Simon Property's (SPG) Q1 Earnings Peek: What's in the Cards?

Retail real estate investment trust (“REIT”) Simon Property Group Inc. SPG is expected to report first-quarter 2016 results on Apr 26, before the market opens. Last quarter, this company delivered an 11.9% positive surprise.

In the trailing four quarters, Simon Property posted an average positive surprise of 7.3%.  In fact, it beat the estimates on all the four occasions. The Zacks Consensus Estimate for the first quarter funds from operations (“FFO”) is currently pegged at $2.54.

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

Factors to Consider

Simon Property enjoys a top notch and diverse portfolio of retail assets all over the U.S.  A recent spate in transaction activities and the existing redevelopment pipeline are likely to aid the company’s top-line growth. Further, with the economy gradually recovering and the housing market stabilizing, consumer spending will likely increase, resulting in a rise in retail sales. We expect this positive business environment to get reflected in the company’s first-quarter 2016 results.

Again, while demand for quality retail space has risen, the supply remains low.  This, in turn, is driving higher occupancy and rent growth for Simon Property, which owns a high-quality portfolio of productive shopping centers.

But, Simon Property faces rivalry from alternative types of retail such as catalogs and e-Commerce websites. Stiff competition, thus, remains a matter of concern for the REIT. Further, Simon Property’s huge development and expansion pipeline exposes it to operational risks.

Any rise in rate of interest will adversely affect the REIT as that would restrict its ability to refinance existing debt while increasing the interest cost on new debt.

Simon Property’s performance during the quarter was inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the stock has remained stable at $2.54 over the last seven days.

Earnings Whispers

Our proven model does not conclusively show that Simon Property will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate Estimate and the Zacks Consensus Estimate currently stand at $2.54 respectively, which translate into an Earnings ESP of 0.00%.

Zacks Rank: Simon Property’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP as well to be confident about an earnings surprise.

Note that we caution against stocks with Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
 

Stocks to Consider

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

Essex Property Trust Inc. ESS has an Earnings ESP of +1.14% and a Zacks Rank #2. The company will report results on Apr 28.

Taubman Centers, Inc. TCO has an Earnings ESP of +3.53% and a Zacks Rank #3. The company will release results on May 2.

Vornado Realty Trust VNO has an Earnings ESP of +4.03% and a Zacks Rank #3. The company will report first-quarter 2016 results on May 2.

Note: FFO, 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. All earnings per share numbers presented in this write up represent FFO per share.


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SIMON PROPERTY (SPG): Free Stock Analysis Report
 
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