We updated our research report on Simon Property Group Inc. SPG on May 27, 2015.
This Indianapolis, IN-based retail real estate investment trust (“REIT”) constantly aims to enhance its portfolio quality. The company reported first-quarter 2015 comparable funds from operations (“FFO”) of $2.28 per share, which beat the Zacks Consensus Estimate of $2.23. The bottom line comfortably beat the prior-year quarter figure of $2.14 per share. The year-over-year improvement was mainly driven by growth in comparable net operating income (“NOI”) as well as occupancy rates.
Notably, Simon Property was recently in the news for making a $16.8-billion takeover bid for its rival The Macerich Company MAC. The bid was, however, rejected by the latter on grounds of undervaluation.
More lately, Simon Property announced its plans at the RECon Global Retail Real Estate Convention to expand several marquee properties for enhancing its portfolio across the country. In fact, the REIT is undergoing unprecedented redevelopment and expansion across all its segments – Malls, Premium Outlets, and The Mills – investing around $1 billion annually for further improving its portfolio.
The company also announced the opening of a 25-store expansion at Las Vegas North Premium Outlets. This expansion is expected to take the company’s already strong portfolio to greater heights. This move will also be accretive to the REIT’s financials, going forward.
Nevertheless, a large redevelopment and expansion pipeline, comprising high-end projects both on the national and international levels, raises operational hazards for the company, exposing it to rising construction costs, entitlement delays and lease-up risks. Further, stiff competition and anticipation of interest rate hikes in the medium term pose challenges before Simon Property.
Over the past 7 days, the Zacks Consensus Estimate for the stock has remained unchanged at $9.77 for 2015 and $10.66 for 2016.
Currently, Simon Property carries a Zacks Rank #3 (Hold), while Macerich holds a Zacks Rank #2 (Buy).
Key Picks from the Sector
Investors interested in the retail REIT industry may consider stocks like Agree Realty Corp. ADC and American Assets Trust, Inc. AAT. Both these stocks carry the same Zacks Rank as Macerich.
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.
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