Here's How Simon Property (SPG) is Placed Ahead of Q3 Earnings

Simon Property Group’s SPG third-quarter 2021 results are scheduled to be out on Nov 1, after the bell. The company’s quarterly results will likely display growth in both 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 23.21% in terms of FFO per share. This performance was backed by better-than-expected top-line growth.

In the last four quarters, the company beat the Zacks Consensus Estimate on two occasions for as many misses. It has a trailing four-quarter surprise of 5.91%, on average. This is depicted in the graph below:

Simon Property Group, Inc. Price and EPS Surprise

Simon Property Group, Inc. Price and EPS Surprise

Simon Property Group, Inc. price-eps-surprise | Simon Property Group, Inc. Quote

Let’s see how things have shaped up prior to this announcement.

Factors at Play

Per a report from CBRE Group CBRE, the total retail sales increased 15%, year over year, in the third quarter. The third quarter marked the fourth consecutive quarter of positive retail absorption (+36.7 million square feet) and each asset class depicted quarter-over-quarter gains. Also, the average asking rent improved for the third consecutive quarter, increasing 2.9%, year over year, to $21.31 per square feet in the third quarter.

The overall retail availability rate shrunk to a 10-year low of 5.9% in the September-end quarter from the June-end quarter’s 6.2%. New construction deliveries were 6.4 million square feet in the third quarter, down 29% year on year because of material cost increases and sourcing delays.

Simon Property too is anticipated to have benefited from the recovery in the retail real estate market. This retail REIT behemoth has a wide exposure to different retail assets, including premium malls, lifestyle centers and other retail properties across the United States.

With the resumption of the economy and an improving leasing environment, Simon Property is likely to have benefited from its superior assets in premium locations. In fact, with the widespread vaccination, an improving economy and solid consumer demand, the company is expected to have witnessed growth in both its earnings and cash flow during the quarter under consideration.

Further, the adoption of an omni-channel strategy, and successful tie-ups with premium retailers have been Simon Property’s key focus. The REIT has also been tapping growth opportunities by assisting the digital brands enhance their brick-and-mortar presence. The company capitalized on buying out recognized retail brands in bankruptcy. With the brands generating decent amount from digital sales, investments in the same seem strategic for Simon Property. Also, the company is anticipated to have maintained its decent financial strength during the September-end quarter.

The Zacks Consensus Estimate for the third-quarter lease income is pegged at $1.16 billion, up from the year-ago period’s $994 million. In addition, the consensus mark for quarterly revenues is currently pinned at $1.23 billion, suggesting a jump of 16%, year over year. Occupancy of its total portfolio is projected at 92% for the quarter.

Lastly, Simon Property’s activities during the July-September quarter were adequate to gain analyst confidence. The Zacks Consensus Estimate for the FFO per share moved 2 cents north in the past month and is currently pinned at $2.47. The figure also calls for 20.5% growth from the year-earlier period.

Here is What our Quantitative Model Predicts

Our proven model predicts 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 a FFO beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Simon Property currently carries a Zacks Rank of 2 and has an Earnings ESP of +1.29%.

Other Stocks That Warrant a Look

Here are a few other stocks in the REIT sector that you may want to consider, as our model shows that these too have the right combination of elements to report surprises this quarter:

STORE Capital Corporation STOR, scheduled to announce quarterly numbers on Nov 4, currently has an Earnings ESP of +1.02% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Federal Realty Investment Trust FRT, set to report quarterly results on Nov 4, has an Earnings ESP of +0.49% and carries a Zacks Rank of 2, at present.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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