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Analyst Blog

On Aug 8, Zacks Investment Research upgraded Simon Property Group, Inc. (SPG - Analyst Report) to a Zacks Rank #2 (Buy). The upgrade of this retail real estate investment trust (REIT) came on the back of better-than-expected second-quarter 2013 results.

Why the Upgrade?

Consistent with its winning streak, Simon Property came up with a solid operating performance during the second quarter and easily outpaced funds from operations (FFO) estimates. Quarterly FFO per share was up 11.6% year over year and beat the Zacks Consensus Estimate by 1.93%, primarily due to an increase in minimum rent, overage rent and occupancy.

In particular, significant portfolio restructuring activity has been steering Simon Property to strengthen its footprint on national and international levels. It has been active in capitalizing on growth opportunities in some of the top global markets, with a focus on enhancing its Premium Outlets portfolio. As part of this strategy to expand in upscale locations across the world, recently Simon Property opened its first Premium Outlet Centre in Toronto, Canada.

Prompted by its strong fundamentals, Simon Property raised its FFO growth outlook for the second time in the year. The upward revision of the guidance also boosts investors’ confidence.

The stronger-than-anticipated results triggered an uptrend in the Zacks Consensus Estimates, as analysts became more constructive on the stock’s future performance. This is evident from the movement witnessed in the Zacks Consensus Estimate that rose 0.7% to $8.73 for 2013 and 0.3% to $9.36 per share for 2014 in the past 30 days.

Additionally, the long-term earnings growth forecast for the company is 6.88%. Hence, the favorable estimate revisions, driven by positive second-quarter results and expansion efforts made way for the upgrade in the rank.

Other Stocks to Consider

Apart from Simon Property, the other stocks worth considering in the retail REIT industry include Acadia Realty Trust (AKR - Snapshot Report), Cedar Realty Trust, Inc. (CDR - Snapshot Report) and Realty Income Corp. (O - Snapshot Report), all carrying 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.

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