Retail real estate investment trust (“REIT”) Simon Property Group Inc. SPG is expected to report first-quarter 2015 results on Apr 24, before the market opens.
Last quarter, the company posted in-line results, despite recording a positive average surprise of 0.31% for the trailing four quarters.
Simon Property hit the headlines recently when its revised takeover bid of $95.50 per share for the rival The Macerich Company MAC was rejected by the latter for being depreciative. Simon’s original offer of $90.00 per share was also declined by Macerich on same grounds.
Let’s see how things have shaped up for this announcement.
Factors to Consider This Quarter
Simon Property has an active redevelopment and expansion pipeline, comprising high-end projects, both on national and international fronts. This increases operational hazards, exposing the company to rising construction costs, entitlement delays and lease-up risks. In fourth-quarter 2014, Simon Property’s operating expenses climbed 3% year over year to $641.8 million. For full-year 2014, operating expenses rose 5.5% from 2013 levels to $2.5 billion. We expect this rising trend to continue in first-quarter 2015 too.
In recent times, the retail landscape has been undergoing rapid changes as an increasing number of customers are gravitating toward online shopping. This has led to an intense rivalry among many large departmental store retailers, and the U.S. retail industry has been divided into two distinct classes – burgeoning upscale properties and striving downscale ones.
Further, slow retail sales continue to exert pressure on the retail leasing market. Until personal income and retail sales rise at a faster pace, it is hard to see any rapid increase in retail absorption. While mall owners, including Simon Property, seek to counter such pressure through various initiatives, upfront costs related to implementation of such measures would limit any robust near-term growth in their profit margins.
Nevertheless, Simon Property enjoys a diversified exposure, with respect to both product and geography, across the U.S. Also, the company’s international presence fosters greater sustainable long-term growth as compared with its domestically focused peers.
Earnings Whispers
Our proven model does not conclusively show that Simon Property will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Negative Zacks ESP: That is because the Most Accurate estimate stands at $2.21, while the Zacks Consensus Estimate is pegged at $2.23. There is a difference of -0.90%.
Zacks Rank #3: Simon Property’s Zacks Rank #3, when combined with a negative Earnings ESP, makes surprise prediction difficult.
Note that, we caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
You could consider other stocks in the REIT sector that have the combination of a positive Earnings ESP and a favorable Zacks Rank, and are hence poised for an earnings beat this quarter:
Public Storage PSA has an Earnings ESP of +1.03% and a Zacks Rank #3. The company will report first-quarter results on Apr 30.
Essex Property Trust Inc. ESS, with an Earnings ESP of +0.90% and a Zacks Rank #3, will report first-quarter results on May 6.
Note: FFO, 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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment