Yahoo Finance What's in Store for Simon Property (SPG) This Earnings Season?
Simon Property Group SPG is slated to report first-quarter 2024 results on May 6 after market close. The company’s quarterly results are likely to display year-over-year growth in revenues and funds from operations (FFO) per share.
In the last reported quarter, this Indianapolis, IN-based retail real estate investment trust (REIT) delivered a surprise of 10.48% in terms of FFO per share. Results reflected better-than-anticipated revenues, backed by a rise in the base rent per square foot and occupancy levels as well as lower property operating expenses. However, higher interest expenses partly offset the upsides.
Over the preceding four quarters, Simon Property’s FFO per share surpassed the Zacks Consensus Estimate on two occasions for as many misses, the average surprise being 3.67%. This is depicted in the graph below:
Simon Property Group, Inc. Price and EPS Surprise
Simon Property Group, Inc. price-eps-surprise | Simon Property Group, Inc. Quote
In this article, we will dive deep into the U.S. retail real estate market environment and the company's fundamentals and analyze the factors that may have contributed to its first-quarter 2024 performance.
US Retail Real Estate Market in Q1
Per a report from CBRE Group CBRE, amid slowing retail activity, U.S. net absorption fell in the first quarter. The U.S. overall retail availability rate remained at 4.7%, even though supply additions surpassed net absorption in the first quarter. The quarter witnessed a significant decline in net absorption, which fell to 3.7 million square feet in the first quarter from 12.5 million square feet in the prior quarter and was also less than half of the 10-year quarterly average. Store closures mainly led to this substantial decline.
Amid high construction costs, new retail development was at a low level. Completions aggregated 5.8 million square feet, down 32% from the prior quarter. Across all retail formats, deliveries of new centers remained low in the first quarter, per the CBRE report.
Asking rent growth remained strong in the first quarter, with the average asking rent increasing 0.9% quarter over quarter and 2.7% year over year to $24.07 per square foot. The report noted that high-growth secondary and tertiary markets carried on performing well.
Factors at Play
Simon Property is expected to benefit from its collection of high-quality assets, both domestically and abroad. As consumers increasingly favored in-person shopping experiences after the pandemic lull, it is likely that the demand for SPG's properties remained healthy during the first quarter.
The implementation of an omnichannel approach and successful partnerships with top-tier retailers are expected to yield significant returns for Simon Property. The exploration of mixed-use development, a concept that has garnered widespread popularity in recent years, is likely to have allowed SPG to seize growth prospects in locations where individuals desire to reside, work and enjoy recreational activities.
The Zacks Consensus Estimate for first-quarter lease income is pegged at $1.295 billion, up from $1.248 billion reported in the year-ago quarter. The consensus mark for management fees and other revenues stands at $30.21 million, up from the prior-year quarter’s reported figure of $28.95 million. In addition, the consensus estimate for quarterly revenues is presently pegged at $1.41 billion, which indicates an increase of 4.2% year over year.
We also expect the company’s robust balance sheet position to have supported its strategic expansions during the quarter to be reported.
However, higher e-commerce adoption may have cast a pall on SPG’s performance in the to-be-reported quarter. We estimate the total portfolio ending occupancy of 95.4% in the first quarter.
Also, elevated interest rates may have kept expenses higher in the to-be-reported quarter. We estimate a 7.2% year-over-year increase in interest expenses for the first quarter.
Simon Property’s activities during the soon-to-be-reported quarter were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the first-quarter FFO per share of $2.80 has not been revised over the past month. However, it suggests a 2.19% increase year over year.
Here Is What Our Quantitative Model Predicts:
Our proven model does not conclusively predict a surprise in terms of FFO per share for Simon Property this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is not the case here.
Simon Property currently carries a Zacks Rank of 4 (Sell) and has an Earnings ESP of +0.49%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Stocks That Warrant a Look
Here are two stocks from the broader REIT sector — Medical Properties Trust MPW and Peakstone Realty Trust PKST — that you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.
Medical Properties, slated to release quarterly numbers on May 9, has an Earnings ESP of +9.15% and carries a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Peakstone Realty Trust, scheduled to report quarterly numbers on May 7, has an Earnings ESP of +8.28% and sports a Zacks Rank of 1.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Simon Property Group, Inc. (SPG) : Free Stock Analysis Report
Medical Properties Trust, Inc. (MPW) : Free Stock Analysis Report
CBRE Group, Inc. (CBRE) : Free Stock Analysis Report
Peakstone Realty Trust (PKST) : Free Stock Analysis Report
