While net income fell from $82.9 million in the second quarter of 2006 to $59.9 million in this year's second quarter, funds from operations lifted to $373 million for the quarter ended June 30, 2007, up 4.1% from $358.4 million in the prior-year quarter.
The largest US owner of shopping malls and outlet centers reported some slowdown in shopping at lower-end stores at some of its properties. During a conference call, management said it had taken a potential fall-off in sales and demand for space into consideration in its 2007 forecast.
Regarding potential store closings or a drop in tenant demand, David Simon, CEO, said, "we're girded for a potential slowdown there, but it's yet to manifest itself, frankly." He acknowledged that a slowdown in consumer spending could impact 2008, but added that ongoing redevelopment of older properties could offset any slowdown at the lower end.
Meanwhile, properties near tourist destinations, such as Orlando, Las Vegas, Hawaii, and the New York area, enjoyed strong sales growth as visitors from abroad took advantage of the weak dollar. At Chelsea Premium Outlet Centers near New York, for example, average sales were $492 per sf, up 8.6% for the year. The rent rate reached $25.11 per sf, up 5.6%, and occupancy was at a healthy 99.4%.
Throughout the portfolio, occupancy, comp sales per sf, and average rents were up for the quarter. Comparable sales per sf at regional malls open for a year or more rose to $489 per sf, up 4.5% from an average of $468 per sf in the same quarter a year ago. Similarly, average rent rates in regional malls saw a 4% rise from $35.10 per sf in the second quarter of 2006 to $36.51 per sf.
Development here and abroad continues. In July construction began on Jersey Shore Premium Outlets, a 435,000-sf center in Tinton Falls, NJ, which is scheduled to open in fall 2008. The first phase of 396,000-sf Palms Crossing in McAllen, TX and the 425,000-sf Philadelphia Premium Outlets in Limerick, PA are set to open this November.
Target and a 16-screen theater are already open at the 920,000-sf Pier Park in Panama City, FL, which is scheduled for completion in March 2008. Openings of the 690,000-sf first phase of 950,000-sf Hamilton Town Center in Noblesville, IN, and the 433,000-sf Houston Premium Outlets in Texas will follow in May 2008.
Projects are underway in Italy, South Korea, Japan and China. A majority of these are joint ventures. Locally based Simon's Ivanhoe JV completed the sale of five assets in Poland, and Simon expects a gain in excess of $70 million from the transaction.
Christy McElroy, an analyst with Bank of American Securities gave SPG stock a buy rating at $84.90 a share and a published a $115-per-share 12-month target. By mid-day on July 30, following the conference call, the stock was trading on the NYSE at $86.43 a share, up 1.8% for the day. This compares with a 52-week low of $81.19 on Aug. 10, 2006 and a 52-week high of $123.96 on this Feb. 7.
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