Simon Property's (SPG) Q2 Earnings Peek: What to Expect?

Retail real estate investment trust ("REIT") Simon Property Group Inc. SPG is expected to report second-quarter 2016 results on Jul 27, before the market opens. Last quarter, the company delivered a 3.5% positive surprise.

In the trailing four quarters, Simon Property posted an average positive surprise of 7.7%, beating estimates on all four occasions. The Zacks Consensus Estimate for second-quarter funds from operations ("FFO") is currently pegged at $2.62.

Let's see how things have shaped up for this announcement.

Factors to Consider

During second-quarter 2016, Simon Property underwent various expansion and ground-breaking activities. In mid-June, Simon Property celebrated the grand re-opening of the Chicago Premium Outlets with the entry of top-notch retailers. Just prior to this, the company launched a significant expansion for the premier shopping destination – Allen Premium Outlets – in North Texas. The move aimed at bringing more footfall by enhancing shopping experience at the center. Also, in early June, Simon Property unveiled the ground work on Norfolk Premium Outlets in Norfolk, VA. This marked the most significant retail development in the area in nearly two decades. These developments should have positive impacted the company's second-quarter results.

Again, while demand for quality retail space has risen, the supply remains low.  This, in turn, is driving higher occupancy and rent growth for Simon Property, which owns a high-quality portfolio of productive shopping centers.

Simon Property, however, faces rivalry from alternative types of retail such as catalogs and e-Commerce websites. Stiff competition, thus, remains a matter of concern for the REIT. Further, Simon Property's huge development and expansion pipeline exposes it to operational risks.

Earnings Whispers

Our proven model does not conclusively show that Simon Property will beat earnings 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 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate Estimate and the Zacks Consensus Estimate currently stand at $2.62, which translate into an Earnings ESP of 0.00%.

Zacks Rank: Simon Property's Zacks Rank #2 increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings beat.

Note that we caution against stocks with Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

SIMON PROPERTY Price and EPS Surprise

SIMON PROPERTY Price and EPS Surprise | SIMON PROPERTY Quote

Stocks to Consider

Here are a few stocks in the real estate investment trust sector you may want to consider, as our model shows that they have the right combination of elements to post a positive surprise this quarter:

Sun Communities Inc. SUI has an Earnings ESP of +2.44% and a Zacks Rank #3. The company will report results on Aug 2.

Regency Centers Corporation REG has an Earnings ESP of +1.25% and a Zacks Rank #3. The company will release results on Aug 2.

National Health Investors Inc. NHI has an Earnings ESP of +0.83% and a Zacks Rank #3. The company will report results on Aug 5.

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income. All earnings per share numbers presented in this write up represent FFO per share.

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