Simon Property Group (SPG Quick QuoteSPG - Free Report) is slated to report fourth-quarter and full-year 2024 results on Feb. 4, after closing bell. While the company’s quarterly results are likely to display a year over year rise in revenues, funds from operations (FFO) per share are expected to decline.

See the Zacks Earnings Calendar to stay ahead of market-making news.

In the last reported quarter, this Indianapolis, IN-based retail real estate investment trust (REIT) missed the Zacks Consensus Estimate by 5.3% 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 two occasions and missed on the remaining periods, the average surprise being 7.8%. 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 fourth-quarter 2024 performance.

U.S. Retail Real Estate Market in Q4

Per a Cushman & Wakefield (CWK Quick QuoteCWK - Free Report) report, there has been a pullback in net absorption for the U.S. shopping center market, resulting in a positive shift in the fourth quarter. Asking rents for the U.S. shopping centers market grew from the year-ago quarter. However, with new constructions remaining subdued, the national vacancy rate remained unchanged sequentially near a historic low of 5.4%.

The fourth quarter witnessed the strongest net absorption of 2024 in the U.S. shopping center market, totaling 1.43 million square feet (msf). The increase was due to positive net absorption observed in almost all the country’s regions except for the northeast region. With 89% of the annual net absorption total occurring in the fourth quarter, the retail market appears to be in good shape. The asking rents for U.S. shopping centers increased 2.8% year over year to $24.59 per square foot in the fourth quarter.

The lack of new construction is also contributing to the scarcity, as a record low 8.3 msf of new shopping center space was delivered in 2024. As of the fourth quarter of 2024, there are only 10.6 msf under construction with an inventory of 4.32 billion square feet.

Factors to Consider Ahead of SPG’s Q4 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 fourth 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. Further, high interest expenses are expected to have been a spoilsport for SPG during the quarter.

Projections for SPG

The Zacks Consensus Estimate for fourth-quarter lease income is pegged at $1.40 billion, up from $1.36 billion reported in the year-ago quarter. The consensus mark for management fees and other revenues stands at $34 million, up from the prior-year quarter’s reported figure of $33.5 million.

In addition, the consensus estimate for quarterly revenues is presently pegged at $1.55 billion, which indicates an increase of 1.3% year over year.

However, the consensus mark for other income stands at $122.5 million, down from $131.5 million reported in the prior-year quarter.

We estimate the total portfolio ending occupancy to decline 30 basis points to 95.9% in the fourth quarter sequentially. We estimate a 1.2% year-over-year increase in interest expenses for the fourth quarter.

Simon Property’s activities during the soon-to-be-reported quarter were inadequate to gain analysts’ confidence. The Zacks Consensus Estimate for the fourth-quarter FFO per share has been unrevised at $3.40 in the past month. It suggests a 7.9% 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 -1.23% 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 retail REIT sector — Kimco Realty (KIM Quick QuoteKIM - Free Report) and Kite Realty Group Trust (KRG Quick QuoteKRG - 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.

Kimco Realty, slated to release quarterly numbers on Feb. 7, has an Earnings ESP of +2.11% and carries a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kite Realty Group, scheduled to report quarterly numbers on Feb. 11, has an Earnings ESP of +0.38% 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.