Simon Property Marginally Misses - Analyst Blog

Simon Property Group Inc. (SPG), a leading real estate investment trust (REIT), reported third-quarter 2010 FFO (funds from operations) of $318.5 million or 90 cents per share, compared to $473.1 million or $1.38 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 FFO marginally missed the Zacks Consensus Estimate by 2 cents. Excluding non-recurring items, FFO for the reported quarter was $1.43 per share compared to $1.38 in the year-ago quarter.

Total revenues during the reported quarter increased to $979.3 million from $924.9 million in the year-ago period. Total revenues during the reported quarter were well ahead of the Zacks Consensus Estimate of $946.0 million.

Occupancy in the regional malls and premium outlet centers combined portfolio was 93.6% at quarter-end, compared to 92.8% in the year-ago period. Comparable sales in the combined portfolio increased to $483 per square foot, compared to $449 in the prior-year quarter. Average rent per square foot in the combined portfolio increased marginally to $38.69 from $38.35 in the year-ago period.

The company continued its active development and redevelopment programs. Simon Property opened a 62,000 square foot premium outlet in Japan during the quarter. The company also continued construction work on two expansion projects in Texas and Las Vegas, and a premium outlet each in Japan and South Korea. During the quarter, Simon Property started construction work on two premium outlets – one in Johor, Malaysia and  the other in New Hampshire, the U.S.

During the quarter, Simon Property completed the acquisition of “Prime Outlets” for $2.3 billion including the assumption of approximately $1.2 billion of existing mortgage debt. As of September 30, 2010, the properties were 94.7% occupied with average base rents of $24.52 per square foot, generating sales of $406 per square foot. The company also sold seven joint venture properties in France and Poland during the quarter. Simon Property recorded a gain of $281.3 million relating to this asset sale.

During the quarter, Simon Property sold $900 million worth of 4.375% senior unsecured notes due 2021. The company utilized the proceeds to fund the part-purchase of $1.33 billion of senior unsecured notes maturing in 2013 and 2014. At quarter-end, the company had approximately $1.3 billion of cash on hand, including its share of joint venture cash, and an additional $3.0 billion of available capacity on its corporate credit facility.

The company increased its quarterly cash dividend by 33% from 60 cents per share to 80 cents. With strong quarterly results, Simon Property increased its 2010 recurring FFO guidance from the range of $5.77 – $5.87 to $5.90 – $5.95 per share. We currently maintain our Neutral recommendation on the stock, which presently has a Zacks #3 Rank translating into a short-term Hold rating.