Financial Results and Commercial Real Estate and Public Companies and Simon Property Group and Real Estate Investment Trust

Simon's quarterly results slip, but profit, revenue rise

November 1, 2010

Simon Property Group Inc., the largest U.S. shopping-mall owner, said third-quarter profit declined from a year ago after the company recorded an expense to buy back debt.

However, Indianapolis-based Simon raised its dividend 33 percent, the company announced Monday morning.

Funds from operations fell to $318.5 million, or 90 cents a share, from $473.1 million, or $1.38 a share, a year earlier, the company said. The results included costs of $185.1 million, or 53 cents a share, related to a tender offer for about $1.33 billion in notes.

FFO is a cash-flow measure used by real estate investment trusts. It excludes depreciation and other items and doesn’t conform to generally accepted accounting principles.

Quarterly profit was $230.6 million, or 79 cents per diluted share, as compared to $105.5 million, or 38 cents per share, a year ago. Results included transaction expenses of $47.6 million, or 14 cents per share, as well as Simon's sale of its interests in a European joint venture, resulting in a gain of $281.3 million, or 80 cents per diluted share.

Revenue increased 5.9 percent in the quarter, to $979.3 million.

Simon is repurchasing debt and making acquisitions as retail sales in the United States start to improve. The company bought Prime Outlets Acquisition Co. in August for $2.3 billion to expand its outlet-mall operation by 21 properties.

“They’ve been in a cash-rich position and looking to put that money to work,” James Sullivan, an analyst at New York- based Cowen & Co., said before the quarterly announcement. “The outlet-center division of Simon has been exceptionally strong throughout the cycle.”

Sullivan rates Simon shares “outperform.”

Analysts projected Simon would have FFO of 90 cents a share, the average of 16 estimates in a Bloomberg survey.

Simon raised its dividend to 80 cents a share, up from 60 cents. The dividend is payable Nov. 30 to shareholders of record on Nov. 16.

The company also raised its current-year forecast for FFO to a range of $5.90 to $5.95 a share, up from from $5.77 o $5.87.

Occupancy at Simon's properties rose from 92.8 percent to 93.6 percent. Comparable sales per square foot jumped from $449 to $483. Average rent increased from $38.35 to $38.69 per square foot.

The National Retail Federation has forecast holiday sales will be the best in four years, rising 2.3 percent to $447.1 billion.

Simon owns or has stakes in almost 400 properties in North America, Europe and Asia. The company dropped a bid this year to take over its largest competitor, Chicago-based General Growth Properties Inc., which filed for bankruptcy protection in April 2009. General Growth expects to exit bankruptcy this month.

Simon’s earnings were released before the open of U.S. exchanges. The shares fell 38 cents, to $96.02 per share, on Oct. 29. They have gained 20 percent this year, compared with a 22-percent advance in the Bloomberg REIT Index.

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