Simon Property Group, Inc (NYSE: SPG) reported funds from operations per share (FFO/s) of $2.05, surpassing the $2.01 estimate the analysts’ consensus had. Revenues also beat analysts’ expectations by $0.03 billion; they came in at $1.22 billion for the quarter. David Simon, chairman and CEO, said “Our Mall and Premium Outlet portfolio generated 4.8% growth in comparable property net operating income for the quarter as well as a 5.3% increase in tenant sales per square foot”. Mr. Simon also announced that he is increasing his FFO/s forecast for this year from $8.40-$8.50 to $8.50 -$8.60 as occupancy and leasing activity continue to grow. The CEO also increased his EPS guidance to $3.70 – $3.80 per share, a 10 cent increase.
In the first three months of 2013 mall REIT stocks were underperforming strip mall REITs. Bank of America analysts believe that the market overestimated concerns surrounding a decline in consumer discretionary spending. Indeed, sales per square feet in Simon Properties experienced a 5.3 percent rise year over year. Bank of America Corp (NYSE:BAC) analysts also think that occupancy may remain flat for mall REITs for the rest of 2013. Simon Property Group, Inc (NYSE: SPG), fortunately, has a low occupancy cost to sales of 11.3 percent and it can also increase rents as supply of mall space remains limited.
Simon is also building premium outlet centers in Chesterfield, Missouri; Toronto, Canada and Busan, Korea. The outlet in Toronto is 85 percent leased and Chesterfield is 95 percent leased. Simon – the largest REIT in the U.S. – has lower cost of capital than competitors and has been able to penetrate the lucrative upscale outlet space. Competitors have attempted to enter the space with limited success. Redevelopments and expansions are ongoing at 46 properties. Bank of America analysts expect high single digit returns on redevelopments and Citi Research analysts estimate a total return on both new and redeveloped properties of 11 percent. Regarding acquisitions, Simon Property Group is not interested in sales lease backs of department stores at its malls. However, management is considering building an outlet mall in Mexico and optimistic about a project in Brazil.
The outlook for Simon Property Group, Inc (NYSE: SPG) is positive, according to Bank of America Corp (NYSE:BAC) and Citi Research analysts, if the company is able to execute on its projects and increase dividends and earnings. Simon has a strong balance sheet and good liquidity.