot, versus a rise of 11.2 percent in the first quarter.

Stronger sales attract tenants and eventually lead to higher rents. Landlords also take a share of tenants' sales.

Second-quarter net operating income growth slowed to 5.1 percent from 5.7 percent in the first quarter.

Still, new leases called for rents that were 10 percent higher than those that expired.

Simon, the only real estate company in the Standard & Poor's 100 index, owns or has an interest in 336 retail real estate properties in North America and Asia.

Its portfolio includes some of the most popular U.S. malls, including Roosevelt Field Mall and Woodbury Common Premium Outlets in New York; The Forum Shops at Caesars Palace Las Vegas; and Lenox Square Mall in Atlanta.

Simon has international outlet centers in Malaysia, Canada, Japan, Korea and Europe. It is redeveloping or expanding 25 U.S. properties and two in Japan.

Earlier this week, the company hired Matthew Lentz, former managing director and portfolio manager at PointState Capital, to be its first chief investment officer.

Lentz will have plenty to work with as the company has access to $6.5 billion in cash under its existing $4.0 billion revolving line of credit and its new multicurrency revolver that can be expanded to $2.5 billion.

In Brazil, Simon has formed a joint venture with BR Malls Participacoes SA to build 10 to 14 outlets. Its first site, in Sao Paulo, is scheduled to open by early 2014.

In China, it has a joint venture to open one outlet mall.

Simon also has a 28.7 stake in Klepierre SA, Europe's second-largest retail real estate owner and has three seats on the French company's board.

Since the start of the year, Simon shares are up 21 percent, outperforming the S&P 500, which is up by 7.4 percent and the MSCI US REIT Index, which is up 13 percent.

© 2019 Thomson/Reuters. All rights reserved.

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Tuesday, 24 July 2012 02:02 PM
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