Vast geographical footprint remains a major contributor
Simon Property Group, Inc (NYSE:SPG) is an equity REIT that invests in retail real estate, which consists of malls, Premium Outlets, The Mills and community/lifestyle centers. The company has operations outside of the US as well, which provides it some diversification. For equity REITs, funds from operations (FFO) are the most important metric. At the end of the second quarter, Simon Property Group, Inc (NYSE:SPG) reported an FFO per share of $2.11, beating the estimate by $0.04 per share. FFO per share jumped 11.6% over the prior year. The company also reported revenue of $1.24 billion, which remained in line with expectation.
The company experienced a strong quarter as both occupancy and minimum rent per square foot increased 90 bps and 3.6% over the prior year. I believe development across a vast global footprint remains a major driver of growth in the coming quarters. Simon Property Group, Inc (NYSE:SPG) opened a premium outlet in Chandler spreading across 360,000 square feet. It features 90 outlet stores and is fully leased. Also, Simon has 40% interest in a premium outlet in Tokyo which opened this month. It features another 120 stores that are fully leased. Construction continues on three other premium outlets in Canada, the US and Korea that are scheduled to open next month. Besides, construction commenced on another outlet in Canada in which Simon Property Group, Inc (NYSE:SPG) has 50% interest. Overall, Simon Property Group, Inc (NYSE:SPG) has nearly $1 billion worth of development or re-development projects in its pipeline across the globe at the end of the second quarter. So, if the US economy slows down further, Simon is poised to benefit from growth in other parts of the world.
Development remains a major driver
General Growth Properties Inc (NYSE:GGP) is another real estate investment trust that owns and manages retail related real estate, including regional malls and strip malls in the US and Brazil. The company reported FFO per share of $0.27, beating estimates by $0.02 per share on revenue of $613.3 million, which missed its expectation by $62.5 million. FFO per share increased 18% over the prior year. General Growth Properties Inc (NYSE:GGP) also reported a 160 bps increase in its occupancy rate, which reached 95.9%, while tenant sales increased 5.1% over the prior year. Minimum rents increased 11% since the start of the year. So, overall the second quarter could be characterized by solid growth.
The future for General Growth Properties Inc (NYSE:GGP) lies in acquisitions and development. Realizing this, the management took some steps. During the quarter, the company acquired another 50% interest in Quail Springs Mall, which makes General Growth Properties Inc (NYSE:GGP) the only owner of the mall. Redevelopment activity worth $900 million continues on another 24 properties. In other developments, the company disposed of some of its loss making facilities, including its interest in Grand Canal Shoppes and The Shoppes at the Palazzo. Another strip mall was also stripped from the asset portfolio. These efforts would lead the company to report higher FFO per share in the coming quarters.
A smaller player
Compared to the aforementioned mREITs, Agree Realty Corporation (NYSE:ADC) is a small REIT and operates only in the US. However, it also invests and manages retail properties that are leased to national tenants. Agree Realty Corporation (NYSE:ADC) reported an EPS of $0.52 per share, which edged up $0.01 per share from its estimate. Second quarter revenue of $10.91 million was also $0.35 million ahead of the expectation. Compared to the prior year, FFO was 19% higher, while revenue surged 26%. Also, during the quarter the company delivered three net leased development projects to tenants. So, apparently the REIT enjoyed a solid quarter.
However, the development and acquisition activity needs to continue in order to demonstrate continued growth. Realizing the importance of this, Agree Realty Corporation (NYSE:ADC) acquired four retail properties in the largest acquisition to date by the company to boost growth in the coming quarter. I believe this will significantly enhance Agree Reality’s future rental income. Development activities also continue on three other projects, and in total the construction work in progress nears $12.5 million. The rest of the current year is also not going to pose serious problems for Agree Realty Corporation (NYSE:ADC) as only five leases will be expiring in the remainder of the year, which is only 0.9% of the total percentage of leases.
Conclusion
The aforementioned stocks offer handsome dividend yields and tremendous growth opportunities. Therefore, I am bullish on them. Simon Property Group, Inc (NYSE:SPG) is poised to benefit from its vast global footprint, while future growth for General Growth Properties Inc (NYSE:GGP) and Agree Realty Corporation (NYSE:ADC) depends on the pace of acquisition and development activities. So, I recommend investors buy these REITs.
The article Buy These REITs on Growth Prospects originally appeared on Fool.com and is written by Adnan Khan.
Adnan Khan has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Adnan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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