Simon Property Group Inc. (SPG), a leading real estate investment trust (REIT), reported first quarter 2012 FFO (funds from operations) of $648.7 million or $1.82 per share, compared to $570.6 million or $1.61 in the year-earlier quarter. Funds from operations, 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.
The reported quarterly FFO per share well exceeded the Zacks Consensus Estimate of $1.67. Total revenues during the reported quarter increased to $1,119.0 million from $1,019.9 million in the year-ago period. Total revenues during the reported quarter beat the Zacks Consensus Estimate of $1,072 million.
Occupancy in the regional malls and premium outlet centers combined portfolio was 93.6% at quarter-end, compared to 93.0% in the year-ago period. Comparable sales in the combined portfolio increased to $546 per square foot, compared to $491 in the prior-year quarter. Average rent per square foot in the combined portfolio increased during first quarter 2012 to $39.87 from $38.18 in the year-ago period.
The company continued its active development and redevelopment programs during the quarter. Simon Property re-opened the ‘Opry Mills’ spanning 1.2 million square feet of retail space in Nashville, Tennessee, during first quarter 2012.
In addition, the company started construction work on several premium outlet centers across the globe. These included ‘Shisui Premium Outlets’ – a 234,000 square foot upscale outlet center in Shisui (Chiba), Japan; ‘Phoenix Premium Outlets’ – an upscale outlet center in Chandler (Phoenix), Arizona; ‘Toronto Premium Outlets’ – a 358,000 square foot upscale outlet center in Halton Hills, Canada; and ‘Busan Premium Outlets’ – a 244,000 square foot upscale outlet center in Busan, Korea.
During the reported quarter, Simon Property signed two new international joint ventures to develop a premium outlet center each in China and Brazil. At the same time, the company continued with the construction work on two new premium outlet centers – one in Merrimack, New Hampshire, and the other in Texas City, Texas. Simon Property currently has renovation and expansion projects at 23 centers in the U.S. and 2 centers in Japan.
Also during the quarter, Simon Property completed the acquisition of a 28.7% equity stake (54.43 million shares) in Kl?pierre – a Paris-based real estate company that owns, manages and develops shopping centers, retail properties and offices across Continental Europe.
Kl?pierre’s portfolio included 271 shopping centers in 13 countries, with 50% of its properties in France and Belgium, 25% in Scandinavia, and the remainder in Central and Southern Europe. The acquisition has strengthened the international footprint of Simon Property and is expected to be accretive to earnings.
Simon Property had also purchased its joint venture partner’s (Farallon Capital Management, L.L.C.) ownership stake in 26 assets of The Mills Limited Partnership in a transaction valued at $1.5 billion. The purchase price included the repayment of senior loan facility and mezzanine loan of the JV, and the retirement of preferred stock.
The company had funded both the acquisitions from the proceeds of a secondary and debt offering completed during the quarter. Simon Property sold 9.1375 million common shares at $137.00 each, including the partial exercise of the over-allotment options by the underwriters.
At the same time, Simon Property also sold $1.75 billion worth of aggregate principal amount of its senior unsecured notes consisting of $600 million of 2.150% notes due 2017, $600 million of 3.375% notes due 2022, and $550 million of 4.750% notes due 2042.
At quarter-end, the company had approximately $880.5 million in cash and cash equivalents. The company increased its quarterly dividend to $1.00 per share from $0.80 in the year-ago period. With strong quarterly results, Simon Property expects 2012 FFO in the range of $7.50 – $7.60 per share.
We currently maintain our Neutral recommendation on the stock, which presently has a Zacks #2 Rank translating into a short-term Buy rating. We also have a Neutral recommendation and a Zacks #4 Rank (short-term Sell rating) for Macerich Co. (MAC), one of the competitors of Simon Property.
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