Business booming for Vegas mall developer

Wednesday, July 31, 2002 | 11 a.m.

SUN STAFF AND WIRE REPORTS

Simon Property Group Inc., the largest shopping mall owner in the country, today said second-quarter earnings rose more than fourfold, led higher by gains from property sales and higher occupancy rates.

The Indianapolis-based real estate investment trust had net income of $189.5 million, or 91 cents a share, up from $$45.9 million, or 21 cents, a year earlier. Revenue increased 5.9 percent to $517.5 million, the company said.

Vacancy rates at malls such as those owned by Simon and other public companies have held steady in the face of store closings and bankruptcy filings. Earnings estimates for retail property REITs have been cut 2.5 percent this year, compared with 10 percent for the REIT industry, according to Morgan Stanley.

"Regional mall fundamentals continue to hold up well," Salomon Smith Barney real estate analyst Ross Nussbaum said in a report before the earnings release.

In Las Vegas, the second quarter brought two significant announcements from Simon.

The company, which is a partner in the Forum Shops at Caesars, said in April that it plans to add 200,000 square feet of space to the 500,000-square-foot property in 2004, and will add retailers such as Roberto Cavalli, Chopard, MAC Cosmetics and Valentino.

It will be the Forum Shops' third addition since it opened with 283,000 square feet of space in 1992.

Simon also announced in June that it is partnering with New Jersey-based Chelsea Property Group to build the 430,000-square-foot, $90 million Las Vegas Premium Outlets mall on 40 acres near the Clark County Government Center, at Grand Central Parkway and Interstate 15.

The two companies, which each hold 50 percent of the partnership, broke ground in early July on the site, and plan to open the mall in fall 2003 with a tenant roster they have yet to announce.

Funds from operations -- a measure of cash flow -- rose to $167.9 million, or 89 cents a share, from $147 million, or 79 cents, a year earlier. On that basis, which isn't in accordance with generally accepted accounting principles, results exceeded Wall Street's expectation of 85 cents, according to a survey of analysts by Thomson First Call.

Not included in the results are $17 million, or 7 cents a share, of costs related to land costs and the write off of projects the company decided not to pursue. The company typically includes those costs in funds from operations, according to Louis Taylor, a real estate analyst at Deutsche Banc Securities.

Taking these and other costs into account, the quarter "looks to be slightly weaker than we anticipated," Taylor said in a report after the earnings.

Shares of Simon Property, which owns the Mall of America in Bloomington, Minn., fell 52 cents to $35.01 at 10:27 a.m. on the New York Stock Exchange. The shares were up 21 percent through the year through Tuesday, compared with a gain of 1.6 percent for the Bloomberg REIT Index.

For the year, Simon Property said it expects to have funds from operations of $3.76 a share to $3.78 a share, compared with analysts' estimates of $3.76, according to First Call.

This figure is generally defined as net income plus depreciation and before any extraordinary items, and is used to calculate dividend payments.