Will E-Retail Boom Mar Simon Property's (SPG) Q4 Earnings?

Simon Property Group (NYSE:SPG) is scheduled to report fourth-quarter 2017 results on Jan 31, 2018 before the market opens. Both its funds from operations (FFO) per share and revenues are anticipated to improve year over year.

In the last reported quarter, this Indianapolis, IN-based retail real estate investment trust (REIT) witnessed a positive surprise of 0.35% in terms of funds from operations (FFO) per share. Results highlighted improved property performance and growth in revenues.

Nonetheless, over the trailing four quarters, the company exceeded the Zacks Consensus Estimate in three occasions and missed in the other, the average beat being 4.10%. This is depicted in the graph below:

Simon Property Group, Inc. Price and EPS Surprise

Simon Property Group, Inc. Price and EPS Surprise | Simon Property Group, Inc. Quote

Let’s see how things are shaping up for this announcement.

Factors to Influence Q4 Results

Simon Property has been undertaking various initiatives, of late, to strengthen its relationship with customers. In addition, it is focusing on omni-channel strategies to gain popularity among retailers. Further, in the fourth quarter, the company initiated various programs and events to steer mall traffic.

Simon Property has also resorted to micro-retail modeling that offers store units ranging from 20-200 square feet of space. Such moves make its shopping malls more appealing and will be conducive to revenue growth in the to-be-reported quarter.

In addition, the Zacks Consensus Estimate for the fourth-quarter revenues is currently pegged at $1.4 billion — indicating projected growth of around 0.5% year over year.

Nevertheless, with more and more consumers shifting to online purchases, mall traffic continues to remain considerably depressed. This has resulted in an increasing number of retailers joining the dot-com bandwagon. Retailers are also reconsidering their footprint and opting for store closures.

Furthermore, retailers unable to keep up with the intense competition in the industry have been filing bankruptcies. This is a pressing concern for retail REITs, as the trend has been significantly dragging down demand for the retail real estate space. This choppy retail real estate market situation is also said to have led to tenants demanding substantial lease concessions, though the mall landlords find it unjustified.

While Simon Property is making efforts to beat these retail blues through various initiatives, implementation of such measures requires a decent upfront cost. Consequently, this might impede any robust growth in the company’s profit margins in the quarter under review.

In addition, during the third-quarter earnings release, Simon Property had revised its full-year 2017 FFO per share to the range of $11.17-$11.22 compared with the prior guidance of $11.14-$11.22. The company had incorporated an expected 3 cents per share negative impact in the fourth quarter as a result of the ongoing repair and restoration work at the company’s two centers in Puerto Rico. The Zacks Consensus Estimate for the same is currently pegged at $11.21.

Moreover, prior to the fourth-quarter earnings release, there is lack of any solid catalyst. As such, the Zacks Consensus Estimate of FFO per share for the quarter remained unchanged at $3.11 over the past month.

Finally, shares of Simon Property have climbed 3.9%, versus the industry’s gain of 14.7%, in six months’ time.

Earnings Whispers

Our proven model does not conclusively show that Simon Property will likely beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. But that is not the case here, as you will see below.

(You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.)

Zacks ESP: The Earnings ESP for Simon Property is 0.00%.

Zacks Rank: Simon Property currently has a Zacks Rank #4 (Sell), which actually reduces the predictive power of ESP.

Stocks That Warrant a Look

Here are a few stocks in the REIT space that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this time around:

EPR Properties (NYSE:EPR) , slated to release fourth-quarter results on Feb 28, has an Earnings ESP of +0.69% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ramco-Gershenson Properties Trust (NYSE:RPT) , scheduled to release earnings on Feb 20, has an Earnings ESP of +1.24% and a Zacks Rank of 3.

Weingarten Realty Investors (NYSE:WRI) , slated to release quarterly numbers on Feb 21, has an Earnings ESP of +0.07% and a Zacks Rank of 3.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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