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INDIANAPOLIS-Simon Property Group said its quarterly FFO increased 9.4% to $369.5 million from $337.7 million in the third quarter of 2006. Though mall occupancies are down, the company reported an increase in re-leasing spreads and growth in sales across its portfolio during a Q3 2006 earnings conference call.
In the first nine months of 2006, Simon's FFO increased 9.5% to $1.087 billion from $992.4 million. On a per share basis, that increase was 9.5%, up to $3.82 from $3.49. Meanwhile, diluted quarterly FFO was up 9.2% to $1.30 per share from $1.19 per share.
Based on the results of the first nine months of the year, the company increased its guidance to $5.36 per share for 2006. Steve Sterrett, Simon's chief financial officer, said that a number of factors contributed to the raised outlook. "We did have some recovery in the third quarter on occupancy and obviously at this point in the year we have much better visibility in terms of fourth quarter openings," Sterrett says. "Part of it is economy-driven--sales obviously were very strong in the third quarter, we continue to see a very low level of bad debts, and we've also seen an easing of energy prices, which gives us some confidence into the fourth quarter. The third element of it is just really related to the balance sheet."
Simon reported that sales were up portfolio-wide. In the company's mall portfolio comprising 170 properties and 63 million sf, sales were up 6.5% to $474 per sf. In Simon's outlet portfolio comprising 35 centers and 13.5 million sf, sales increased 6% to $462 per sf.
Occupancy at Simon's regional malls was 92.5% at the end of third quarter--a decrease of 10 basis points from the Q3 2005 levels, but 100 basis points higher than occupancy at Q2 2006 levels. "We anticipate that our regional mall occupancy will be consistent with 2005 levels by year end," David Simon, the company's chief executive officer, said. He added that Simon's premium outlet portfolio remained "effectively occupied" at 99.3%.
Simon officials reported that re-leasing spreads were returning to levels consistent with company expectations. For the first three quarters of 2006, re-leasing spreads were $6.06 per sf in its malls, and $6.38 per sf at its outlet portfolio. "This spread [in the malls] dropped somewhat due to our focus on re-leasing the MusicLand and Casual Corner space, but is consistent with our plan of about a $6 spread per year," David Simon says.
In other Q3 news, the company completed a $1.1-billion senior unsecured notes offering, opened new retail projects in Poland and Austin, TX; and broke ground on projects in Philadelphia; Noblesville, IN; Panama City Beach, FL; and China. It also consolidated its Indianapolis operation into a new headquarters building.
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