Commercial Real Estate and Simon Property Group and Banking & Finance and Investing and Retail Development and Real Estate & Retail

Simon boosts dividend, outlook after strong second quarter

July 24, 2012

Simon Property Group Inc. raised its dividend and increased its forecast for the remainder of 2012 after posting strong second-quarter results.

The locally based shopping mall owner reported Tuesday morning that funds from operations, a key measure of performance for real estate companies, rose 18 percent in the second quarter.

The company said FFO will be $7.60 to $7.70 a share this year. That compares with a previous forecast of $7.50 to $7.60. Simon boosted its dividend to $1.05 a share from $1.

Simon's shares were up about 1 percent in late-morning trading, to about $158 each.

Demand for space from retailers at regional malls and outlet centers is rising, helping to lift Simon’s revenue. The company also is expanding overseas to increase growth. It bought a 29-percent stake in European shopping-center operator Klepierre SA for about $2 billion in March and formed a venture in April with Rio de Janeiro-based BR Malls Participacoes SA to develop outlet centers in Brazil.

“Their business is really, really good,” Rich Moore, an analyst at RBC Capital Markets in Solon, Ohio, said before the report. “They’re actively engaged on the international front.”

FFO rose to $689 million, or $1.89 a share, in the second quarter from $583 million, or $1.65, a year earlier. The average of 18 estimates in a Bloomberg survey was for FFO of $1.81 a share.

The company reported net income in the second quarter of $215.4 million, or 71 cents per share, on revenue of $1.2 billion. In the same period a year earlier, Simon posted net income of $205.1 million, or 70 cents per share, on revenue of $1.0 billion.

The results were released before the start of regular U.S. trading. Simon's shares have advanced 21 percent this year, compared with a 13 percent gain in the Bloomberg REIT Index.

In its earning report, the company also noted that it paid the retailer J.C. Penney about $248 million to redeem the chain's partnership stake in the mall giant.

The amount represents a large discount to the trading value of Simon's shares. Penney got $124 for each of the partnership units it cashed in, well below the per-share price of $158.

Analysts asked CEO David Simon about the discount on a conference call Tuesday morning. Simon noted J.C. Penney had the option of converting the partnership units into common shares, which it would then have to sell, or negotiate a buy-back from the company directly.

"I'm very convinced [the deal] is a great opportunity for the company, and I think it met Penney's strategic goals in terms of their focus," he said.

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