Simon Property earnings fall on debt-retirement expenditures

April 30, 2010

Simon Property Group Inc., the largest U.S. shopping-mall owner, said first-quarter earnings, excluding some items, declined as the company recorded costs from the early retirement of debt.

Funds from operations fell to $325.6 million, or 94 cents a share, from $476.8 million, or $1.61 a year earlier, the Indianapolis-based company said Friday morning. Excluding the $165.6 million debt cost, FFO, a key measure for real estate investment trusts, rose to $491.2 million.

Simon raised the low end of its full-year profit forecast and said its tenants are reporting improving revenue. Retail sales rose 1.6 percent in March even as unemployment lingered near a 26-year high, according to the Commerce Department.

Mall owners are beginning to benefit from “further strength in retail sales and continued evidence of a rebound in discretionary spending,” UBS Securities LLC analysts led by Ross Nussbaum and Christy McElroy said in an April 15 report to investors. “Stronger national retailers are showing signs of taking incremental space in high quality centers.”

On a per-share basis, adjusted FFO was $1.41. The average estimate in a Bloomberg survey of 16 analysts was for FFO of 84 cents.

David Simon, CEO of Simon Property, said this week he’s not expecting a strong industry rebound until the United States sees more job creation.

“I’m a little more conservative than some, but I think it’s way too early to declare victory for the consumer and for commercial real estate,” Simon said during an April 27 panel discussion at the Milken Institute Global Conference in Beverly Hills, Calif.

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

Simon raised the bottom end of its forecast for 2010 adjusted FFO to $5.77 from $5.72. The top of the range is $5.87.

Simon announced results before the start of regular U.S. trading. The shares rose $5.47, or 4.8 percent, to $92.42 Thursday. The shares gained 83 percent in the 12 months through Thursday, compared with a 71 percent increase in the Bloomberg Real Estate Investment Trust Index.

Simon has been trying to buy or gain a stake in its largest competitor, Chicago-based General Growth Properties Inc., which filed for Chapter 11 bankruptcy a year ago.


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