MAC Macerich Co

Simon Property Group Inc (SPG) reported third quarter 2011 FFO (funds from operations) of $606.2 million or $1.71 per share compared with $318.5 million or 90 cents per share in the year-earlier quarter. The quarterly FFO exceeded the Zacks Consensus Estimate by 4 cents.

Funds 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.

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

Third Quarter Review

Total revenue in the reported quarter increased to $1074.4 million from $979.3 million in the year-ago quarter. Total revenue in the reported quarter was also ahead of the Zacks Consensus Estimate of $1024 million.

Occupancy in the regional malls and premium outlet centers combined portfolio stood at 93.9% at quarter end compared with 93.8% in the year-ago period – an increase of 10 basis points (bps) year over year. Comparable sales for the combined portfolio increased to $517 per square foot versus $473 in the prior-year quarter.

Average rent per square foot for the combined portfolio increased during the reported quarter to $38.87 from $37.58 in the year-ago period.

Comparable property net operating income during the quarter for regional malls and premium outlet centers combined portfolio expanded 3.8%.

Earnings Estimate Revisions - Overview

The company’s earnings estimates for fiscal 2011 have moved in both directions since the earnings release, implying that the analysts are cautious about the current fiscal performance of the company. Let’s dig into the earnings estimate in details.

Agreement of Estimate Revisions

In the last 7 days, 10 out of the 19 analysts covering the stock increased their earnings estimates for the upcoming quarter and 15 out of the 19 analysts increased the same for fiscal 2011. In the last 7 days, 3 out of 19 analysts covering the stock trimmed their earnings estimates for the upcoming quarter and none decreased the same for fiscal 2011.This indicates a positive directional movement for fiscal earnings.

Magnitude of Estimate Revisions

Earnings estimates for the upcoming quarter have increased from $1.88 per share to $1.90 per share over the last 7 days and from $6.81 per share to $6.87 per share for fiscal 2011, which indicates that the analysts are optimistic about the fiscal  earnings.

Moving Forward

Headquartered in Indianapolis, Indiana, Simon Property is the largest publicly traded retail real estate company in North America, engaged in acquiring, owning and leasing a diverse portfolio of shopping malls. Furthermore, the company’s international presence gives it a more sustainable long-term growth story compared to 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.

Simon Property generally enters into long-term leases with companies, which insulate it from short-term market swings that have weighed on other players in the industry.

However, the company’s properties consist primarily of community shopping centers making its performance dependent upon general economic conditions of the market for 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.

Simon Property currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, Macerich Co. (MAC) holds a Zacks #3 Rank.

 
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