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Commercial REITs in 2Q17: A Close Look at the Top 3

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Commercial REITs in 2Q17: A Close Look at the Top 3 PART 1 OF 7

How Did 2Q17 Go for Simon Property, GGP, and Vornado?

The condition of US malls

Amid the loud cries that US malls are dying, the 2Q17 performances of US commercial REITs show the fallacy of the idea. Backed by the development and redevelopment of their properties, US mall owners have shown their resilience in surviving the tough situation of the vacant spaces left by many exiting retailers who are closing their stores.

How Did 2Q17 Go for Simon Property, GGP, and Vornado?

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US mall owners such as Simon Property Group (SPG), GGP (GGP), and Vornado Realty Trust (VNO) delivered decent 2Q17 results, contrary to many market analysts’ beliefs that the days of malls are over.

Commercial REIT stock performances after 2Q17

SPG rose 3.1% since the announcement of its 1Q17 earnings. GGP stock also rose to a high of $22.78 per share from $21.91 per share before the 2Q17 earnings release.

After the 2Q17 earnings release, the stock rally was triggered by the following:

  • better-than-expected 2Q17 bottom line results
  • the company’s initiative to retain its market leadership by way of several strategic acquisitions
  • enhanced shareholder returns

Vornado’s stock performance remained almost constant and fell only 1.1% after its 2Q17 earnings conference call.

FFO growth

Simon Property Group (SPG) reported higher FFO (funds from operations) of $2.47 per share on August 1, 2017, which surpassed analysts’ estimate of $2.44 per share by 1.3%. Although the results came in lower than the year-ago level, it reported a year-over-year rise of 7.6% after the adjustment for comparability.

Vornado Realty Trust (VNO), on the other hand, reported robust 2Q17 results. Adjusted FFO of $1.35 per share surpassed Wall Street analysts’ expectation by 12.5%. The results also beat the year-ago level by 11.5%.

On the other hand, GGP (GGP), which released its 2Q17 earnings on August 2, 2017, reported in line FFO of $0.35 per share. The results were also flat compared to the previous year.

What drove the solid profits for these REITs?

Modest occupancy growth at most of the REIT properties as well as higher revenue and prudent cost management led to profit growth during the quarter. New leases and expansion activities also helped them maintain growth during the quarter.

Guidance

Simon Property Group raised its fiscal 2017 FFO guidance to $11.14–$11.22. The mid-point of the expected range is $0.04 per share higher than the previously expected range. 

GGP is looking to report FFO of $1.56–$1.60 per share. It expects NOI (net operating income) to rise 3.0%–4.0% compared to the previous year.

Vornado, however, didn’t provide any fiscal outlook during the quarter.

The three REITs and Prologis (PLD) together constitute 14.0% of the Vanguard REIT ETF (VNQ). The ETF has a 96.0% exposure to REITs. It’s made up of several categories of REITs and thus offers investors the much-needed cushion against volatility.

In the next part of this series, we’ll see how these commercial REITs performed on the basis of their top lines during 2Q17.

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