Simon Property Group, Inc. (SPG) recently reported its 10th consecutive positive earnings surprise on higher rents and occupancy rates. Following the strong quarter, management raised its 2011 guidance for the second time this year, prompting analysts to revise their estimates higher.
This sent the stock to a Zacks #2 Rank (Buy).
Based on consensus estimates, analysts project 12% growth in funds from operation (FFO) per share this year and 6% growth next year. Additionally, Simon pays a dividend that yields 3.0%.
Company Description
Simon Property Group is the largest real estate company in the U.S. It operates as a Real Estate Investment Trust (REIT) and currently owns or has an interest in 392 retail real estate properties comprising 263 million square feet of gross leasable area in North America, Europe and Asia.
Its properties include enclosed regional malls, premium outlet centers, community & lifestyle centers, and international properties. It is headquartered in Indianapolis, Indiana and has a market cap of $32.0 billion.
Rents and Occupancy Rates Rising
Simon Property Group reported strong second quarter results on July 26. FFO came in at $1.65 per share, beating the Zacks Consensus Estimate by 7 cents. It was a 20% increase over the same quarter in 2010.
Revenue rose 11% to $1.041 billion, well ahead of the Zacks Consensus Estimate of $976.0 million. The revenue increase was driven by a 40 basis point improvement in the occupancy rate to 93.5% and a 2.8% increase in average rent per square foot to $39.70.
Increased Guidance
Management increased its guidance once again after delivering another strong quarter. The company now expects 2011 FFO between $6.65 and $6.73 per share, up from initial guidance of $6.45-$6.60.
This prompted analysts to revise their estimates higher, sending the stock to a Zacks #2 Rank (Buy) stock. The 2011 Zacks Consensus Estimate is now $6.77, representing 12% growth over 2010. The 2012 consensus estimate moved up to $7.15, corresponding with 6% growth.
Consensus estimates have been consistently trending higher over the last several months as SPG has delivered 10 consecutive positive earnings surprises.
Dividend
Simon Property Group pays a dividend that yields 3.0%. The company had been steadily raising it for several years before the Great Recession changed things:
Simon has been raising its dividend again recently, although it is still below pre-recession levels.
Shares trade at 15.9x 12-month forward FFO per share, a premium to the industry average of 13.3x. Given the company’s above-average growth projections, this seems reasonable.
It sports a PEG ratio of 1.2 based on a 5-year growth rate of 13.5%.
The Bottom Line
With rising rents, occupancy rates, earnings estimates and dividends, shares of SPG could be rising soon too.
Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research.
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