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Will Simon Property Group Repeat Its Stellar 3Q15 Performance?

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Robust revenue growth

Simon Property Group’s (SPG) total revenue for 3Q15 stood at $1.3 billion, up 6.9% over the same period in the previous fiscal quarter. Minimum rent witnessed a year-over-year growth of 6.5% in 3Q15 to $788.4 million. Tenant reimbursement, which is also a major source of income for the company, experienced a gain of 6.5% in 3Q15 to $373.2 million over 3Q14.

The company’s other income grew by a whopping 31.9% in 3Q15 to $72.5 million. The sharp rise in other income was due to $28.3 million income received from lease settlements in 3Q15 compared to $8 million in 3Q14.

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Revenue contribution

Minimum rent contributed 59.7% to the company’s total revenue in 3Q15 compared to 60% in 3Q14. The tenant reimbursement share to total revenue remained almost unchanged at around 28.3%. On the other hand, the share of overage rent to the total revenue of the company fell from 4.3% in 3Q14 to 3.6% in 3Q15.

Revenue drivers

Simon Property Group’s healthy revenue growth in 3Q15 was primarily driven by the rise in total sales per square foot and the base minimum rent. The total portfolio sales per square foot increased from $613 in 3Q14 to $616 in 3Q15, while the base minimum rent increased from $46.29 in 3Q14 to $48.57 in 3Q15. On the other hand, revenue growth was partially offset by the decline in occupancy rate. Occupancy rate declined from 96.9% in 3Q14 to 96.1% in 3Q15.

Other major companies in the retail REIT segments such as Macerich (MAC), General Growth Properties (GGP), and CBL & Associates Properties (CBL) are also releasing their third-quarter earnings this week. The SPDR DJ Wilshire REIT ETF (RWR) invests 10% of its portfolio in Simon Property Group.

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