Riding on the growth trajectory, Simon Property Group, Inc. (SPG) came up with a solid operating performance during first-quarter 2014, with funds from operations (FFO) of $2.38 per share, 14 cents ahead of the Zacks Consensus Estimate and 33 cents above the year-ago quarter figure.
The 16.1% year-over-year improvement in quarterly FFO per share was primarily driven by an increase in revenues and occupancy rate. Prompted by its solid results, this retail real estate investment trust (REIT) also hiked its quarterly dividend payout and 2014 FFO per share guidance.
Total revenue during the reported quarter jumped 8.2% year over year to $1.31 billion and also surpassed the Zacks Consensus Estimate of $1.27 billion. This was primarily attributable to a notable rise in minimum rent and tenant reimbursement revenues.
Quarter in Detail
Minimum rental revenues climbed 6.6% year over year to $828.9 million, while revenues from tenant reimbursements increased 9.9% year over year to $372.6 million.
For the U.S. Malls and Premium Outlets portfolio, occupancy rose 80 basis points (bps) year over year to 95.5% at the end of the first quarter. Total sales per square feet moved north marginally by 0.2% to $576. Encouragingly, base minimum rent per square feet climbed 4.2% year over year to $42.77 and releasing spread increased 610 bps to 19.5%.
Notable Portfolio Activity
During the quarter, Simon Property purchased the remaining stake of its joint venture (JV) partner in Kravco Simon Investments. The deal helped Simon Property to get the full ownership in the King of Prussia Mall. Also, the company bought its JV’s stake in Arizona Mills and land in Oyster Bay, Long Island. Completing which, Simon Property now fully owns Arizona Mills.
At the end of the first quarter, Simon Property has redevelopment and expansion projects in progress at 29 assets across U.S., Asia and Mexico.
Spin-Off Update
During the first quarter, Simon Property declared the management team and board of directors for the unit that it decided to spin off. This unit is named Washington Prime Group, Inc. The company anticipates the transaction to be effective in the second quarter of 2014.
Liquidity
Simon Property exited first-quarter 2014 with cash and cash equivalents of $1.0 billion, compared to $1.7 billion at the end of fourth-quarter 2013.
Dividend Hike
Concurrent with its earnings release, Simon Property increased the quarterly dividend by 4% to $1.30 per share from $1.25 paid in the prior quarter. The dividend will be paid on May 30, 2014 to shareholders of record as of May 16.
2014 Outlook Increase
Simon Property increased its 2014 FFO per share outlook in the range of $9.60 – $9.70, from $9.50 – $9.60 guided earlier. The Zacks Consensus Estimate of $9.62 per share for 2014 is within this range.
Our Take
We are impressed by Simon Property’s strong quarterly results, which came on the back of its robust financial and operational performances. Moreover, we believe that the spin-off decision is a strategic fit as it would help Simon Property increase the utilization of resources for expanding its global portfolio of larger malls, mills and premium outlets.
With the economy showing signs of recovery, spending from richer consumers is improving and the company seems to leverage on this trend. Additionally, the dividend hike boosts shareholders’ confidence in this Zacks Rank #2 (Buy) stock.
We now look forward to the results of other REITs such as Taubman Centers, Inc. (TCO), Mack-Cali Realty Corp. (CLI) and Ventas, Inc. (VTR) that are scheduled to report this week.
Note: FFO, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation and amortization and other non-cash expenses to net income.
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