Simon Property Group, Inc. (SPG) Q2 2013 Earnings Preview: REIT Will Report A Big Profit Increase On Higher Rents From Existing Mall Tenants

Simon Property Group Inc. (NYSE:SPG), the biggest U.S. mall operator, is expected to report a profit increase of more than 20 percent as retailers renewing contracts agreed to pay significantly more and the company opened several new facilities, both of which helped compensate for relatively flat occupancy rates.

The Indianapolis company is expected to report net income of $268.90 million, up 21.8 percent from the year-earlier $215.45 million, according to an analyst survey by Thomson Reuters. Earnings per share is expected to climb to 88 cents, up 24.5 from 71 cents in the second quarter of 2012. Revenue is expected to rise by 4 percent to $1.24 billion from $1.19 billion.

Simon Property Group will release its second-quarter earnings Monday before markets open.

The value of rents in contract renewals signed during the second quarter rose significantly as retail tenants in Simon facilities booked higher sales, analysts said. Because of the way tenant contracts are structured, a proportion of such sales gains flows through to Simon.

"The retail segment continues to be mixed as occupancy stayed flat in 2Q13," said Mark Lane with Barclays Capital, who also attributes the growth trend to rent renewals in an improving market. "Despite modest improvement in retail sales growth and historically low new construction, renewal rent increases should be solid."

Besides negotiating higher rents from existing tenants, Simon benefited from the launch, early in the second quarter, of two big facilities and one major expansion. On April 4, the company opened its Premium Outlets in Chandler, Ariz., a facility that is next to the Wild Horse Pass Hotel & Casino. The first phase of the venture contains 90 outlet stores covering 360,000 square feet; it is fully leased.

On April 19 Simon partnered with Mitsubishi Estate Co., Ltd., to open Shisui Premium Outlets near Tokyo, a project in which the company holds a 40 percent stake and the ninth such venture in Japan for Simon. The first phase of Shisui Premium Outlets covers 234,000 square feet and is 100 percent leased.

In May the company completed an expansion and upgrade of its Woodbury Common Premium Outlets in New York, one of the most productive shopping destinations in the world which -- before the just-completed expansion and upgrade -- had average sales in excess of $1,550 per foot and annual sales exceeding $1.3 billion.

Simon, which runs 436 malls, retail outlets and community and lifestyle centers in North America, Europe and Asia, had an average and stable occupancy rate of 94.7 percent during the second quarter.