Simon Property Group Inc. (SPG) reported impressive third quarter results late last month, which included a raised FFO guidance for the full year that sent earnings estimates higher. With a year-to-date return of 16.7% and a dividend yield of 3.0%, this retail REIT (real estate investment trust) promises to be a solid pick for investors seeking both growth and income. Earnings for this Zacks #2 Rank (Buy) are presently expected to grow 13.8% in 2012 and 6.7% in 2013.
Strong Third Quarter
On October 25, Simon Property Group reported a jump of 14.3% in third-quarter revenues to $1.2 billion. Comparable sales in the regional malls and premium outlet centers increased 9.3% to $562 per square foot. Average rent per square foot in the combined portfolio increased 3.8% during the quarter to $40.33.
FFO came in at $1.99 per share, surpassing the Zacks Consensus Estimate by 7 cents or 3.7%. This also compared favorably with year-ago FFO of $1.71 per share. Occupancy in the combined portfolio remained relatively high at 94.6%.
Outlook Raised
With solid quarterly results, Simon Property Group increased its FFO guidance for 2012 to between $7.80 and $7.85 per share from its earlier projection of $7.60 - $7.70.
The past 30 days have seen a number of upward revisions for 2012 and 2013. The Zacks Consensus Estimate for this year is up 1.2% to $7.84 per share as 12 of 17 estimates moved higher. For 2013, the Zacks Consensus Estimate is $8.37, which is up nearly 1% in 30 days as half of the 18 estimates moved upward.
Dividend Payout
Simon Property Group paid a dividend of $1.10 per share in the third quarter of 2012, which marked a 22.2% increase over the year-ago quarter. The current dividend payment affirms a yield of 3.0%.
Premium Valuation
Simon Property Group's valuation metrics are at a premium on a price-to-earnings (P/E) and price-to-sales (P/S) basis. Shares are currently trading at a forward P/E of 18.74x versus the peer group average of 18.21x. On a P/S basis, shares are trading at 9.66x versus 7.49x for the peer group average. A healthy earnings growth prospect warrants the premium valuation of the company.
Since April 21, 2011, Simon Property shares have consistently outperformed the S&P 500 index. The year-to-date return for the stock is noteworthy at 16.7% compared to an S&P 500 tally of 6.5%.
With a favorable supply/demand relationship, rising earnings estimates, robust growth projections and a healthy dividend yield, Simon Property offers an enticing upside potential going forward. In addition, a continued focus on some of the premium markets in major metropolitan areas bode well for its long-term growth.