Simon Property Group (SPG Quick QuoteSPG - Free Report) is slated to report third-quarter 2024 results on Nov. 1, before opening bell. While the company’s quarterly results are likely to display a year over year rise in revenues, funds from operations (AFFO) per share are expected to decline.

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In the last reported quarter, this Indianapolis, IN-based retail real estate investment trust (REIT) missed the Zacks Consensus Estimate by 1% in terms of FFO per share. Results reflected higher interest expenses on a year-over-year basis. However, an increase in revenues, backed by a rise in the base rent per square foot and occupancy levels, supported the results to some extent.

Over the preceding four quarters, Simon Property’s FFO per share surpassed the Zacks Consensus Estimate on three occasions and missed on the remaining period, the average surprise being 11%. 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 2024 performance.

U.S. Retail Real Estate Market in Q3

Per a Cushman & Wakefield (CWK Quick QuoteCWK - Free Report) report, there has been a pullback in net absorption for U.S. shopping centers, resulting in a slight negative shift in the third quarter. With absorption falling down, rent growth continued to moderate in the quarter. However, with new constructions remaining subdued, the national vacancy rate remained near a historic low of 5.4%.

The third quarter witnessed a negative net absorption in U.S. shopping centers, totaling 0.26 million square feet (msf). The decrease was due to a negative net absorption of 1.8 msf observed in the country’s southern region. The asking rents for U.S. shopping centers increased 3.4% year over year to $24.54 per square foot in the third quarter.

New construction activity remains subdued, and 2024 is expected to be the weakest year for new construction on record. As of the third quarter of 2024, there are 11.1 msf under construction within a market with an inventory of 4.31 billion square feet, resulting in virtually no supply risk.

Factors to Consider Ahead of SPG’s Q3 Results

Simon Property is expected to benefit from its portfolio of premium retail assets across the United States and globally. As consumers increasingly favored in-person shopping experiences after the pandemic lull, it is likely that the demand for SPG's properties remained healthy during the third quarter.

The implementation of an omnichannel approach and successful partnerships with top-tier retailers are expected to yield significant returns for Simon Property. The exploration of mixed-use development, a concept that has garnered widespread popularity in recent years, is likely to have allowed SPG to seize growth prospects in locations where individuals desire to reside, work and enjoy recreational activities.

We also expect the company’s solid balance sheet position to have supported its strategic expansions during the quarter to be reported.

However, growing e-commerce adoption may have affected SPG’s performance in the to-be-reported quarter. Also, the high interest rate environment poses a challenge, as elevated rates increase the company’s borrowing costs.

Projections for SPG

The Zacks Consensus Estimate for third-quarter lease income is pegged at $1.33 billion, up from $1.3 billion reported in the year-ago quarter.

The consensus mark for other income stands at $100.4 million, up from $82.2 million reported in the prior-year quarter. The consensus mark for management fees and other revenues stands at $30.7 million, up from the prior-year quarter’s reported figure of $30.1 million.

In addition, the consensus estimate for quarterly revenues is presently pegged at $1.46 billion, which indicates an increase of 3.6% year over year.

We estimate the total portfolio ending occupancy to remain unchanged at 95.6% in the third quarter sequentially. We estimate a 4.8% year-over-year increase in interest expenses for the third quarter.

Simon Property’s activities during the soon-to-be-reported quarter were inadequate to gain analysts’ confidence. The Zacks Consensus Estimate for the third-quarter FFO per share has been unrevised at $3.01 in the past month. It suggests a 5.9% decrease year over year.

What Our Quantitative Model Predicts

Our proven model doesn’t conclusively predict 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 not the case here.

Simon Property currently has an Earnings ESP of 0.00% and carries a Zacks Rank of 3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks That Warrant a Look

Here are two stocks from the broader REIT sector — VICI Properties, Inc. (VICI Quick QuoteVICI - Free Report) and Ryman Hospitality Properties (RHP Quick QuoteRHP - Free Report) — that you may want to consider, as our model shows that these have the right combination of elements to report a surprise this quarter.

VICI Properties, slated to release quarterly numbers on Oct. 31, has an Earnings ESP of +1.24% and carries a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ryman Hospitality, scheduled to report quarterly numbers on Nov. 4, has an Earnings ESP of +1.23% and carries a Zacks Rank of 3.

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.