Back to top

Analyst Blog

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

On May 17, we downgraded our long-term recommendation on the retail real estate investment trust, Simon Property Group Inc. (SPG - Analyst Report), to Neutral from Outperform. The recommendation was lowered to reflect the gradual fall in consumer spending leading to pressure on revenue growth in the near term.

Why the Downgrade?

Though Simon Property beat the Zacks Consensus Estimate on revenues and FFO (funds from operations) in the first quarter of 2013, we anticipate the current unsettled economic environment to remain a cause of concern in the near term. At such times consumers become cautious and their spending decreases. This affects the sales volume of retailers, which in turn, weighs upon rent increment. Moreover, tenant bankruptcy increases leading to a fall in occupancy.

Further, Simon Property’s significant development pipeline increases the operational risks in the current unsettled market, exposing the company to rising construction costs, entitlement delays, and lease-up risks. In addition, excess retail space in a number of its markets and the rise in consumer purchases through catalogs and the Internet could hurt the demand for its properties.

However, Simon Property’s geographic and product diversity provides a significant competitive edge. Also, the company has a strong balance sheet with adequate liquidity.  Yet we believe that these positives have already been factored at the current valuation.

Nevertheless, Simon Property’s first-quarter 2013 FFO beat the Zacks Consensus Estimate by an average surprise of 1.99%. The results were primarily driven by an increase in overage revenues and occupancy. Additionally, rise in tenant sales per square foot was the other highlights.

Moreover, following the release of first-quarter results, the Zacks Consensus Estimate for 2013 marginally moved up (by 0.3%) to $8.61 per share. The Zacks Consensus Estimate for 2014 has, however, nudged up nearly 0.9% to $9.33 per share. The stock now has a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Better performing REITs include Macerich Co. (MAC - Analyst Report), Equity One Inc (EQY - Snapshot Report) and Kite Realty Group Trust (KRG - Snapshot Report), all of which carry a Zacks Rank #2 (Buy).

Note: FFO, a widely accepted and reported measure of the performance of REITs is derived by adding depreciation, amortization and other non-cash expenses to net income.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
DIXIE GRP IN DXYN 15.84 +7.90%
BOFI HLDG IN BOFI 85.30 +4.97%
RAMBUS INC RMBS 12.31 +4.41%
VIPSHOP HOLD VIPS 148.73 +4.35%
NETFLIX INC NFLX 345.74 +4.32%