Simon Property Group (NYSE:SPG), a retail real estate investment trust (REIT) based in Indianapolis, IN, is set to report its second-quarter 2023 results on August 2 after the market closes. While the company’s revenue is expected to show year-over-year growth, funds from operations (FFO) per share are anticipated to decline compared to the prior-year quarter.
In the first quarter of 2023, SPG reported an FFO per share of $2.74, which fell short of the Consensus Estimate of $2.80. While the results reflected better-than-expected revenues due to healthy leasing activity, higher operating expenses were a dampener.
Over the past four quarters, SPG’s FFO per share beat the Consensus Estimate three times and missed once, with an average beat of 0.32%.
Let’s delve into the U.S. retail real estate market environment and the company’s fundamentals to analyze the factors that may have influenced its performance in the second quarter of 2023.
In the U.S. retail real estate market, rent growth has resumed in the second quarter of 2023, despite lower demand for space, according to a report from CBRE Group. Net absorption of U.S. retail space in the quarter reached 5.9 million square feet, the lowest level of demand since the sector experienced negative net absorption in the third quarter of 2020. Construction completions remained historically low due to elevated construction costs and economic concerns.
Despite these challenges, the overall availability rate declined to a record low of 4.8%, and the average asking rent increased by 2.1% year-over-year, reaching $23.21 per square foot. Significant gains in Raleigh and various Florida markets contributed to this growth.
Simon Property’s premium asset portfolio in the U.S. and internationally is expected to benefit from the favorable retail real estate environment. As consumers continue to prefer in-person shopping experiences after the pandemic, demand for SPG’s properties is likely to remain healthy, boosting occupancy levels and leasing activity. The company is expected to have a total portfolio ending occupancy of 94.5% in the second quarter, a sequential improvement of 10 basis points.
Simon Property’s adoption of an omnichannel strategy and successful partnerships with premium retailers are also anticipated to have paid off well. Additionally, its focus on mixed-use development opportunities is expected to have tapped growth prospects in areas where people prefer to live, work, and play.
Analysts estimate that second-quarter lease income will reach $1.24 billion, up from $1.19 billion in the year-ago quarter. The consensus mark for management fees and other revenues is $28.8 million, slightly lower than the reported figure of $28.81 million in the prior-year quarter. Furthermore, the consensus estimate for quarterly revenues is currently $1.33 billion, indicating a year-over-year increase of 3.64%.
Simon Property’s strong balance sheet is expected to support its strategic expansions during the quarter. However, the economic slowdown and higher e-commerce adoption may have affected the company’s performance. Rising interest rates may have also led to increased expenses, with a projected 7.5% year-over-year increase in interest expenses for the second quarter.
The Consensus Estimate for FFO per share remains unchanged at $2.91 over the past month, representing a 1.69% decrease from the reported figure in the year-ago quarter.
Featured Image: Freepik @ freepik
Author Stephanie Bédard-Châteauneuf 
