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What's in Store for Simon Property's (SPG) Q4 Earnings?

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Simon Property Group (SPG - Free Report) is scheduled to report fourth-quarter and full-year 2019 results on Feb 4, before the opening bell. While the company’s results are anticipated to reflect a marginal increase in revenues, its funds from operations (FFO) per share might reflect a decline, year on year.

In the last reported quarter, this Indianapolis, IN-based retail real estate investment trust (REIT) delivered an in-line performance in terms of FFO per share. Results reflected increase in leasing spread per square foot at the company’s U.S. malls and Premium Outlets.

In addition, over the trailing four quarters, the company exceeded the Zacks Consensus Estimate on two occasions, met in another and missed in the other, the average beat being 0.17%. This is depicted in the graph below:

Simon Property Group, Inc. Price and EPS Surprise

Simon Property Group, Inc. Price and EPS Surprise

Simon Property Group, Inc. price-eps-surprise | Simon Property Group, Inc. Quote

Let’s see how things are shaping up for this announcement.

Factors that Might Have Influenced Simon’s Property’s Q4 Performance

Store closures and bankruptcies have been affecting the retail real estate market, for long, which has been undergoing structural changes. Moreover, the recent data from Reis shows that the retail and the Mall vacancy rates both increased in the quarter. Particularly, the retail vacancy rate inched up 0.1% to 10.2% in the fourth quarter. Further, retail rent growth was just 0.1%, while mall rents remained flat.

Notably, adoption of an omni-channel strategy and successful tie-ups with premium retailers has been a saving grace for Simon Property amid this retail apocalypse. The company has been focused on active restructuring of its portfolio, aiming at premium acquisitions and transformative redevelopments. It has been investing in billions for the past few years to transform its properties focused on creating value and drive footfall. The transformational plans include addition of hotels, restaurants, residences and luxury stores.    

In October, Simon Property announced investments in the best-in-class operators across the hospitality, health and wellness, dining and entertainment sectors, as part of its efforts to bolster the company’s consumer-facing entertainment and lifestyle platform. Together with the company’s tie up with Rue Gilt Groupe focused on digital value shopping, including its new marketplace,, these strategic investments are aimed at complementing Simon Property’s core real estate by bringing together new experiential businesses to markets across the country.

The retail REIT also has a solid and improving balance sheet with ample liquidity. This trend is likely to have continued in the fourth quarter as well.

Nevertheless, shift in consumers’ preferences toward online channels for purchases, bankruptcies and store closures have emerged as pressing concerns for retail REITs and Simon Property is not immune to such choppy environment. In addition, though the company has been striving to counter this pressure through various initiatives, implementation of such measures requires a decent upfront cost. Therefore, this is likely to have limited any robust growth in profit margins in the quarter under review.

Amid these, the Zacks Consensus Estimate for fourth-quarter revenues is currently pinned at $1.47 billion, indicating an increase of 0.41% year over year. However, Simon Property’s activities during the October-December quarter were inadequate to gain analyst confidence. The Zacks Consensus Estimate for the FFO per share moved 1.7% south over the past two months and is currently pinned at $2.95. The figure also suggests an 8.7% decline from the year-ago quarter.

For full-year 2019, Simon Property expects FFO per share of $12.00-$12.05. Further, the company estimates comparable FFO per share of $12.33-$12.38. The Zacks Consensus Estimate for 2019 FFO per share has been revised downward marginally and is currently pinned at $12.04, indicating a 0.74% decline, year on year, on revenues of $5.7 billion.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive 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 odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Simon Property carries a Zacks Rank #4 (Sell) and Earnings ESP of -0.04%.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Healthpeak Properties, Inc. (PEAK - Free Report) , slated to release fourth-quarter earnings on Feb 11, has an Earnings ESP of +1.15% and carries a Zacks Rank of 3, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Vornado Realty Trust (VNO - Free Report) , set to report quarterly numbers on Feb 18, has an Earnings ESP of +5.62% and carries a Zacks Rank of 3, currently.

Host Hotels & Resorts, Inc. (HST - Free Report) , scheduled to release October-December quarter results on Feb 19, has an Earnings ESP of +1.52% and currently holds a Zacks Rank #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.

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