Earnings Scorecard: Simon Property - Analyst Blog

Simon Property Group Inc. (SPG), a leading real estate investment trust (REIT), reported its fiscal 2010 third quarter fund from operations (FFO) of 90 cents per share, which missed the Zacks Consensus Estimate by 2 cents. 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.

We cover below the results of the recent earnings announcement, subsequent analyst estimate revisions and the Zacks ratings for the short-term and long-term outlook for the stock.

Earnings Report Review

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.

(Read our full coverage on this earnings report:  Simon Property Marginally Misses)

Estimate Revisions: Overview

Fiscal earnings estimate revisions have been positive for Simon Property since the earnings release, meaning that analysts are bullish about the long-term performance of the company. Let's dig into the earnings estimate details.

Agreement of Estimate Revisions

In the last 7 days, fiscal 2010 earnings estimates were raised by 8 analysts out of 15 covering the stock, while none has lowered the same. For fiscal 2011, 12 out of the 21 analysts covering the stock have revised their estimates upward in the last 7 days, while none has moved in the opposite direction. This indicates a clear positive directional movement for the fiscal year earnings.

Magnitude of Estimate Revisions

Earnings estimates for fiscal 2010 have increased 2 cents from $4.94 to $4.96 since the earnings announcement. The company has increased its 2010 recurring FFO guidance from the range of $5.77 – $5.87 to $5.90 – $5.95 per share. For fiscal 2011, earnings estimates have increased by 6 cents to $6.51. With strong quarterly results, Simon Propertyhas also raised its quarterly cash dividend by 33% from 60 cents per share to 80 cents.

Moving Forward

The long-term earnings estimate picture for Simon Property is Neutral. Simon Property is the largest publicly traded retail real estate company in North America with assets in almost all retail distribution channels. Furthermore, the company's international presence gives it a more sustainable long-term growth story than its domestically focused peers. The geographic and product diversity of the company insulate it from market volatility to a great extent and provides a steady source of income. In addition, Simon Property has one of the strongest balance sheets in the industry, with a liquidity position of approximately $4.3 billion at quarter-end, including $1.3 billion of cash in hand.

However, we are skeptical about the overall retail industry, as the fortunes of retail landlords are largely driven by consumer spending. With the reduction in disposable income and lower consumer discretionary spending due to the challenging macroeconomic environment, the company is under severe stress to maintain profitability.

We maintain our Neutral rating on Simon Property, which presently has a Zacks #3 Rank translating into a short-term ‘Hold' recommendation and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months.

About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/