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Simon Property Excels Estimates

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Simon Property Group Inc. (SPG - Free Report) , a leading real estate investment trust (REIT), reported second quarter 2012 FFO (funds from operations) of $688.8 million or $1.89 per share, compared to $583.0 million or $1.65 in the year-earlier quarter. Funds from operations, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation and amortization and other non-cash expenses to net income.

The reported quarterly FFO per share well exceeded the Zacks Consensus Estimate of $1.80. Total revenue during the reported quarter increased to $1,188.1 million from $1,040.9 million in the year-ago period. Total revenue during the reported quarter beat the Zacks Consensus Estimate of $1,128 million.

Occupancy in the regional malls and premium outlet centers combined portfolio was 94.2% at quarter-end, compared to 93.6% in the year-ago period. Comparable sales in the combined portfolio increased to $554 per square foot, compared to $504 in the prior-year quarter – an increase of 9.9%. Average rent per square foot in the combined portfolio increased during second quarter 2012 to $39.99 from $38.57 in the year-ago period.

The company continued its active development and redevelopment programs during the quarter. Simon Property opened Phase I of the ‘Merrimack Premium Outlets’ spanning 410,000 square feet of retail space in Merrimack, New Hampshire, during second quarter 2012.

In addition, the company started construction work on ‘St. Louis Premium Outlet’ in Chesterfield, Missouri. Simon Property owns a 60% ownership stake in this joint venture project. The first phase of the project would include 85 stores totaling 350,000 square feet and is expected to open in the fall of 2013. Simon Property currently has an aggregate of 25 redevelopment and expansion projects in the U.S. and two properties in Japan.    

The company is also continuing its construction work on several premium outlet centers across the globe. These included ‘Shisui Premium Outlets’ – a 234,000 square foot upscale outlet center in Shisui (Chiba), Japan; ‘Phoenix Premium Outlets’ – an upscale outlet center in Chandler (Phoenix), Arizona; ‘Toronto Premium Outlets’ – a 358,000 square foot upscale outlet center in Halton Hills, Canada; and ‘Busan Premium Outlets’ – a 244,000 square foot upscale outlet center in Busan, Korea.

During the reported quarter, Simon Property obtained a new $2.0 billion unsecured revolving credit facility that complemented its existing $4.0 billion revolving credit facility. The borrowing capacity of the new facility could be further increased to $2.5 billion and is scheduled to mature on June 30, 2016 with a one-year extension option. The new facility bears an interest rate of LIBOR plus 100 basis points.

At quarter-end, the company had approximately $638.5 million in cash and cash equivalents. The company increased its quarterly dividend by 31.3% from the year-ago period to $1.05 per share. With strong quarterly results, Simon Property also increased its 2012 FFO guidance to $7.60 – $7.70 per share from its earlier projections of $7.50 – $7.60.

We currently maintain our Neutral recommendation on the stock, which presently has a Zacks #2 Rank translating into a short-term Buy rating. We also have a Neutral recommendation and a Zacks #2 Rank for Macerich Co. (MAC - Free Report) , one of the competitors of Simon Property.

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