Stock gaining momentum
After a weak performance in the first half of 2018 with returns of about -1%, Simon Property Group (SPG) stock has been gaining solid momentum recently and even hit a new 52-week high of $179.45 on August 3. Since the start of the second half of 2018, the stock has gained 4.7%, bringing its year-to-date return to 3.8%. The primary reason behind the recent rally is the company’s better-than-expected results for the second quarter. The company reported results on July 30, and since then, the stock has risen 3.7%.
This was the second consecutive quarter that the company posted better-than-expected results. The company also saw a notable YoY (year-over-year) improvement in its top and bottom lines, which suggests that Simon Property’s initiatives to drive mall traffic amid a challenging retail environment are headed in the right direction. The better-than-expected results have given investors confidence that the company has potential to grow in the long run.
H1 2018 performance
In Q1 and Q2 of 2018, Simon Property reported revenues of $1.4 billion and $1.39 billion, respectively, which was YoY growth of 4% and 1.9%, respectively. Revenues for the quarters also surpassed the Wall Street estimates of $1.37 billion and $1.35 billion, respectively.
Similarly, FFO (funds from operations) per share for the first and second quarters increased 4.7% and 20.6% on a YoY basis to $2.87 and $2.98, respectively. FFO for the quarters also came in ahead of the Wall Street estimates of $2.83 and $2.98, respectively.
Higher earnings expected ahead
Buoyed by an encouraging performance in the first half of 2018, the company raised FFO guidance for the full year during its second-quarter 2018 earnings conference call. Simon Property now anticipates FFO per share for 2018 to be in the range of $12.05–$12.13, up from the previously forecasted range of $11.95–$12.05. Wall Street anticipates FFO of $12.07 per share for 2018, which signifies YoY growth of 7.7%.
Some of Simon Property’s peers such as Equity Residential (EQR), Taubman Centers (TCO), and Realty Income (O) have also gained some momentum since the start of the second half of 2018. These stocks have returned 5.1%, 8%, and 7.2%, respectively. Simon Property makes up ~15.6% of the Pacer Benchmark Retail Real Estate SCTR ETF (RTL).
In this series, we’ll look at Simon Property’s revenue and profitability growth drivers, strategic investments, shareholder payouts, expectations, and valuations.