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Simon Property Group Reported Higher FFO and NOI Growth in 3Q15

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FFO posted strong growth

FFO (funds from operations) is a measure used by REITs to define the cash generated from their operations. Simon Property Group’s (SPG) FFO per diluted share increased to $2.54 in 3Q15 compared to $1.90 in 3Q14, representing a huge growth of 33.7%. This includes a loss on the extinguishment of debt of $0.35 per share related to cash tender offers and the redemption of a series of senior notes.

The growth in comparable FFO per diluted share for the quarter was 12.9%. The strong growth in FFO in 3Q15 can be attributed to a healthy jump in rents charged to tenants coupled with higher occupancy rate. The ability of the company to hike rents in its portfolio will be the main driver for future FFO growth.

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Net operating income

Simon Property Group’s total portfolio NOI (net operating income) increased 6.2% in 3Q15 to $1.4 billion, while the comparable property NOI grew 4.3% to $1.2 billion in 3Q15 over 3Q14. NOI is used to measure the operating performance of a company’s properties. The increase in NOI was mainly due to the rise in rents charged to tenants and associated fees while controlling its operating expenses.

US malls and premium outlets contributed 80.9% to the total NOI followed by the Mills portfolio at 10.2% and international portfolio at 7.8%. Analysis on a regional basis shows that the highest contribution to NOI came from Florida at 14.7% followed by California at 12.4%, Texas at 10.5%, New York at 7.1%, and Massachusetts at 6%.

Peers such as General Growth Properties (GGP), Macerich (MAC), and CBL & Associates Properties (CBL) are set to report their 3Q15 earnings. Simon Property Group constitutes 10% of the SPDR DJ Wilshire REIT ETF (RWR).

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