We are well into the earnings season and corporations are disclosing their financial results for the second quarter one by one. The latest to report are Simon Property Group, Inc (NYSE:SPG), General Growth Properties Inc (NYSE:GGP) and Agree Realty Corporation (NYSE:ADC). All three are equity REITs that own and manage retail properties that generate rental incomes. Since their performances are linked to broader economic growth, let’s review their performance and see how they are expected to perform in the future given sluggish US economic growth.
Vast geographical footprint remains a major contributor
Simon Property Group, Inc (NYSE:SPG) is an equity REIT that invests in retail real estate, which consists of malls, Premium Outlets, The Mills and community/lifestyle centers. The company has operations outside of the US as well, which provides it some diversification. For equity REITs, funds from operations (FFO) are the most important metric. At the end of the second quarter, Simon Property Group, Inc (NYSE:SPG) reported an FFO per share of $2.11, beating the estimate by $0.04 per share. FFO per share jumped 11.6% over the prior year. The company also reported revenue of $1.24 billion, which remained in line with expectation.
The company experienced a strong quarter as both occupancy and minimum rent per square foot increased 90 bps and 3.6% over the prior year. I believe development across a vast global footprint remains a major driver of growth in the coming quarters. Simon Property Group, Inc (NYSE:SPG) opened a premium outlet in Chandler spreading across 360,000 square feet. It features 90 outlet stores and is fully leased. Also, Simon has 40% interest in a premium outlet in Tokyo which opened this month. It features another 120 stores that are fully leased. Construction continues on three other premium outlets in Canada, the US and Korea that are scheduled to open next month. Besides, construction commenced on another outlet in Canada in which Simon Property Group, Inc (NYSE:SPG) has 50% interest. Overall, Simon Property Group, Inc (NYSE:SPG) has nearly $1 billion worth of development or re-development projects in its pipeline across the globe at the end of the second quarter. So, if the US economy slows down further, Simon is poised to benefit from growth in other parts of the world.
Development remains a major driver
General Growth Properties Inc (NYSE:GGP) is another real estate investment trust that owns and manages retail related real estate, including regional malls and strip malls in the US and Brazil. The company reported FFO per share of $0.27, beating estimates by $0.02 per share on revenue of $613.3 million, which missed its expectation by $62.5 million. FFO per share increased 18% over the prior year. General Growth Properties Inc (NYSE:GGP) also reported a 160 bps increase in its occupancy rate, which reached 95.9%, while tenant sales increased 5.1% over the prior year. Minimum rents increased 11% since the start of the year. So, overall the second quarter could be characterized by solid growth.
The future for General Growth Properties Inc (NYSE:GGP) lies in acquisitions and development. Realizing this, the management took some steps. During the quarter, the company acquired another 50% interest in Quail Springs Mall, which makes General Growth Properties Inc (NYSE:GGP) the only owner of the mall. Redevelopment activity worth $900 million continues on another 24 properties. In other developments, the company disposed of some of its loss making facilities, including its interest in Grand Canal Shoppes and The Shoppes at the Palazzo. Another strip mall was also stripped from the asset portfolio. These efforts would lead the company to report higher FFO per share in the coming quarters.