Simon Property Group Inc. (SPG), a real estate investment trust (REIT), is scheduled to report its third quarter 2011 earnings before the market opens on October 25, 2011. The current Zacks Consensus Estimate for the third quarter is pegged at $1.67 per share, representing an annualized growth of 60.3%.
Second Quarter Recap
Simon Property reported second quarter 2011 FFO (funds from operations) of $583.0 million or $1.65 per share compared with $487.7 million or $1.38 per share in the year-earlier quarter. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income. The reported quarterly FFO exceeded the Zacks Consensus Estimate by 7 cents.
Total revenue in the reported quarter increased to $1.0 billion from $933.6 million in the year-ago period and was also well ahead of the Zacks Consensus Estimate of $976 million.
Occupancy in the regional malls and premium outlet centers combined portfolio was 93.5% at quarter end compared with 93.1% in the year-ago period – an increase of 40 basis points (bps) year over year. Comparable sales in the combined portfolio increased to $513 per square foot versus $469 per square foot in the prior-year quarter. Average rent per square foot in the combined portfolio increased to $39.70 in the reported quarter from $38.62 in the year-ago period.
Agreement of Analysts
In the last 7 days, two out of the 19 analysts covering the stock revised their earnings estimates upwards for the third quarter while none moved in the opposite direction. For fiscal 2011, one out of the 21 analysts covering the stock increased the earnings estimate in the last 7 days while none trimmed the same.
Magnitude of Estimate Revisions
Over the last 7 days, earnings estimates for the third quarter and fiscal 2011 remained stagnant at $1.67 per share and $6.81 per share, respectively, implying that the analysts are cautious about the performance of the company.
Our Take
Headquartered in Indianapolis, Indiana, Simon Property is the largest publicly traded retail real estate company in North America, engaged inacquiring, owning and leasing a diverse portfolio of shopping malls.
Furthermore, the company’s international presence gives it a more sustainable long-term growth story than its domestically focused peers. The geographic and product diversity of the company insulates it from market volatility to a great extent and provides a steady source of income.
The company generally enters into long-term leases with companies, which insulate it from short-term market swings that have weighed on other players in the industry.
However, the company’s properties consist primarily of community shopping centers making its performance dependent upon general economic conditions of the market for retail space. Excess retail space in a number of markets and the increase in consumer purchases through catalogs and the Internet could hurt demand for Simon Property properties.
We currently have a ‘Neutral’ recommendation on Simon Property, which presently has a Zacks #2 Rank that translates into a short-term Buy rating. One of its competitors, Macerich Co. (MAC) has a Zacks #3 Rank, which translates into a short-term Hold rating.
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