More demand for mall space boosts Simon earnings

Simon Property Group Inc., the largest U.S. mall owner, reported an increase in first-quarter funds from operations and raised its FFO forecast for the year as retailers sought more space in regional shopping centers.

FFO, which gauges a property company’s ability to generate cash, climbed to $741.9 million, or $2.05 a share, from $648.7 million, or $1.82, a year earlier, the Indianapolis-based real estate investment trust said Friday in a statement. That compares with a $2.01-a-share average of 21 analyst estimates compiled by Bloomberg.

Demand for mall space is rising, helping increase revenue at Simon. Vacancies at major malls fell to 8.3 percent in the first quarter from 9 percent a year earlier, and rents rose to $39.46 a square foot from $39, New York-based research firm Reis Inc. said earlier this month. Simon is the biggest U.S. owner of both regional malls and outlet centers, where retailers sell at a discount.

“There’s more demand for good quality mall space than there is supply,” John Sheehan, an analyst at Edward Jones in St. Louis, said Friday morning. “If the whole group is improving, that should bode well for the largest mall landlord in America.”

Revenue increased 8.6 percent from a year earlier to $1.22 billion. Occupancies at Simon’s U.S. properties climbed to 94.7 percent from 93.6 percent. The base minimum rent in the first quarter was $41.05 a square foot, up from $39.87. Tenant sales rose 5.3 percent to $575 a square foot.

The company raised its estimate of FFO for the year to $8.50 to $8.60 a share, up from a February forecast of $8.40 to $8.50 a share. The average of 22 analyst estimates is $8.59.

First-quarter results were announced before the start of regular U.S. trading. Simon fell 0.5 percent to $176.01 on Thursday. The shares have advanced 15 percent in 12 months, compared with a 14 percent gain for the Bloomberg REIT Index.