Simon Property (SPG) Down 7.8% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Simon Property (SPG). Shares have lost about 7.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Simon Property due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Simon Property's Q1 FFO & Revenues Beat Estimates

Simon Property Group’s first-quarter 2019 FFO per share of $3.04 exceeded the Zacks Consensus Estimate of $3.02. The FFO per share figure also surpassed the year-ago quarter’s reported tally of $2.87 by 5.9%.

Further, the company posted revenues of $1.45 billion for the quarter, which surpassed the Zacks Consensus Estimate by 0.4%. The revenue figure also came in 3.8% higher than the prior-year quarter’s reported tally.

Results reflect increased occupancy and leasing spread per square foot at the company’s U.S. malls and Premium Outlets. The company also reaffirmed its FFO per share outlook for the year.

Inside the Headline Numbers

For the U.S. Malls and Premium Outlets portfolio, occupancy was 95.1% as of Mar 31, 2019, expanding 50 basis points (bps) from the prior-quarter tally. Retailer sales per square foot came in at $660 for the trailing 12-month period, marking growth of 3.1%. Base minimum rent per square feet was $54.34 as of Mar 31, 2019. Furthermore, leasing spread per square foot for the trailing 12-month period ended Mar 31, 2019, increased 27.3% to $14.17.

Total portfolio net operating income (NOI) growth for the reported quarter came in at 1.7%. Comparable-property NOI growth for the same period came in at 1.6%.

During the January-March quarter, the company started construction on a 251,000-square-foot upscale outlet in Bangkok, Thailand, slated to open in February 2020. Simon is having 50% ownership of this project.

At the end of first-quarter 2019, Simon Property had redevelopment and expansion projects, including the redevelopment of former department store spaces, ongoing at more than 30 properties in the United States, Canada, Asia and Europe. The company’s share of costs of all new development and redevelopment projects under construction was more than $1.4 billion at the end of the first quarter.

The company exited first-quarter 2019 with cash and cash equivalents of $436.8 million, compared with $514.3 million reported at the end of December 2018.

Additionally, as of Mar 31, 2019, Simon Property had $7 billion of liquidity. This comprised cash on hand, including available capacity under the company’s revolving credit facilities, and its share of joint-venture cash. Further, the company ended the first quarter with net debt to NOI of 5.1X and fixed charge coverage of 5.1X.

Also, during the quarter, the company announced that its board of directors has authorized a new $2-billion common stock-repurchase program. The shares may be repurchased in the open market or in privately negotiated transactions, over the next 24 months, depending on market conditions.

Outlook

Simon Property reaffirmed its 2019 FFO per share guidance at $12.30-$12.40.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Simon Property has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Simon Property has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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