November 1, 2010 / 12:33 PM / 8 years ago

UPDATE 4-Simon raises dividend, sales at properties improve

* Raises outlook

* Raises dividend

* Shares up 2 percent (Adds CEO comments, updates stock activity)

By Ilaina Jonas

NEW YORK, Nov 1 (Reuters) - Simon Property Group Inc (SPG.N) said third-quarter results fell on debt-related charges, but sales by its tenants jumped more than 10 percent, and the largest owner of U.S. malls raised its outlook and quarterly dividend.

U.S. malls are recovering from a slump as shoppers slowly return and retailers cautiously plan new store openings. Simon was one of several mall owners that said sales at its properties rose by double-digit percentage rates in the quarter, joining rivals General Growth Properties Inc (GGP.N) and Taubman Centers Inc (TCO.N).

Simon said on Monday that funds from operations, a key measure for real estate investment trusts, fell to $318.5 million, or 90 cents per share, in the quarter. That’s down from $473.1 million or $1.38 per share, a year earlier.

Excluding charges for the extinguishment of debt, FFO was $1.43 per share.

FFO removes the profit-reducing effect of depreciation.

The results were in line with the analysts’ average forecast, according to Thomson Reuters I/B/E/S.

“I think it’s about what people expected,” said Jeung Hyun, portfolio manager with Adelante Capital Management, which owns Simon shares. “The numbers are pretty good.”

Simon shares rose 2 percent to $97.98 around midday in New York Stock Exchange trading, more than double the increase in the benchmark MSCI U.S. REIT Index .RMZ.

Indianapolis-based Simon raised its quarterly dividend by 20 cents per share, to 80 cents. It may raise the dividend again at the end of next year, Chief Executive David Simon said in a conference call with analysts.

Simon owns or has an interest in 393 retail properties comprising 264 million square feet of leasable space in North America, Europe and Asia. Its malls include Roosevelt Field on New York’s Long Island and Sawgrass Mills Circle near Fort Lauderdale, Florida, and its outlet centers include Woodbury Commons, north of New York City.

After falling last year, sales at its tenants’ stores began to pick up in the second quarter of 2010. In the third quarter, tenant sales rose 10.6 percent from a year earlier.

“However, we’re more focused on growing our own revenues and I’m pleased to report that our third-quarter consolidated revenues grew $54 million or 5.9 percent over the prior year,” David Simon said.

Hyun said a sharp increase in sales would eventually translate to higher rent the company could charge its tenants.

“Of course, it’s fairly easy comps, but that’s part of the bottoming process,” Hyun said.

Occupancy also increased, although mall occupancy remains 100 to 150 percentage points below peak levels in 2007. Average rent was about flat. Although Simon no longer breaks out the performance of its malls and outlets separately, most of the company’s growth has come from its outlet centers.

Simon focused all of its development activity on outlet centers during the quarter. During the quarter it also closed on a $1.1 billion acquisition of 21 outlet centers from Prime Outlets Acquisition Co.

Simon this year lost its battle to buy General Growth, the No. 2 U.S. mall owner that is set to emerge from bankruptcy next week, losing to a group led by Brookfield Asset Management Inc (BAMa.TO).

At the end of the quarter, Simon sat on $1.3 billion of cash and had access to an additional $3 billion under its credit facility.

Since the beginning of the year, and increasingly after the General Growth deal failed to materialize, Simon has used nearly $3 billion of cash to repay unsecured and mortgage debt as well as for acquisitions.

Simon has been focused on expanding in Asia and plans to open 11 outlet centers there by the end of 2011.

“I’m not discouraged in the U.S. at this moment but it’s not like it was a year ago,” David Simon said.

The company lifted its forecast for full-year FFO per share to $5.90 to $5.95, excluding $1 a share from debt-related charges. Its prior FFO view was $5.77 to $5.87.

The new forecast is roughly in line with Wall Street’s estimate of $4.93 per share, including the debt charges. (Reporting by Ilaina Jonas; Editing by Lisa Von Ahn and Gerald E. McCormick)

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