Simon Property Group, Inc (SPG - Analyst Report) – a retail real estate investment trust (REIT) – reported second-quarter 2013 funds from operations (FFO) per share of $2.11, beating the Zacks Consensus Estimate by 4 cents. Moreover, this was higher than the year-ago quarter figure of $1.89.
Quarterly FFO per share was up 11.6% year over year, primarily driven by an increase in overage revenues and occupancy. Prompted by its strong fundamentals, the company raised its FFO growth outlook for the second time in the year.
Total revenue during the reported quarter came in at $1,236.6 million, up 4.1% from $1,188.1 million in the year-ago quarter. The quarterly revenues also exceeded the Zacks Consensus Estimate of $1,224 million. The increase in revenues was attributable to a significant rise in overage rental and tenant reimbursement revenues.
Behind the Headlines
Minimum rental revenues climbed 4.3% to $778.2 million from $746.2 million in the prior-year quarter. On the other hand, overage rental revenues shot 28.1% to $40.2 million from $31.4 million in the prior-year quarter. Revenues from tenant reimbursements upped 6.9% to $353.2 million from $330.5 million in the prior-year quarter.
Occupancy in the regional malls and premium outlet centers' combined portfolio rose 90 basis points (bps) to 95.1% at the quarter-end from 94.2% in the prior year quarter-end. Comparable sales in the combined portfolio increased 4.2% to $577 per square foot from $554 recorded in the prior-year quarter. Moreover, average rent per square foot in the combined portfolio rose 3.6% to $41.41 from $39.99 in prior-year quarter.
Acquisitions & Divestitures
Simon Property bought an Oregon-based existing outlet shopping center for $147 million and rebranded it Woodburn Premium Outlets. The 99% occupied property boasts over 110 outlets of renowned brands such as The Gap, Inc. (GPS - Analyst Report), Chico's FAS Inc. (CHS - Snapshot Report) and ANN INC (ANN - Snapshot Report).
In addition, Simon Property penned a joint venture (JV) deal with McArthurGlen Group – a leading European Designer outlets operator – to invest in certain assets of the company.
Moreover, Simon Property divested a California-based asset – Laguna Hills Mall – for $110 million during the quarter.
Developments and Redevelopments
Simon Property has been active in capitalizing on growth opportunities in some of the top markets worldwide, with a focus on enhancing its Premium Outlets portfolio. In the said quarter, the company opened 2 premium outlets, namely Phoenix Premium Outlets in Arizona and Shisui Premium Outlets in Japan, after completion of their development.
Moreover, Simon Property continued the construction of 3 new Premium Outlet Centers that are scheduled to open in Aug 2013. These are Toronto Premium Outlets in Halton Hills; St. Louis Premium Outlets in Chesterfield; and Busan Premium Outlets in Busan, Korea. The company owns 50%, 60% and 50% interest in these centers, respectively.
In the reported quarter, Simon Property started construction at a Quebec-based project – Premium Outlets Montreal – in which it owns 50% stake. The company completed significant projects at 4 properties, namely Paju Premium Outlets, Dadeland Mall, Seattle Premium Outlets and Sawgrass Mills.
Currently, the company has redevelopment and expansion projects in its pipeline for over 40 properties in the U.S. and 2 in Asia, of which Simon Property’s share of the projects cost is about $1 billion.
As of Jun 30, 2013, Simon Property had cash and cash equivalents worth $1.10 billion, compared with $830 million as of Mar 31, 2013.
During the reported quarter, the company and its operating partnership received ratings upgradation from Standard & Poor's Ratings Services. Both the corporate credit ratings and senior unsecured debt ratings were increased to 'A' from 'A-'. In addition, preferred stock ratings were upgraded to 'BBB+' from 'BBB'. The outlook is stable.
Along with its earnings release, Simon Property declared a quarterly dividend of $1.15 per share. The dividend will be paid on Aug 30, 2013 to shareholders of record as of Aug 16.
Revised 2013 Outlook
Simon Property increased its 2013 FFO guidance in the range of $8.60–8.70 per share, from $8.50–8.60 forecasted earlier. Notably, this is the second guidance increase by Simon Property in this year.
Consistent with its winning streak, Simon Property came up with robust quarterly results on the back of strong financial and operational performances. Moreover, the second guidance increase by the company boosts consumers’ confidence in the stock.
In particular, significant portfolio restructuring activity has been steering the company to strengthen its footprints on national and international levels. The formation of a JV in Europe is noteworthy in this respect. Going forward, we expect these activities to drive occupancy and tenant sales per square foot growth, thereby boosting the company’s top-line growth.
Simon Property currently carries a Zacks Rank #2 (Buy).
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.