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2nd UPDATE: Simon Property Profit Down On Lower Occupancy Rates

(Updates with analysts' comments, stock movement and CEO remarks)

A.D. Pruitt

Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- Simon Property Group Inc.'s (SPG) third-quarter profit dropped 9.7% as the nation's largest shopping mall owner reported falling occupancy at its regional mall business and outlet centers.

Nonetheless, the results easily topped Wall Street expectations and Simon Property continued to receive kudos from analysts for being conservative and retaining an ample cash balance during the recession. While the real-estate investment trust reported about a 2% increase in average rents, there were dips on a sequential basis and management noted a challenging leasing environment during a call with analysts and investors Friday.

This comes at a time when many retail landlords are cutting rents and increasing tenant concessions to keep valued retailers and stave off vacancies.

Amid broader market declines, the company lost 1.64% to roughly $67.00 in recent trading.

"Yes, it's getting tougher to maintain our historical lease spread," said Chief Executive David Simon during the call. But, he didn't anticipate that leasing spreads will turn negative.

He also said the company saw continued improvement in the capital markets and from its retailers.

The company reported a profit of $112.1 million, or 38 cents a share, down from $124.1 million, or 50 cents a share, a year earlier. Funds from operations, a key profitability measure for REITs, fell to $1.38 a share from $1.61 a share.

For the latest quarter, FFO were diluted by 23 cents a share due to the issuance of common stock earlier this year.

Revenue dropped 1.1% to $924.9 million.

Analysts surveyed by Thomson Reuters projected FFO of $1.32 a share and revenue of $892 million.

"This is a company...that under promises, but over delivers," said Alexander Goldfarb, an analyst with Sandler O'Neill & Partners LP.

Simon has built up its balance sheet, and as of Sept. 30, it had $4 billion in cash on hand--up from $2.9 billion in the prior quarter--and over $3 billion available on its revolving credit facility.

At the regional mall business, occupancy fell to 91.4% from 92.5% while average rents rose 2%. Outlet occupancy decreased to 97.5% from 98.8%, and rents rose 21%. Comparable-store sales per square foot dropped 11% at malls and 4.5% at outlets.

Meanwhile, Simon raised the low end of its full-year FFO target by 5 cents a share.

Mall REITs have been grappling with a retail industry hammered by steep declines in consumer spending and woes in the broader commercial property market as values plummet and foreclosures rise amid a continuing credit crunch and recession.

Simon's results follows those by smaller rivals including Taubman Centers Inc. (TCO) and Glimcher Realty Trust (GRT), which both reported declines in funds from operations.

Jim Sullivan, an analyst at Green Street Advisors, said that retail landlords have done surprisingly well at maintaining occupancy.

"They haven't lost as much as we had expected," because many mall landlords are cutting rents and providing rent relief for tenants, he said.

Simon Property has long been on the top of analyst lists of mall developers able to jump on future acquisition opportunities because it's so well capitalized.

The company said on the call that it's still evaluating acquisition opportunities but won't likely strike any deals this year or look overseas.

-By A.D. Pruitt, Dow Jones Newswires; 212-416-2197; angela.pruitt@dowjones.com

(John Kell contributed to this report.)

  (END) Dow Jones Newswires
  10-30-091358ET
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