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Healthy Trends For Retail REITs: Simon Property Group, Inc (SPG), General Growth Properties Inc (GGP)

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Simon Property Group, Inc (NYSE:SPG), a self-managed equity REIT with a market cap of $50 billion, reported its fourth quarter 2012 results the other day. The results were better than expected as far as the Funds from Operations and revenues were concerned. The company posted an EPS of $1.01 per common share on revenues of $1.34 billion. The top line beat its estimate by $50 million, while FFO of $2.29 per share beat its estimate by $0.12 per share. The company also declared a quarterly dividend of $1.15 per share, up 4.5%.

Simon Property Group, Inc (NYSE:SPG)

SPG Performance 4Q12 3Q12 QoQ
Revenues ($ Bn) 1.34 1.17 15%
Expenses ($ Mn) 730 635 15%
Operating Income ($ Mn) 615 536 15%
Other Expenses ($ Mn) 299 173 73%
Net Income ($ Mn) 315 363 -13%

The table above summarizes the results of Simon Property for its fourth quarter of the prior year. The top line of $1.34 billion was up 15% from the linked quarter. Much of the improvement in the top line was a result of the 14.5% sequential surge in minimum rent the company earned during the fourth quarter. Base minimum rent per square feet during the most recent quarter surged 3.4% sequentially to $40.73, while occupancy of 95.3% improved 70 basis points. All of the sources of revenues improved compared to the linked quarter.

On the other hand total operating expense of $730 million surged 15% from the linked quarter. Much of this surge was blamed to the 26% surge in depreciation and amortization, partially offset by a 23% decline in Home and Regional Office Costs.  Depreciation and amortization remains the company’s single largest operating expense. As a result the operating cost of $614.6 million surged 15% quarter over quarter.

The surge in operating income was offset by 73% increase in other expenses. Led by interest expenses of $291.5 million, other expenses of $299 million increased significantly over the linked quarter. As a result the company reported a bottom line of $315 million, down 13% over the linked quarter.

2013 Outlook

The company also disclosed its guidance for the current year. The management expects the company to post an EPS within the range of $3.55 to $3.56 on FFO of $8.40 to $8.50. The management also believes the amortization and depreciation costs per common share will be $4.85.

This outlook will be driven by major development and acquisition activities Simon Property is busy with. At least five major projects are under construction. In Arizona, an upscale outlet center will house 90 outlet stores on 360,000 square feet. In Japan, a 230,000 square foot upscale outlet center will house another 110 stores. SPG has 40% stakes in these projects. In Toronto, over 100 high quality outlets will be housed in the 360,000 square foot upscale outlet, half of which SPG owns. Two other upscale outlet centers in Korea and Missouri, which SPG owns partially, will be open this year. Separately, Simon Property is expecting to close 3 acquisition deals this year.

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