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Dividend Raised, Beat On FFO, Strong Growth From 5% Yielding REIT


  • On the fundamentals, Simon Property Group delivered an excellent quarter.
  • They saw growth in sales for tenants, growth in rent, beat on FFO, raised guidance, and raised dividends.
  • SPG’s success is contrary to the narrative surrounding retail.

Simon Property Group (NYSE:SPG) delivered an excellent third quarter. Q3 FFO comes in at $2.89 per share. That’s up from $2.70 per share a year ago and beats estimates of $2.87. New guidance for the year comes in at “$11.17 to $11.22”. The old guidance was "$11.14 to $11.22”. Simon’s guidance for FFO includes negative non-recurring impacts of $.36 for the extinguishment of debt in Q2 2017 which would be stripped out in AFFO. The dividend goes up to $1.85 from $1.80 in the prior quarter. The market reacts by dropping SPG about 3.8% (as of writing). SPG’s performance should be a huge positive factor for the sector since it is the largest mall REIT by a substantial margin. On the earnings call, transcripts not yet available, SPG’s management referenced retail sales figures stating “…absolutely an underreporting going on”. They are arguing that the transition to online sales is not as fast as it seems because tenants have an incentive to report their transactions as online sales.

Latest Figures

Time to break down the latest developments for SPG:

Occupancy is up slightly since last quarter (95.3% at September 30, 2017) and the base minimum rents are up 3.3% since last quarter and nicely year over year. The leasing spreads were solid at 11.2%, which reflects the growth in rent on new contracts compared to expiring contracts.

The dividend increase might have been tied to wanting to reach a nice even 10% growth in dividends. Otherwise, I would think using that little bit of capital for more buybacks might be more effective. I won’t complain, this still works, and given the prevalence of shorting mall REITs, having a smooth 10% increase might scare a few of the investors who wanted to short the stock.

FFO Reconciliation

Let’s get into the FFO

This article was written by

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Analyst’s Disclosure: I am/we are long SPG, WPG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

No financial advice. Investors are expected to do their own due diligence and consult with a professional who knows their objectives and constraints. CWMF actively trades in preferred shares and may buy or sell anything in the sector without prior notice. Tipranks: Buy SPG.

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