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Simon Property Group, Inc (SPG - Analyst Report) – a real estate investment trust (REIT) – reported first-quarter 2013 FFO (funds from operations) per share of $2.05, beating the Zacks Consensus Estimate by 4 cents. Moreover, this compared favorably with the year-ago quarter’s FFO per share of $1.82. The 12.6% year over year increase in quarterly FFO per share was primarily driven by an increase in overage revenues and occupancy.

Inside the Headlines Number

Total revenue during the quarter came in at $1,215.1 million, up 8.6% from $1,119.0 million reported in the year-ago quarter. The quarterly revenues also reached well above the Zacks Consensus Estimate of $1,182 million. The increases in revenues were attributable to substantial rises in minimum rental, overage rental and tenant reimbursements revenues.

Minimum rental revenues climbed 10.8% to $777.9 million from $702.1 million in the prior year quarter. On the other hand, overage rental revenues for the quarter soared 36.2% to $37.7 million from $27.7 million in the prior year quarter. Revenues from tenant reimbursements jumped 10.6% to $339.0 million from $306.4 million in the prior-year quarter.

Occupancy in the regional malls and premium outlet centers' combined portfolio rose 110 bps (basis points) to 94.7% at the end of the quarter from 93.6% in the prior year quarter. Comparable sales in the combined portfolio increased 5.3% to $575 per square foot from $546 recorded in the last year quarter. Moreover, average rent per square foot in the combined portfolio rose 3.0% to $41.05 from $39.87 in prior year quarter.

Developments and Redevelopments

Simon Property has been active in capitalizing on growth opportunities in top markets worldwide, with a focus on enhancing its Premium Outlets portfolio. In the first quarter of 2013, Simon Property opened 2 premium outlets, namely Phoenix Premium Outlets in Ariz. 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 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. All centers are slated to open by August this year.

In the first quarter, Simon Property completed significant redevelopment projects at 3 properties ­– Apple Blossom Mall, Quaker Bridge Mall and South Hills Village. Currently, the company has redevelopment and expansion projects in its pipeline for 44 properties in the U.S. and 2 in Asia. 

Liquidity

As of Mar 31, 2013, Simon Property had cash and cash equivalents worth $830 million, compared with $1.18 billion as of Dec 31, 2012.

Dividend

Concurrent with its earnings release, Simon Property declared the first-quarter 2013 dividend of $1.15 per share. The dividend will be paid on May 31 to shareholders of record as of May 17.

Revised 2013 Outlook

The strong first-quarter results raised management’s optimism for the rest of 2013. Consequently, Simon Property increased its 2013 FFO guidance in the range of $8.50–8.60 per share, from the previous range of $8.40–8.50.

Our Take

Consistent with its winning streak, Simon Property came up with another robust quarterly result. The escalation in occupancy and tenant sales per square foot along with increase in revenues aided the growth. Moreover, the company’s portfolio restructuring activity that is strengthening its presence globally, added to the success. We expect these activities to provide Simon Property a competitive advantage and also boost its top-line growth going forward.

Simon Property currently carries a Zacks Rank #2 (Buy).  Other well performing REITs include – DDR Corp. (DDR - Analyst Report), Agree Realty Corp. (ADC - Snapshot Report) and Regency Center Corp. (REG - Analyst Report). All these stocks carry the same rank as Simon Property.

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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