Bloomberg News

Simon Property Increases Forecast as FFO Beats Estimates

October 25, 2011

(Updates with closing share price in 12th paragraph.)

Oct. 25 (Bloomberg) -- Simon Property Group Inc., the largest U.S. shopping-mall owner, reported funds from operations that beat analyst estimates and raised its full-year forecast as income from rents rose. The company also boosted its dividend.

FFO, which gauges a property company’s ability to generate cash, was $606.2 million, or $1.71 a share, in the third quarter, the real estate investment trust said today in a statement. Analysts expected $1.67 a share, the average of 19 estimates in a Bloomberg survey. A year earlier, FFO was $318.5 million, or 90 cents, including an expense of $185 million to buy back debt.

Simon, based in Indianapolis, is increasing rents and boosting occupancies as tenant sales rise and retailer demand for space grows. Nordstrom Inc.’s same-store sales jumped 11 percent in September from a year earlier, Saks Inc.’s climbed 9.3 percent and Macy’s Inc.’s gained 4.9 percent.

“I expect to have another good year and another year of growth,” David Simon, the company’s chief executive officer, said on a conference call with analysts today. “As long as the economy continues to at least have some GDP growth, we’ll be able to continue to attract the better customer that has, I think, disposable income to spend.”

Occupancy at Simon’s U.S. properties rose in the third quarter to 93.9 percent from 93.8 percent a year ago. The average rent increased 3.4 percent to $38.87 a square foot.

Outlet Malls

Sales at outlet malls also are helping Simon increase revenue as retailers and apparel companies grow in that part of the industry. The company bought Prime Outlets Acquisition Co. last year for $2.3 billion to expand that business in the U.S. Simon also has outlet malls overseas, including Japan and South Korea.

“From an international point of view, the priority will continue to be the outlet business,” David Simon said.

Simon Property raised its FFO forecast for the year to $6.80 to $6.85 a share. That compares to a July projection of $6.65 to $6.73.

The REIT boosted its quarterly dividend to 90 cents a share, a 12.5 percent increase. It also declared a special stock dividend of 20 cents a share payable Dec. 30.

“If there’s a slowdown brewing in the U.S. economy, there was no hint of it in the company’s results,” Rich Moore, an analyst for RBC Capital Markets in Solon, Ohio, said in a note to investors today.

Simon Property increased its stake in the King of Prussia mall, a Pennsylvania shopping complex with about 3 million square feet (279,000 square meters) of retail space, to 96 percent from 12 percent in the third quarter. It may buy the remaining interest next year, according to the statement. The company doesn’t disclose details on individual mall transactions, the CEO said on the call.

Simon fell 1.4 percent to $121.11 at the close in New York. The shares have advanced 22 percent this year, the fifth-best performance in the Bloomberg REIT Index. The 129-member gauge has fallen 0.7 percent in 2011.

Simon, the largest U.S. REIT by market value, owns or has stakes in more than 390 retail properties in North America, Europe and Asia.

--Editors: Christine Maurus, Kara Wetzel

To contact the reporter on this story: Brian Louis in Chicago at blouis1@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net


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