Simon Property Group Earnings: Rising Occupancy and Rent Offset by Lower Retail Investment Income

Second-quarter results for no-moat Simon Property Group SPG were mixed compared with our estimates, though we didn’t see anything in the quarter that would materially change our $150 fair value estimate. Occupancy improved 30 basis points sequentially to 94.7%, relatively in line with our 94.6% estimate, and was up 80 basis points year over year. Minimum rent grew 3.1% year over year, better than our estimate of 2.0% growth, and led to same-store net operating income growth of 3.7% that beat our estimate of 2.4% same-store NOI growth for the second quarter. The company’s retail investments only produced NOI of $50.2 million in the second quarter, which is down from the $116.5 million the company reported in the second quarter of 2022 but up significantly from the $54.6 million loss the company reported in the first quarter of 2023. As a result of lower retail income, Simon reported comparable funds from operations of $2.88 per share that was $0.05 lower than our $2.93 estimate, $0.03 lower than the second quarter of 2022, but $0.14 better than the first quarter of 2023.

Management raised 2023 FFO by $0.05 at the low end to a new range of $11.85 to $11.95. Our $11.84 2023 estimate is now below management’s guidance range, so while the company reported FFO slightly below our estimate in the second quarter, the improved full-year outlook gives us confidence in our overall view of the company.

Management announced that it was raising the third quarter dividend to $1.90 per share, a $0.05 increase over the second quarter and a $0.15 increase over the third quarter of 2022. Since the company cut the dividend in the second quarter of 2020, Simon has increased its dividend 8 times. The company’s FFO has nearly returned to 2019 levels, so we anticipate that Simon will continue to increase dividends to the $2.10 quarterly payout the company paid in the second half of 2019 as retail operations continue to stabilize following the pandemic.