Simon Property Group, Inc.
) reported second-quarter 2014 funds from operations (FFO) of $2.16
per share, which came 2 cents ahead of the Zacks Consensus Estimate
and a nickel above the year-ago quarter figure. The quarterly FFO
Washington Prime Group Inc.
) spin-off related transaction cost of 10 cents per share.
The 2.4% year-over-year improvement in quarterly FFO per share
was primarily driven by a notable rise in base minimum rent and
total sales per square feet as well as occupancy rate. Moreover,
this retail real estate investment trust (REIT) hiked its 2014 FFO
per share guidance.
Total revenue during the reported quarter increased 8.9% year
over year to $1.18 billion. This was primarily attributable to a
notable rise in minimum rent and tenant reimbursement revenues.
However, it missed the Zacks Consensus Estimate of $1.27
Quarter in Detail
Minimum rental revenues climbed 8.0% year over year to $728.5
million, while revenues from tenant reimbursements increased 11.0%
year over year to $342.3 million.
For the U.S. Malls and Premium Outlets portfolio, occupancy rose
140 basis points (bps) year over year to 96.5% at the end of the
second quarter. Total sales per square feet moved up by 5.4% to
$608. Encouragingly, base minimum rent per square feet climbed
10.7% year over year to $45.83 and releasing spread increased 590
bps to 20.0%.
During the quarter, Simon Property accomplished the spin-off of
Washington Prime Group. This independent public company's portfolio
includes 98 retail assets, including the strip center business,
that were previously under Simon Property's ownership.
Also, Simon Property started construction on three projects -
Chicago Premium Outlets in IL, The Fashion Centre at Pentagon City
in VA and Shisui Premium Outlets in Japan. At the end of the second
quarter, Simon Property has redevelopment and expansion projects in
progress at 32 assets across U.S., Asia and Mexico.
Simon Property exited second-quarter 2014 with cash and cash
equivalents of $1.7 billion, up from $1.0 billion at the end of
2014 Outlook Increase
Simon Property increased its 2014 FFO per share outlook in the
range of $9.01 - $9.11, from $8.96 - $9.06 guided earlier. The new
range is lower than the Zacks Consensus Estimate of $9.14 for the
Concurrent with its earnings release, Simon Property declared
the quarterly dividend of $1.30 per share. The dividend will be
paid on Aug 29, 2014 to shareholders of record as of Aug 15.
Although Simon Property's FFO per share came above the
estimates, the revenue miss is surely discouraging. Moreover,
though the spin-off was a strategic fit for the long term for this
Zacks Rank #5 (Strong sell) stock, a dilution impact on earnings
from such a move is unavoidable in the near term. However, we
expect the company to perform better in the quarters ahead on the
back of an improving economy, job growth and spending of the richer
We now look forward to the results of other REITs such as
Mack-Cali Realty Corp.
SL Green Realty Corp.
) that are scheduled to report this week.
FFO, 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.
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