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Is a Beat in Store for Simon Property (SPG) in Q3 Earnings?
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Simon Property Group (SPG - Free Report) is slated to report third-quarter 2023 results on Oct 30 after market close. The company’s quarterly results are likely to display year-over-year growth in revenues and funds from operations (FFO) per share.
This Indianapolis, IN-based retail real estate investment trust (REIT) reported a second-quarter 2023 FFO per share of $2.88, which missed the Zacks Consensus Estimate of $2.91. While results reflected better-than-anticipated revenues on healthy leasing activity, higher operating expenses and interest expenses acted as dampeners.
Over the preceding four quarters, Simon Property’s FFO per share surpassed the Zacks Consensus Estimate on two occasions for as many misses, the average negative surprise being 0.37%. This is depicted in the graph below:
In this article, we will dive deep into the U.S. retail real estate market environment and the company's fundamentals and analyze the factors that may have contributed to its third-quarter 2023 performance.
US Retail Real Estate Market in Q3
Per a report from CBRE Group (CBRE - Free Report) , retail fundamentals showed an ongoing improvement in the third quarter. Particularly, retail space demand in the third quarter increased, with net absorption rising 34% quarter over quarter to 9.8 million square feet. Specifically, street retail, freestanding & other segments observed the most net absorption of 4.3 million square feet. While net absorption for neighborhood, community and strip centers fell 29% quarter over quarter, power center and lifestyle and mall segments turned positive after recording negative net absorption in the second quarter.
In addition, amid elevated construction costs and tight lending conditions, total new retail space delivered fell 28% sequentially to just under 5.6 million square feet. This represented the second-lowest total on record.
The overall availability rate in the third quarter fell 10 basis points (bps) to 4.8%, marking at least an 18-year low per the CBRE report. Neighborhood, community and strip centers witnessed the largest year-over-year decline in availability, down 50 bps to 6.6%.
The overall retail asking rent reached $23.42 per square foot, with the asking rent growth falling to just more than 2.1% on a year-over-year basis. This was mainly an indication that landlords are expecting demand to ease in the forthcoming quarters amid the likelihood of the U.S. economy slowing down.
Factors at Play
The positive retail real estate climate is anticipated to have boosted Simon Property's collection of high-quality assets, both domestically and abroad. As consumers increasingly favored in-person shopping experiences after the pandemic lull, it is likely that the demand for SPG's properties remained strong during the quarter. This is expected to have positively impacted occupancy rates and leasing activities. We estimate the total portfolio ending occupancy of 94.9% in the third quarter, reflecting a 20-bps improvement sequentially.
Simon Property's implementation of an omnichannel approach and successful partnerships with top-tier retailers are expected to have yielded significant returns. Additionally, the company's exploration of mixed-use development, a concept that has garnered widespread popularity in recent years, is likely to have allowed it to seize growth prospects in locations where individuals desire to reside, work and enjoy recreational activities.
The Zacks Consensus Estimate for third-quarter lease income is pegged at $1.26 billion, up from $1.22 billion reported in the year-ago quarter. The consensus mark for management fees and other revenues stands at $30.21 million, up from the prior-year quarter’s reported figure of $28.65 million. In addition, the consensus estimate for quarterly revenues is presently pegged at $1.37 billion, indicating an increase of 3.95% year over year.
We expect the company’s robust balance sheet position to have supported its strategic expansions during the quarter to be reported.
However, the economic slowdown amid macroeconomic uncertainty and higher e-commerce adoption may have cast a pall on SPG’s performance in the to-be-reported quarter. Also, rising interest rates may have raised expenses in the to-be-reported quarter. We estimate a 7.3% year-over-year increase in interest expenses in the third quarter.
The Zacks Consensus Estimate for FFO per share has remained unrevised at $2.98 over the past month. However, the figure indicates an increase of 0.34% from the year-ago quarter’s reported figure.
Here Is What Our Quantitative Model Predicts:
Our proven model predicts a surprise in terms of FFO per share for Simon Property this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is the case here.
Simon Property currently has a Zacks Rank of 3 and an Earnings ESP of +0.12%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Other Stocks to Consider
Here are two other stocks from the retail REIT sector — Phillips Edison & Company, Inc. (PECO - Free Report) and Tanger Factory Outlet Centers, Inc. (SKT - Free Report) — that you may want to consider as our model shows that these also have the right combination of elements to report a surprise this quarter.
Phillips Edison & Company is slated to report quarterly numbers on Oct 31. PECO has an Earnings ESP of +0.43% and carries a Zacks Rank of 3 presently. You can see the complete list of today’s Zacks #1 Rank stocks here.
Tanger Factory Outlet Centers, scheduled to report quarterly numbers on Nov 6, has an Earnings ESP of +1.41% and carries a Zacks Rank of 2.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Is a Beat in Store for Simon Property (SPG) in Q3 Earnings?
