Simon Property Group Earnings Preview: Good Malls Drive Higher Profits

Simon Property Group (NYSE: SPG), the largest U.S. mall landlord, is expected to have higher profits in the first quarter on higher revenue from the company's geographically diverse array of properties.

Indianapolis-based Simon, which reports earnings Friday, April 27, before markets open, is expected to have earnings per share of 83 cents, up from 61 cents in the previous year, according to a Reuters consensus.

Funds from operations, a key measure of cash flow from properties for real estate investment trusts (REITs) is expected to rise to $1.67 per share from $1.61 per share in the prior year. Revenue is expected to increase to $1.05 billion, up from $1.01 billion in the previous year.

They’ve proven to be good stewards of capital, said Alexander Goldfarb, an analyst with Sandler O'Neill & Partners LP. If you look back at the investments the company has made throughout its lifetime, they’ve been smart deals that have added value.

Goldfarb attributes the company's success to owning great assets and seeking consumers across the spectrum. In the fourth quarter, the company's sales per square foot rose 10.7 percent compared to the previous year and its occupancy rate rose 30 basis points to 94.8 percent from the prior year.

Simon has a large portfolio of malls in the U.S., along with holdings in Europe and Asia, where it is expanding. In the first quarter, Simon bought a 28.7 percent interest in French mall landlord Klepierre. It also announced announced a joint venture with Bailian Group to develop a mall in Shanghai.

Weaker consumer spending could hurt Simon's tenants and lead to vacant retail spaces, but analysts expect the company to continue to outperform peers like General Growth Properties Incorporated (NYSE: GGP) and Macerich Company (NYSE: MAC).

The prospect of a 'new normal,' lower-growth economy could prove a drag on results over the medium term. While its portfolio would not be immune to the negative effects of a weak economy, we believe the desirability of its assets will help Simon's results hold up better in market downturns than its peers, wrote Todd Lukasik, an analyst with Morningstar Inc. in an April research note.

Simon said in February that it expects annual funds from operations of $7.20 to $7.30 per diluted share and diluted net income of $3.28 to $3.38 per share. It's also expected to continue to seek new acquisitions.

They’re always on the hunt, said Goldfarb.

Shares of Simon were up $1.81 to $152.68 at Wednesday's market close.