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Despite Good Q4 Results, Simon Property Shares Fall on FFO Miss

Mall operator Simon Property Group saw shares fall on a Q4 miss on a key metric, even though results were otherwise good.

In a Nutshell: Shares of Simon Property Group Inc. on Friday fell 1.6 percent to close at $179.21 in Big Board trading after the company missed by a penny a key metric used by real estate investment trusts in the fourth quarter. The metric is funds from operations, or FFO, used to indicate how well a REIT is doing. The measure takes net income and add back items such as depreciation and amortization. In the quarter ended Dec. 31, FFO was $1.15 billion, or $3.23 a share. While that was better than the $1.12 billion posted in the year-ago quarter, or $3.12 a diluted share, Wall Street was expecting $3.24.

Revenues: Total revenues rose 2.3 percent to $1.46 billion from $1.43 billion. The company said that reported retailer sales per square foot was $661, an increase of 5.3 percent for the trailing 12 months ended Dec. 31, 2018. Occupancy at the end of the quarter was 95.9 percent, versus 95.6 percent in the year-ago period. In addition, the base minimum rent per square foot was $54.18.

Earnings: Net income for the three months ended Dec. 31 rose 24.8 percent to $712.8 million, or $2.30 a share, from $571.1 million, or $1.64, a year ago. Helping the bottom line, the REIT opened a 140,000-square-foot expansion of Toronto Premium Outlets, of which Simon owns 50 percent. The extension added enhanced amenities, elevated food offerings and more than 40 new brands.

The REIT provided guidance for the fiscal year ending Dec. 31, 2019. Simon is projecting diluted earnings per share at between $7.30 to $7.40, and FFO in the range of $12.30 to $12.40.

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CEO’s Take: David E. Simon, during a conference call to Wall Street analysts, said construction continues on three new outlets overseas, with two opening this year: Querétaro, Mex. in the summer and Málaga, Spain in the fall. The one in Cannock, U.K. will open in spring 2020. The REIT also expects to break ground on a new outlet in Bangkok, Thailand in the next few weeks. The chief executive said the company is also reclaiming department store spaces, which represent an opportunity for Simon. And while “first-quarter bankruptcies are tending lower than they were in 2017 and 2018,” the CEO noted that there are some “rumored things out there” that could mean the bankruptcy rate could trend higher.

“I do think there will be more bankruptcies to come in 2019,” he told analysts. And while he said Simon is concerned about a few retailers that could file in the first quarter, he also noted that the REIT is having good results with “retailers that are investing in their product, in their store experience [and] in their branding.”