Simon Property raises outlook as profit tops expectations

NEW YORK, United States - Simon Property Group, the largest owner of U.S. malls and outlet centers, reported a higher-than-expected quarterly profit on Monday, boosted by increased occupancy and rent, and the company raised its earnings forecast for the year.

Simon's vast collection of malls and outlets includes some of the highest-quality U.S. properties, where demand for space from retailers keeps growing. Weaker malls are feeling more acutely the effects of wary consumers and competition from online shopping.

Simon has been able to post higher results and lower its cost of capital by redeveloping its proprieties - steps such as modernizing, adding store space and expanding parking facilities.

"They're grinding it out one mall at a time, one project at a time, one opportunity at a time, but they do it very well," said Richard Imperiale, president of Uniplan Investment Counsel Inc, a fund that owns Simon shares. "They're good at basic blocking and tackling."

Simon's second-quarter funds from operations, an earnings measure for real estate investment trusts, rose 11.25 percent to $766.3 million, or $2.11 per share, from $688.8 million, or $1.89 per share, a year earlier.

Analysts had expected $2.07 per share, according to Thomson Reuters I/B/E/S.

FFO is a performance measure that is closely watched because it usually excludes gains or losses from property sales and removes the effect of depreciation on earnings.

Simon raised its full-year FFO forecast, excluding one-time items, to a range of $8.60 to $8.70 per share from $8.50 to $8.60. Analysts expect $8.68, according to Thomson Reuters I/B/E/S.

SALES KEEP RISING

Sales, rents and occupancy rose in the quarter, Simon said. Sales at tenants' stores at its U.S. core portfolio malls and outlet centers averaged $577 per square foot in the 12 months ended June 30, up 4.2 percent from the previous 12 months. Smaller rival Taubman Centers reported flat sales for the quarter.

Stronger sales attract tenants and eventually lead to higher rents. Also, landlords take a share of tenants' sales.

Simon said the average base rent rose 3.6 percent to $41.41 in the quarter, and new leases called for rents that were 14.1 percent higher than those in leases that expired, up from a 10 percent increase in the year-earlier period.

Occupancy at Simon's malls and outlet centers rose to 95.1 percent from 94.2 percent a year earlier. Net operating income, which reflects how well properties owned for at least a year are being managed, rose 5.9 percent at its U.S. properties.

Simon, the only real estate company in the Standard & Poor's 100 index, owns or has an interest in 325 retail properties in North America and Asia.

Its portfolio includes some of the most popular U.S. malls and outlets, including Roosevelt Field Mall and Woodbury Common Premium Outlets in New York, the Forum Shops at Caesars Palace in Las Vegas, and the Galleria in Houston.

Its outlet business includes centers in Canada, Malaysia, Japan, Korea, and Mexico.

The company has a 28.7 percent stake in Klepierre SA, Europe's second-largest retail real estate owner. Earlier this month, Klepierre said it was targeting higher-than-expected cash flows this month as the European economy shows signs of stabilizing.

During the latest quarter, Simon formed a joint venture with European designer outlet mall company McArthurGlen Group.