MAC Macerich Co

Simon Property Group Inc. (SPG), a leading real estate investment trust (REIT), reported second quarter 2011 FFO (funds from operations) of $583.0 million or $1.65 per share, compared to $487.7 million or $1.38 in the year-earlier quarter. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

The reported quarterly FFO exceeded the Zacks Consensus Estimate by 7 cents. Total revenues during the reported quarter increased to $1.0 billion from $933.6 million in the year-ago period. Total revenues during the reported quarter were well ahead of the Zacks Consensus Estimate of $976 million.

Occupancy in the regional malls and premium outlet centers combined portfolio was 93.5% at quarter-end, compared to 93.1% in the year-ago period – an increase of 40 bps year-over-year. Comparable sales in the combined portfolio increased to $513 per square foot, compared to $469 in the prior-year quarter. Average rent per square foot in the combined portfolio increased during second quarter 2011 to $39.70 from $38.62 in the year-ago period.

The strong performance by the company in terms of total sales and average rent per square foot is attributable to the positive impact from the previous acquisitions. Comparable property net operating income during the quarter for the regional malls and premium outlet centers combined portfolio surged 3.5%, further reflecting the high quality of its assets.

The company continued its active development and redevelopment programs during the quarter. Simon Property opened the expansion center of Tosu Premium Outlets in Fukuoka, Japan, spanning 52,000 square feet of space adding 28 new stores. At the same time, Simon Property continued construction works in Johor Premium Outlets – a new 173,000 square foot upscale outlet center in Johor, Malaysia, and a 93,000 square foot expansion of Ami Premium Outlets in Ibaraki Prefecture, Japan.

In the U.S., the company started construction work on Merrimack Premium Outlets – a new development project in Merrimack, New Hampshire, spanning 409,000 square feet of upscale outlet space. Simon Property is also continuing its redevelopment works in 18 centers across the country.

During the reported quarter, the company acquired full ownership interest in ABQ Uptown – a lifestyle center in Albuquerque, New Mexico, for $86 million. The 222,000 square foot center, presently 95% leased, generates sales of approximately $650 per square foot. Simon Property also sold Prime Outlets – Jeffersonville, a 410,000 square foot outlet center in Jeffersonville, Ohio, for $134 million during the reported quarter.

At quarter-end, the company had approximately $789.7 million of cash on hand. The company maintained its quarterly dividend at 80 cents per share. With strong quarterly results, Simon Property increased its previous 2011 FFO guidance from the range of $6.55 – $6.65 per share to $6.65 – $6.73.

We currently maintain our ‘Neutral’ recommendation on the stock, which presently has a Zacks #3 Rank translating into a short-term ‘Hold’ rating. We also have a ‘Neutral’ recommendation and a Zacks #3 Rank for Macerich Co. (MAC), one of the competitors of Simon Property.

 
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