Analyst Note| Kevin Brown |
While mall fundamentals continue to struggle compared with prepandemic levels, no-moat Simon Property Group reported first-quarter results that were ahead of our estimates, leading us to reaffirm our $149 fair value estimate. Occupancy did see a 60-basis-point drop sequentially to 90.9% in the first quarter, though that is better than the typical 100-basis-point drop caused by seasonality in most years and definitely better than our estimate of a 200-basis-point decline. However, re-leasing spreads did fall 13.6% compared with prior rent, worse than our estimate of a 9.7% decline, leading to rent growth of just 0.6%. Still, Simon reported comparable property net operating income decline of just 8.4%, significantly better than our estimate of a 16.4% decline. Combined with fewer rent abatements in the quarter, Simon reported funds from operations of $2.48 in the first quarter, and while that is 30 cents below the same period in 2020 it is 28 cents ahead of our first-quarter estimate and 31 cents ahead of the figure reported in the fourth quarter of 2020. The strong quarter led to management raising 2021 FFO guidance to a range of $9.70 to $9.80, an increase of 13 cents at the midpoint.