Simon Property Group Earnings: Partial Sale of SPARC Investment Generates Significant Gain on Sale

Simon Property Group reported third-quarter results that were slightly better than we anticipated, giving us confidence in our $151 fair value estimate for the no-moat company. Occupancy improved 50 basis points sequentially to 95.2%, better than our estimate of a 10 basis-point improvement. Minimum rent increased 2.9% year over year, better than our estimate of 2.0% growth. As a result, same-store net operating income grew 4.2% in the third quarter. The company's NOI from retail investments produced $46.0 million in the third quarter, which is down from the $87.5 million figure the company's investments produced in the third quarter of 2022 but is relatively in line with the $50.2 million NOI produced in the second quarter of 2023. Simon reported funds from operations of $3.20 per share, which is above the $2.93 figure the company reported in the third quarter of 2022 and above our $2.98 estimate for the quarter. However, Simon also reported a noncash gain on sale of $118.1 million in the quarter, which increased FFO by $0.32 per share. Removing the one-time gain, third-quarter FFO was slightly below both 2022 and our estimate for the quarter.