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Simon Property Group Inc./Moran Zhang/MEDILL
The company's fourth quarter diluted FFO per share as adjusted reached two-year high.
Rebounding retail sales lift profit at Simon Property Group
by moran zhang
Feb 06, 2011
Simon Property Group Inc., the largest mall owner in the U.S., reported a fourth-quarter profit that more than doubled as retail sales at its malls and outlets showed improvement.
The Indiana-based real estate investment trust earned $217.9 million, or $0.74 per diluted share in the quarter ended Dec. 31, 2010, as compared with $91.5 million, or $0.32 per diluted share in the prior year period.
Rising sales for tenants help Simon boost occupancies and rents, aided by a rebound in consumer spending in the fourth quarter. The Commerce Department reported a 0.7 percent increase in consumer spending in December.
“The consumers are coming back, and retail spending is bouncing back,” said David Harris, analyst with Gleacher and Company Inc. “But we’re still a little below the peak level [of sales per square foot] in 2007.”
The company said fourth quarter adjusted funds from operations were up 11.4 percent at $638.7 million, or $1.80 per diluted share, from $573.4 million, or $1.66 per diluted share, in the year-earlier period. FFO is a key measure of performance for real estate investment trusts.
Analysts polled by Zacks Investment Research Inc. expected fourth quarter FFO of $1.74 per diluted share.
“It did actually surprise us a little on the upside,” said Harris. “Putting this in context, it’s a strong performance.”
“We delivered impressive results in an improving, but still challenging environment,” said David Simon, chairman and chief executive officer of Simon Property Group Inc.
Fourth quarter revenue increased 9 percent to $1.12 billion, from $1.03 billion in the year-ago period.
Occupancy at Simon’s properties was 94.2 percent in the quarter, up from 93.4 percent at the end of 2009. Comparable sales per square foot increased 9 percent to $494, compared with $452. Average rent per square foot edged up 1 percent to $38.87, from $38.47 in the same period of 2009.
“We think the company will continue to increase,” said Ki Bin Kim, senior analyst at Macquarie Capital Inc. “Our expectation for their tenant sales over the course of 2011 is that it’ll grow to over $500 a square foot. That would create some upward pressure on occupancy cost, and we expect them to basically start charging more for rent to their tenants.”
Richard S. Sokolov, president and chief operating officer, said during Friday’s conference call that “if you look at our occupancy, obviously there are people that still believe they can make a lot of money at the rents we’re charging, where we’re going to constantly keep pushing that rent.”
For the year ended Dec. 31, 2010, Simon said its adjusted FFO was $2.12 billion or $6.03 per diluted share, up 7 percent from $1.98 billion, or $6.01 per diluted share, in 2009.
For 2011, Simon predicts its FFO will be within a range of $6.45 to $6.60 per diluted share, and diluted net income will be within a range of $2.55 to $2.70 per share.
Analysts surveyed by Zacks Investment Research Inc. expect 2011 diluted FFO per share as adjusted at $6.55.
The company’s stock closed Friday at $103.47, down $1.23.
