Simon Property (SPG) to Post Q2 Earnings: What to Expect?

Simon Property GroupSPG is scheduled to report second-quarter 2018 results on Jul 30, before the market opens. The company's results are anticipated to reflect year-over-year rise in funds from operations (FFO) per share and revenues.

In the last reported quarter, this Indianapolis, IN-based retail real estate investment trust (REIT) delivered a positive surprise in terms of FFO per share. The company recorded growth in net operating income for the total portfolio which was backed by contribution from new development, redevelopment, expansion and acquisitions.

In addition, over the trailing four quarters, the company exceeded the Zacks Consensus Estimate in three occasions and met in the other, the average beat being 0.65%. 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. Quote

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

Factors to Influence Q2 Results

Recent data form Reis shows that the national retail vacancy rate marginally increased to 10.2% in second-quarter 2018 - underlining store closures of bankrupt toy retailer, Toys "R" Us Inc. - while national average asking rents edged 0.2% higher. Admittedly, though store closures and retailer bankruptcies prevail in the market, retail landlords are now countering this challenge. Retail REITs are now avoiding heavy reliance on apparel and accessories, and instead expanding their dining options, opening movie theaters, offering recreational facilities and opening fitness centers, in particular, as these traffic are Internet resistant.

Simon Property too is making every possible move to counter the challenging situation. The company, which has been actively restructuring its portfolio, is aimed at premium acquisitions and transformative redevelopments. In fact, at the end of the first quarter, Simon Property had redevelopment and expansion projects, including the addition of new anchors, in progress at 28 properties across the United States, Canada and Asia.

This May, Simon Property announced the launch of a $4+ billion investment plan to transform its properties aimed at creating value and drive footfall. The transformational plans included addition of hotels, restaurants, residences and luxury stores.

Further, the company is undertaking strategic measures to help online retailers fortify their physical presence, besides taking steps to support omni-channel strategy. Also, later in May, it announced the continuation of its plan to recapture former Sears locations across its portfolio, transforming those into retail, fitness, dining and entertainment hubs.

Such moves make its shopping malls appealing, and the company is well poised to effectively leverage the improving spending habits of wealthier customers amid improving economy and job market gains. Therefore, these efforts will be conducive to revenue growth in the to-be-reported quarter.

The Zacks Consensus Estimate for second-quarter revenues is currently pegged at $1.38 billion, reflecting a projected increase of 1.6% year over year. Moreover, the Zacks Consensus Estimate for FFO per share for the quarter is $2.91, indicating 17.8% rise from the year-ago quarter. Also, the company's activities during the quarter were adequate to gain analysts' confidence. As such, the Zacks Consensus Estimate for the quarter moved up marginally in the last 30 days.

Nevertheless, with e-retail taking precedence, retail REITs continue to suffer as mall traffic has taken a beating, with rising store closures and retailer bankruptcies. This tepid environment has also resulted in tenants demanding substantial lease concessions, which, however, mall landlords find unjustified. Additionally, though Simon Property is putting in every effort to enhance the value of its assets, implementation of such measures requires a decent upfront cost, which could strain margins.

Earnings Whispers

Our proven model does not conclusively show that Simon Property is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a bullish Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here, as you will see below.

You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Earnings ESP: Simon Property has an Earnings ESP of -0.30%.

Zacks Rank: Simon Property's Zacks Rank of 3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident about a positive surprise.

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:

Ventas Inc.VTR , slated to release second-quarter results on Jul 27, has an Earnings ESP of +0.82% and a Zacks Rank of 3. You can see the complete list of today's Zacks #1 Rank stocks here .

Vornado Realty TrustVNO , scheduled to release quarterly figures on Jul 30, has an Earnings ESP of +3.30% and a Zacks Rank #3.

HCP, Inc.HCP , set to report Q2 numbers on Aug 2, has an Earnings ESP of +0.66% and carries a Zacks Rank of 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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