Simon Property Group, Inc (NYSE:SPG) operates as one of the largest real estate investment trusts (REIT) in the US. It has a market cap of over $54.4 billion and acquires and manages largely regional malls, Premium Outlets, The Mills and other community centers. The company has interest in around 327 real estate properties in the US, Canada, Mexico, Europe, Malaysia, Japan and Korea. The company reported a strong first quarter. The remainder of the investment thesis aims to review the latest earnings in light of the results expected from its closest peers.
Financials & Guidance
Simon Property Group, Inc (NYSE:SPG) reported per share funds from operations (FFO) of $2.05, beating the consensus estimate of $2.01 by 2%. The latest FFO per share was also 12.6% above the FFO of a year ago. FFO is the appropriate measure of earnings for an equity REIT as it excludes the effect of depreciation and gain or loss from property. Similarly, the reported revenues of $1.21 billion came in above the expectation of $1.19 billion. The quarter’s operating results are said to be the reason for the earnings and revenue beat.
Operating expenses during the quarter increased 9% over the prior year on higher depreciation and amortization costs. The net operating income of $557.7 million increased 4.8% from a year ago.
The company raised its 2013 full year guidance. Excluding the one-time items, the company expects to generate FFO per share within the range of $8.5 – $8.6 per share. This is up from the prior guidance of $8.4 – 8.5 per share, while analysts are expecting $8.59 in FFO per share for the full year 2013.
Operating Results
The strength in the first quarter results was largely due to improvements in occupancy rates coupled with an increase in the base minimum rent per square feet. Besides, the company was able to increase its total sales per square feet during the first quarter, compared to the prior year.
Dividends
The strength in the latest results led the company to report unchanged dividends. Simon Property Group is currently distributing $1.15 in dividends per share, while it generated cash (FFO) of $2.05 per share. The prevailing dividend rate has been maintained over the past six quarters. The cash dividend coverage ratio for Simon Property Group, Inc (NYSE:SPG) comes out to 1.8x. This is a very healthy cash dividend coverage ratio, and I believe if the occupancy rate and the base minimum rents keep on increasing, you can expect a dividend hike.
On the other hand, the company has a sufficient margin to sustain its current dividend rate in case the occupancy rate and base minimum rents decrease in the coming quarter. Therefore, in both scenarios, Simon Property Group presents an excellent opportunity for you to expand your regular income.
Competition
Simon Property Group, Inc (NYSE:SPG) competes with other US equity REITs like General Growth Properties Inc (NYSE:GGP) and Boston Properties, Inc. (NYSE:BXP). Boston Properties has a large concentration in the Boston, San Francisco, New York, Washington and Princeton regions and owns and manages over 157 properties over 44.4 million square feet. The company is scheduled to report its first quarter performance on April 30. Analysts have a consensus mean estimate of $1.21 per share for its first quarter’s EPS. This is 2% below the prior quarter’s EPS.
For General Growth Properties, analysts have a consensus mean expectation of $0.24 earnings per share. According to Reuters, the company has ownership and manages over 136 regional malls in over 41 states covering over 58 million square feet.
Compared to the Simon Group, General Growth Properties Inc (NYSE:GGP) and Boston Properties, Inc. (NYSE:BXP) are operating only within the US. However, I believe both competitors will benefit from the improving trends in occupancy coupled with a hike in base minimum rents.
Conclusion
The sustainable dividend at Simon Property Group, Inc (NYSE:SPG) presents an excellent opportunity to enhance your regular income. Besides, the company enjoyed a solid first quarter on better operating performance. Further, Simon also raised its outlook for the remainder of the current year. All these factors lead me to think that Simon Property’s current dividends are sustainable at the least. Therefore, I am bullish on Simon Property Group.
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