Simon Property Reported Strong Third-Quarter Results

Simon Property’s earnings

On October 25, Simon Property (SPG) shares gained ~4% during trade following the company’s better-than-expected third-quarter results. The company’s third-quarter FFO (funds from operations) of $3.05 per share beat analysts’ estimates of $3.00 and marked a YoY (year-over-year) improvement of 5.5%. Simon Property reported revenues of $1.41 billion for the quarter, which beat analysts’ expectations of $1.38 billion. The revenues were slightly higher than the company’s revenues of $1.40 in the third quarter of 2017.

Simon Property Reported Strong Third-Quarter Results

Simon Property’s better-than-expected results led a rally in the retail real estate (RTL) space. Vornado Realty Trust (VNO), Macerich (MAC), and GGP (GGP) shares gained 1.4%, 4%, and 0.6%, respectively, during trade on October 25.

Growth drivers

The company’s top-line and bottom-line results mainly benefited from the higher occupancy rate, increased rentals, and the leasing spread. The occupancy rate for the quarter was 95.5%—up by 20 basis points YoY and 80 basis points sequentially. The minimum rent per square foot increased 2.8% YoY to $53.88, while leasing spreads for the Mall and Premium outlet grew 13.9% YoY to $7.59 per square foot.

The YoY improvement in key metrics shows that Simon Property is benefiting from its diverse tenant base, premium retail assets, and efforts to improve its operating performance through renovation, redevelopment, expansion, and re-tenanting. The company is focusing on transforming its properties by adding more luxury stores, restaurants, and hotels. The move is helping Simon Property create value and drive the traffic at its malls.

The initiatives have helped Simon Property increase its leasing spread per square foot. An increase in the leasing spread suggests that the company is getting higher rent per square foot on a new lease compared to the previous lease for the same space.

Balance sheet

Simon Property exited the third quarter with cash and cash equivalents of $695.7 million—compared to $714.2 million reported at the end of the second quarter. The company exited the quarter with $7 billion of liquidity, which consists of cash in hand, its share of joint venture cash, and the available capacity under its revolving credit facilities.

In addition to Simon Property’s third-quarter results, the board of directors approved a cash dividend of $2.00 per share for the fourth quarter, which was 8.1% higher than the fourth quarter of 2017. With the increased dividend, the company’s annualized dividend for 2018 will be $7.90 per share—10.5% higher than 2017. The newly declared dividend will be payable on November 30 to shareholders of record as of November 16.