UPDATE 4-Simon Property FFO rises on lower operating costs
* Q3 FFO $1.38/share vs Wall Street's $1.32/share
* Lower operating costs more than offset dip in revenue
* Raises low end of full-year outlook
* Shares down 1.7 pct (Adds CEO comments, dividend plans, updates stock price)
By Ilaina Jonas
NEW YORK, Oct 30 (Reuters) - Simon Property Group Inc (SPG.N), the largest U.S. mall owner, reported higher-than- expected third-quarter funds from operations as lower operating costs more than offset falling revenue.
"We have been in a tough retail environment," David Simon, chairman and chief executive, said during a conference call. "The good news on all of that is that, and this is no guarantee but the mood from our clients is better and they are thinking more about 2010. But there is a level of uncertainty out there."
U.S. consumers have dramatically cut back on spending, making retailers highly selective about the locations of their stores. Simon has benefited from this because of its high- traffic malls such as Roosevelt Field, on New York's Long Island; Sawgrass Mills Circle, near Ft. Lauderdale, Florida; and Woodbury Commons, north of New York City.
"If you're a retailer today, you're going to say: 'Get me into one those centers,'" Sandler O'Neill analyst Alexander Goldfarb said.
Third-quarter funds from operations (FFO) rose 2 percent to $473.1 million, or $1.38 per share, from $463.9 million, or $1.61 per share, a year earlier, Simon, the largest U.S. real estate investment trust (REIT), said on Friday.
Analysts had expected $1.32 per share, according to Thomson Reuters I/B/E/S. FFO, a performance metric, removes the profit- reducing effect of depreciation, a noncash accounting item.
Third-quarter 2009 FFO reflected about 52 million more shares than the prior year.
Lower sales at its centers and bad debt expenses from bankrupt tenants drove down third-quarter revenue 1.1 percent to $924.9 million, but operating expenses that were 3.5 percent lower countered that.
The Indianapolis, Indiana-based company plans to return to an all-cash dividend next year, a decision subject to market conditions and board approval, David Simon said. When the credit markets evaporated about a year ago, Simon became one of the first REITs to issue its dividend partly in stock. On Friday, Simon declared a dividend of 60 cents per share, 20 cents in cash and the rest stock.
Simon also raised the low end of its forecast for 2009 FFO to a range of $5.40 to $5.50 per share, up from its prior forecast of $5.35 to $5.50 per share. Analysts had forecast $5.43 per share.
By the end of the quarter, Simon was sitting on more than $4 billion of cash and had $3 billion available under its revolving credit facility. David Simon said the company may use the cash to pay off mortgage debt if attractive U.S. acquisitions opportunities don't appear next year.
"We are evaluating a number of opportunities," David Simon said. "We will see what happens. We can be very patient."
The company owns or has an interest in 386 properties comprising 262 million square feet of leasable space in North America, Europe and Asia.
U.S. mall occupancy fell to 91.4 percent from 92.5 percent, while average sales per square foot dropped 11 percent to $438 in part due to its many malls in hard-hit areas such as Florida and Las Vegas. New leases were 10.6 percent higher than expiring ones.
For its outlet properties, occupancy slipped to 97.5 percent from 98.8 percent. Sales per square foot fell 4.5 percent. New leases were about 32 percent higher than expired ones.
Net operating income, which reflects the cash flow the properties generate, rose 0.9 percent, excluding its joint- venture partner share and fell 0.6 percent at its malls. It rose 4.4 percent at its outlets.
After gaining more than 6 percent on Thursday, Simon shares fell 2.45 percent, or $1.67, to $66.50 in afternoon trading on the New York Stock Exchange. The benchmark MSCI U.S. REIT Index .RMZ was off 3.08 percent. (Reporting by Ilaina Jonas; editing by Steve Orlofsky and Andre Grenon)
