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Simon Property (SPG) Up 4.3% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Simon Property (SPG - Free Report) . Shares have added about 4.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Simon Property due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Simon Property Q2 FFO and Revenues Miss Estimates

Simon Property’s second-quarter 2020 FFO per share of $2.12 missed the Zacks Consensus Estimate of $2.31. The reported figure also plunged 29.1% from the year-ago quarter’s $2.99.

Further, the company generated revenues of $1.062 billion in the quarter, lagging the Zacks Consensus Estimate of $1.212 billion. The revenue figure also comes in 24% lower than the prior-year quarter reported tally.

Results reflect the coronavirus pandemic’s adverse impact on the company’s domestic and international operations, with an impact of $1.13 per share, mainly on reduced lease income and ancillary property revenues. However, these negatives were partly offset by roughly 36 cents per share from cost-reduction moves.

Notably, Simon Property’s retail properties were closed, in total for 10,500 shopping days during the second quarter. As of Jul 10, all of the company's retail properties were reopened, though seven retail properties in California were later closed on Jul 15, and remain shut because of a new restrictive governmental order.

Finally, as of Aug 7, 91% of the tenants across the company's U.S. retail properties were open and operating. Per the company’s press release, Simon Property’s rent collections from U.S. retail portfolio, including some level of rent deferrals, amounted to roughly 51% of its contractual rent billed for April and May combined, around 69% for June, and 73% for July with merely de minimis deferrals.

Inside the Headline Numbers

For the U.S. Malls and Premium Outlets portfolio, occupancy was 92.9% as of Jun 30, 2020, shrinking 150 basis points year on year. Base minimum rent per square feet was $56.02 as of Jun 30, 2020, up 2.8% year on year. Furthermore, leasing spread per square foot for the trailing 12-month period ended Jun 30, 2020 was flat.

Comparable property net operating income (NOI) for the reported quarter fell 18.5% and portfolio NOI declined 21%.

Portfolio Update

During the June-end quarter, Siam Premium Outlets Bangkok (Bangkok, Thailand), in which the company has a 50% interest, opened with 264,000 square feet of high-quality, name brand stores. This marked the first Premium Outlet Center in Thailand. Moreover, the 178,000 square-foot phase IV expansion of Gotemba Premium Outlets (Gotemba City, (Tokyo) Japan) opened during the quarter and Simon enjoys 40% ownership of this center.

For some redevelopment and new development projects in the United States and internationally that are nearing completion, construction continues. The company’s share of remaining required cash funding is roughly $140 million for these projects that are presently slated to be finished in 2020 or 2021.

Balance Sheet Position

Simon Property exited second-quarter 2020 with $8.5 billion of liquidity. This comprised $3.6 billion of cash on hand, including its share of joint-venture cash, as well as $4.9 billion of available capacity under its revolving credit facilities and term loan, net of $702 million outstanding under its U.S. commercial paper program.

Following the quarter-end, the company accomplished a three tranche senior notes offering aggregating $2.0 billion. Further, in July, the company used cash on hand and proceeds from the offering for repayment of $2.5 billion outstanding under its credit facilities.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -5.75% due to these changes.

VGM Scores

Currently, Simon Property has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Simon Property has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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