Simon Property’s EBITDA Margin Likely to Improve in 4Q15



Cost structure

The main components of Simon Property Group’s (SPG) costs are depreciation and amortization, property operating expenses, real estate taxes, and G&A (general and administrative) expenses. Controlling operating expenses is the key to remaining profitable for most REITs, as they struggle to check rising costs in an uncertain business environment.

Simon Property’s total operating expenses stood at $662.6 million in 3Q15, representing a growth of 5.6% over the same previous fiscal period. Property operating expenses comprised 43.8% of the total cost in 3Q15, followed by depreciation and amortization expenses at 43.7% and G&A expenses at 2.2%.

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EBITDA margin

Wall Street analysts expect Simon Property’s EBITDA (earnings before interest, taxes, depreciation, and amortization) to be $1.1 billion in 4Q15 compared to $967.4 million in 4Q14. That would be a growth of 15.4%. The EBITDA margin for 3Q15 was 74.2%.

The company’s EBITDA margin is expected to rise to 79.4% in 4Q15 compared to 75.4% in 4Q14. This would be the company’s highest EBITDA margin for the past decade. The industry average EBITDA margin for 3Q15 was 55.4%.

Wall Street investors are eagerly watching EBITDA margins for REITs. Simon Property’s peers, including General Growth Properties (GGP), Macerich (MAC), and Taubman Centers (TCO), will report their earnings in the following weeks. You can access Simon Property through the iShares Cohen & Steers REIT ETF (ICF). It invests 7.4% of its portfolio in Simon Property.

In the next article, we’ll discuss Simon Property’s funds from operations.


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