MAC Macerich Co

Simon Property Group Inc. (SPG), a leading real estate investment trust (REIT), reported fiscal 2011 first quarter funds from operations (FFO) of $1.61 per share, which beat the Zacks Consensus Estimate by 7 cents. Fund from operations, a widely used metric to gauge the performance of REIT, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

We cover below the results of the recent earnings announcement, as well as the subsequent analyst estimate revisions and the Zacks ratings for the short-term and long-term outlook for the stock.

Earnings Report Review

Total revenues during the reported quarter increased to $1.0 billion from $925.1 million in the year-ago period. Total revenues during the reported quarter were well ahead of the Zacks Consensus Estimate of $964 million.

Occupancy in the regional malls and premium outlet centers combined portfolio was 92.9% at quarter-end, compared to 92.2% in the year-ago period. Comparable sales in the combined portfolio increased to $500 per square foot, compared to $462 in the prior-year quarter. Average rent per square foot in the combined portfolio increased during first quarter 2011 to $39.26 from $38.72 in the year-ago period.

(Read our full coverage on this earnings report: Simon Property Beats Estimates)

Earnings Estimate Revisions- Overview

Fiscal earnings estimates have moved up for Simon Property since the earnings release, meaning that analysts are bullish about the long-term performance of the company. Let’s dig into the earnings estimate details.

Agreement of Estimate Revisions

In the last 30 days, fiscal 2011 earnings estimates were raised by 13 analysts out of 21 covering the stock, while none had lowered the same. For fiscal 2012, 12 out of 21 analysts covering the stock have revised their estimates upward, while only 1 has lowered it during the same time period. This indicates a clear positive directional movement for the fiscal year earnings.

Magnitude of Estimate Revisions

Earnings estimates for fiscal 2011 have increased by 7 cents in the last 30 days to $6.69. With strong first quarter 2011 results, Simon Property has increased its 2011 FFO guidance from the range of $6.45 – $6.60 per share to $6.55 – $6.65. For fiscal 2012, earnings estimates have increased by 7 cents during the last 30 days to $7.09. Management expects fiscal 2011 to be an all-time high for the company in terms of its earnings. Furthermore, management reiterated to continue its aggressive yet disciplined approach to profitably grow its business, driven by its unrivalled financial strength.

Moving Forward

The long-term earnings estimate picture for Simon Property is optimistic. Simon Property is the largest publicly traded retail real estate company in North America with assets in almost all retail distribution channels. Furthermore, the company’s international presence gives it a more sustainable long-term growth story than its domestically focused peers. The geographic and product diversity of the company insulates it from market volatility to a great extent and provides a steady source of income.

However, Simon Property’s properties consist primarily of community shopping centers making its performance dependent upon general economic conditions of the market affecting retail space. Excess retail space in a number of markets and the increase in consumer purchases through catalogs and the Internet could hurt demand for Simon Property properties.

We maintain our ‘Neutral’ rating on Simon Property, which currently has a Zacks #3 Rank that translates into a short-term ‘Hold’ rating, indicating that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months. We also have a ‘Neutral’ recommendation and a Zacks #3 Rank for Macerich Co. (MAC), one of the competitors of Simon Property.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/

 
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