Simon Property Raises Forecast as FFO Gains 20% on Higher Mall Occupancies

Simon Property Group Inc. (SPG), the largest U.S. shopping-mall owner, raised its forecast for funds from operations after second-quarter results beat analyst estimates on higher rents and occupancies.

Funds from operations, which gauges a property company’s ability to generate cash, climbed to $583 million, or $1.65 a share, in the second quarter, from $487.7 million, or $1.38, a year earlier, the Indianapolis-based real estate investment trust said today in a statement. Analysts expected FFO of $1.58 a share, the average of 18 estimates in a Bloomberg survey.

The company is among regional mall landlords increasing rents as their tenants’ sales rise. Consumer spending, excluding automobiles, gas stations and restaurants, increased 5.5 percent in June from a year earlier, the National Retail Federation said on July 14. That was the 12th straight month of gains.

“The consumer, actually, I feel a little bit better about,” David Simon, Simon’s chairman and chief executive officer, said today in a conference call with analysts.

The mall owner increased its FFO forecast for the year to $6.65 to $6.73 a share. In April, it projected 2011 FFO of $6.55 to $6.65 a share.

Simon’s shares rose $1.92, or 1.6 percent, to $122.39, a record, at 4:15 p.m. in New York Stock Exchange composite trading. The stock has advanced 23 percent this year, compared with a 12 percent increase in the Bloomberg REIT Index.

Outlet Centers

Occupancy at Simon’s U.S. regional and outlet malls rose to 93.5 percent in the second quarter from 93.1 percent a year earlier. The average rent per square foot climbed to $39.70 from $38.62.

Simon is benefiting from growth in its outlet-center business as apparel companies and other retailers expand in that part of industry, said Cedrik Lachance, managing director at Green Street Advisors Inc., a REIT-research firm in Newport Beach, California.

The company last year bought Prime Outlets Acquisition Co. for $2.3 billion to expand the business by 21 properties. It sold Prime Outlets at Jeffersonville in June after the Federal Trade Commission required Simon to dispose of one of its two southwest Ohio centers as part of the Prime purchase.

“They’ve greatly benefited from having a quarter of their portfolio in outlet centers,” Lachance said in a telephone interview before the report.

No Outlet Overbuilding

Simon said he doesn’t expect there to be overbuilding of outlet malls in the U.S.

“It’s going to be a challenge to build many of the new outlet centers that are being bandied about,” Simon said. “The retailers and manufacturers are very sensitive to their full- price operations.”

Simon, the largest U.S. REIT by market value, owns or has stakes in almost 400 properties in North America, Europe and Asia. The company is considering building outlet centers in China, David Simon said.

“The big frontier is whether or not we do something in China on the outlet side,” he said on today’s conference call. “We’re spending a lot of time on that front.”

To contact the reporter on this story: Brian Louis in Chicago at blouis1@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net