Simon Property Group, Inc (NYSE:SPG) operates as one of the largest real estate investment trusts (REIT) in the US. It has a market cap of over $54.4 billion and acquires and manages largely regional malls, Premium Outlets, The Mills and other community centers. The company has interest in around 327 real estate properties in the US, Canada, Mexico, Europe, Malaysia, Japan and Korea. The company reported a strong first quarter. The remainder of the investment thesis aims to review the latest earnings in light of the results expected from its closest peers.
Financials & Guidance
Simon Property Group, Inc (NYSE:SPG) reported per share funds from operations (FFO) of $2.05, beating the consensus estimate of $2.01 by 2%. The latest FFO per share was also 12.6% above the FFO of a year ago. FFO is the appropriate measure of earnings for an equity REIT as it excludes the effect of depreciation and gain or loss from property. Similarly, the reported revenues of $1.21 billion came in above the expectation of $1.19 billion. The quarter’s operating results are said to be the reason for the earnings and revenue beat.
Operating expenses during the quarter increased 9% over the prior year on higher depreciation and amortization costs. The net operating income of $557.7 million increased 4.8% from a year ago.
The company raised its 2013 full year guidance. Excluding the one-time items, the company expects to generate FFO per share within the range of $8.5 – $8.6 per share. This is up from the prior guidance of $8.4 – 8.5 per share, while analysts are expecting $8.59 in FFO per share for the full year 2013.
The strength in the first quarter results was largely due to improvements in occupancy rates coupled with an increase in the base minimum rent per square feet. Besides, the company was able to increase its total sales per square feet during the first quarter, compared to the prior year.
During the quarter, the company experienced a hike in its occupancy rate, which increased from 93.6% during the same quarter of the prior year to 94.7% at the end of the most recent quarter. Similarly, total sales per square foot increased 5.3% to $575 over the same time period. Around 121 properties of Simon Property Group, Inc (NYSE:SPG) averaged tenant sales of over $700 per square foot. Healthy sales trends eventually attracted more tenants, which increased rents. Over the prior year, the base minimum rent increased 3% to $41.05 per square foot. Higher occupancy was also part of the reason why base minimum rents increased during the quarter.
The strength in the latest results led the company to report unchanged dividends. Simon Property Group is currently distributing $1.15 in dividends per share, while it generated cash (FFO) of $2.05 per share. The prevailing dividend rate has been maintained over the past six quarters. The cash dividend coverage ratio for Simon Property Group, Inc (NYSE:SPG) comes out to 1.8x. This is a very healthy cash dividend coverage ratio, and I believe if the occupancy rate and the base minimum rents keep on increasing, you can expect a dividend hike.