Simon Property Group Inc. (SPG) is slated to report fourth-quarter 2014 results on Jan 30, before the opening bell.
This retail real estate investment trust (“REIT”) has surpassed the Zacks Consensus Estimate in 3 of the trailing 4 quarters with an average beat of 0.72%. The Zacks Consensus Estimate for fourth-quarter funds from operations (“FFO”) has remained unchanged at $2.47 per share over the last 7 days.
Is the company poised for a winning quarter? Let’s see how things are shaping up for this announcement.
Factors to Consider
Simon Property continues to enhance its Premium Outlets portfolio. A string of acquisitions of premium outlets is expected to help the REIT to record better results in fourth-quarter 2014. In fact, in 2015, the company plans to invest $2.5 billion in its Premium Outlets portfolio for a global development pipeline of 6.4 million square feet.
Simon Property’s strong focus on premium assets, along with diversified exposure to retail assets across the U.S. and international presence, shields it from market volatility and helps post a consistent decent performance.
However, huge expenses associated with the recent acquisition and redevelopment activities will have some adverse effect on the performance in the near term.
On the other hand, the company’s redevelopment and expansion pipeline, comprising high-end projects both on the domestic and international fronts, entails considerable operational risks and exposes it to higher construction costs, entitlement delays and lease-up risks. Further, an anticipated rise in the interest rate in the medium-to-long term remains a cause of concern for Simon Property, as this will increase the cost of new loan and limit the ability of the company to refinance existing debt.
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 (Expected Surprise Prediction) and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below.
Zero Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at $2.47 per share. Hence, the difference is 0.00%.
Zacks Rank #3: Simon Property’s Zacks Rank #3 (Hold), when combined with a 0.00% Earnings ESP, makes surprise predictions difficult.
Notably, 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 both a positive Earnings ESP and a favorable Zacks Rank:
Regency Centers Corp. (REG) has an Earnings ESP of +2.82% and a Zacks Rank #2 (Buy). The company will report fourth-quarter results on Feb 11.
Kimco Realty Corp. (KIM) has an Earnings ESP of +2.86% and a Zacks Rank #3. The company will report fourth-quarter results on Feb 5.
American Homes 4 Rent (AMH) has an Earnings ESP of +6.25% and a Zacks Rank #2. The company will report fourth-quarter results on Mar 12.
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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