Simon Property Group (SPG - Free Report) is slated to report third-quarter 2023 results on Oct 30 after market close. The company’s quarterly results are likely to display year-over-year growth in revenues and funds from operations (FFO) per share.
This Indianapolis, IN-based retail real estate investment trust (REIT) reported a second-quarter 2023 FFO per share of $2.88, which missed the Zacks Consensus Estimate of $2.91. While results reflected better-than-anticipated revenues on healthy leasing activity, higher operating expenses and interest expenses acted as dampeners.
Over the preceding four quarters, Simon Property’s FFO per share surpassed the Zacks Consensus Estimate on two occasions for as many misses, the average negative surprise being 0.37%. This is depicted in the graph below:
Simon Property Group, Inc. Price and EPS Surprise
Simon Property Group, Inc. price-eps-surprise | Simon Property Group, Inc. Quote
In this article, we will dive deep into the U.S. retail real estate market environment and the company's fundamentals and analyze the factors that may have contributed to its third-quarter 2023 performance.
US Retail Real Estate Market in Q3
Per a report from CBRE Group (CBRE - Free Report) , retail fundamentals showed an ongoing improvement in the third quarter. Particularly, retail space demand in the third quarter increased, with net absorption rising 34% quarter over quarter to 9.8 million square feet. Specifically, street retail, freestanding & other segments observed the most net absorption of 4.3 million square feet. While net absorption for neighborhood, community and strip centers fell 29% quarter over quarter, power center and lifestyle and mall segments turned positive after recording negative net absorption in the second quarter.
In addition, amid elevated construction costs and tight lending conditions, total new retail space delivered fell 28% sequentially to just under 5.6 million square feet. This represented the second-lowest total on record.
The overall availability rate in the third quarter fell 10 basis points (bps) to 4.8%, marking at least an 18-year low per the CBRE report. Neighborhood, community and strip centers witnessed the largest year-over-year decline in availability, down 50 bps to 6.6%.
The overall retail asking rent reached $23.42 per square foot, with the asking rent growth falling to just more than 2.1% on a year-over-year basis. This was mainly an indication that landlords are expecting demand to ease in the forthcoming quarters amid the likelihood of the U.S. economy slowing down.
Factors at Play
The positive retail real estate climate is anticipated to have boosted Simon Property's collection of high-quality assets, both domestically and abroad. As consumers increasingly favored in-person shopping experiences after the pandemic lull, it is likely that the demand for SPG's properties remained strong during the quarter. This is expected to have positively impacted occupancy rates and leasing activities. We estimate the total portfolio ending occupancy of 94.9% in the third quarter, reflecting a 20-bps improvement sequentially.
Simon Property's implementation of an omnichannel approach and successful partnerships with top-tier retailers are expected to have yielded significant returns. Additionally, the company's exploration of mixed-use development, a concept that has garnered widespread popularity in recent years, is likely to have allowed it to seize growth prospects in locations where individuals desire to reside, work and enjoy recreational activities.
The Zacks Consensus Estimate for third-quarter lease income is pegged at $1.26 billion, up from $1.22 billion reported in the year-ago quarter. The consensus mark for management fees and other revenues stands at $30.21 million, up from the prior-year quarter’s reported figure of $28.65 million. In addition, the consensus estimate for quarterly revenues is presently pegged at $1.37 billion, indicating an increase of 3.95% year over year.
We expect the company’s robust balance sheet position to have supported its strategic expansions during the quarter to be reported.
However, the economic slowdown amid macroeconomic uncertainty and higher e-commerce adoption may have cast a pall on SPG’s performance in the to-be-reported quarter. Also, rising interest rates may have raised expenses in the to-be-reported quarter. We estimate a 7.3% year-over-year increase in interest expenses in the third quarter.
The Zacks Consensus Estimate for FFO per share has remained unrevised at $2.98 over the past month. However, the figure indicates an increase of 0.34% from the year-ago quarter’s reported figure.
Here Is What Our Quantitative Model Predicts:
Our proven model predicts a surprise in terms of FFO per share for Simon Property this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is the case here.
Simon Property currently has a Zacks Rank of 3 and an Earnings ESP of +0.12%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Other Stocks to Consider
Here are two other stocks from the retail REIT sector — Phillips Edison & Company, Inc. (PECO - Free Report) and Tanger Factory Outlet Centers, Inc. (SKT - Free Report) — that you may want to consider as our model shows that these also have the right combination of elements to report a surprise this quarter.
Phillips Edison & Company is slated to report quarterly numbers on Oct 31. PECO has an Earnings ESP of +0.43% and carries a Zacks Rank of 3 presently. You can see the complete list of today’s Zacks #1 Rank stocks here.
Tanger Factory Outlet Centers, scheduled to report quarterly numbers on Nov 6, has an Earnings ESP of +1.41% and carries a Zacks Rank of 2.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.