On Sep 5, we reaffirmed our long-term Neutral recommendation
Simon Property Group, Inc.
). The decision is based on this retail real estate investment
trust's (REIT) diversified portfolio, growth prospects,
better-than-expected results and improving metrics. However, rise
in online shopping, a cut-throat competitive environment and
rising interest rates remain our concerns.
Consistent with its winning streak, Simon Property came up with a
solid operating performance during the second quarter and easily
outpaced funds from operations (FFO) estimates. Quarterly FFO per
share was up 11.6% year over year and beat the Zacks Consensus
Estimate by 1.93%, primarily due to an increase in minimum rent,
overage rent and occupancy. Moreover, the company has raised its
guidance for the year again.
We believe that with assets in almost all retail distribution
channels across the U.S., Simon Property is well poised to
capitalize on improving market dynamics. Also, the company's
international presence gives it more sustainable long-term growth
prospects than its domestically focused peers.
Simon Property has been active in capitalizing on growth
opportunities in some of the top global markets, with a focus on
enhancing its Premium Outlets portfolio. The company is
experiencing an improved trend in total sales per square foot and
occupancy over the recent years. Moreover, releasing spreads
remained positive in the U.S. malls and Premium Outlets.
However, the company's significant development pipeline increases
its operational risks. Moreover, rise in consumer purchases
through catalogs and the Internet could hurt the demand for its
properties. Moreover, the rising interest rates increase the
company's funding cost.
Hence, we believe that the risk/reward profile for the stock is
currently balanced and therefore have reaffirmed our Neutral
recommendation on the stock.
Over the last 30 days, the Zacks Consensus Estimate for 2013 FFO
per share remained unchanged at $8.73 per share while the Zacks
Consensus Estimate for 2014 moved north by a cent to $9.37 per
share. The stock currently has a Zacks Rank #3 (Hold).
Other Stocks to Consider
Other stocks in the related industry that are worth considering
Acadia Realty Trust
Cedar Realty Trust, Inc.
Realty Income Corp.
), all carrying a Zacks Rank #2 (Buy).
FFO, a widely used metric to gauge the performance of REITs,
is obtained after adding depreciation and amortization and other
non-cash expenses to net income.
ACADIA RLTY TR (AKR): Free Stock Analysis
CEDAR SHOPN CTR (CDR): Free Stock Analysis
REALTY INCOME (O): Free Stock Analysis Report
SIMON PROPERTY (SPG): Free Stock Analysis
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