Simon Property posts higher profit, raises forecast

NEW YORK Tue Jul 24, 2012 3:25pm EDT

NEW YORK (Reuters) - Simon Property Group Inc (SPG.N) reported an 18 percent increase in a key earnings measure on higher rents and sales at its malls and outlet centers, easily beating estimates, and the real estate investment trust raised its outlook and dividend.

Simon is one of the first mall companies to report second-quarter results amid a weak U.S. retail environment, with sales under pressure from stubbornly high unemployment, slow job growth and wary consumers.

"Going into the earnings, the malls were a little bit weak because of declining sales," said Jeung Hyun, Adelante Capital Management portfolio manager. "You started seeing weak retail sales numbers and investors extrapolated from that and started to sell the malls. I think this report at least assuages some of the fears about fundamentals."

It is the second time this year that Simon has raised its guidance, and its fourth dividend increase in as many quarters.

Simon said second-quarter funds from operations (FFO) rose to $688.8 million, or $1.89 per share, from $583.0 million, or $1.65 per share, a year earlier. Revenue increased 14 percent to $1.19 billion.

Analysts, on average, expected $1.81 a share on revenue of $1.16 billion, according to Thomson Reuters I/B/E/S.

FFO is a REIT performance measure that usually excludes gains or losses from property sales and removes the effect that depreciation has on earnings.

Simon raised its FFO forecast for the year to a range of $7.60 to $7.70 per share from a previous $7.50 to $7.60. The company's forecasts tend to be conservative, and Simon often raises them each quarter. Analysts expect $7.63 per share, according to Thomson Reuters I/B/E/S.

"The primary factors contributing to this (forecast) are strong operational performance and the impact of our recent investment activity," David Simon, chairman and chief executive officer, told analysts during a conference call.

The company, based in Indianapolis, raised its quarterly dividend to $1.05 per share from $1.00.

Simon shares rose 1 percent, or $1.59, to $157.56 in afternoon trade on the New York Stock Exchange. Shares of Taubman Centers Inc (TCO.N), which owns luxury malls, also rose, while another REIT, General Growth Properties (GGP.N), was off 0.5 percent.

During the second quarter, sales at Simon's tenants' stores at U.S. core portfolio malls and outlet centers rose 9.9 percent to $554 per square foot, compared with a rise of 11.2 percent in the first quarter.

Stronger sales attract tenants and eventually lead to higher rents. Also, landlords take a share of tenants' sales.

Second-quarter net operating income growth slowed to 5.1 percent from 5.7 percent in the first quarter.

Still, during the quarter, new leases called for rents that were 10 percent higher than those that expired, Simon said.

Simon, the only real estate company in the Standard & Poor's 100 index, owns or has an interest in 336 retail real estate properties in North America and Asia.

Its portfolio includes some of the most popular U.S. malls, including Roosevelt Field Mall and Woodbury Common Premium Outlets in New York; The Forum Shops at Caesars Palace Las Vegas; and Lenox Square Mall in Atlanta.

Simon has international outlet centers in Malaysia, Canada, Japan, Korea and Europe. It is redeveloping or expanding 25 U.S. properties and two in Japan.

Earlier this week, the company hired Matthew Lentz, former managing director and portfolio manager at PointState Capital, to be its first chief investment officer.

Lentz will have plenty to work with as the company has access to $6.5 billion in cash under its existing $4.0 billion revolving line of credit and its new multicurrency revolver that can be expanded to $2.5 billion.

In Brazil, Simon has formed a joint venture with BR Malls Participacoes SA (BRML3.SA) to build 10 to 14 outlet centers. Its first site, in Sao Paulo, is scheduled to open by early 2014, and construction is expected to start in the next 30 to 60 days. In China, it has a joint venture to open one outlet mall.

Simon also has a 28.7 stake in Klepierre SA (LOIM.PA), Europe's second-largest retail real estate owner, and has three seats on the French company's board. David Simon is chairman.

(Reporting By Ilaina Jonas; editing by Jeffrey Benkoe and John Wallace)

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