The nation’s largest mall operator registered higher fourth-quarter funds from operations Friday, but said it will pay out its quarterly dividend mostly in stock to preserve cash.
Simon Property Group reported a 6.5 percent increase in funds from operations in the quarter ended Dec. 31 to $540.5 million, or $1.86 a diluted share, from $507.7 million, or $1.76 a diluted share, a year ago. Funds from operations add a real estate investment trust’s net income, depreciation and amortization while deducting gains from property sales. It is a common measuring stick in the real estate industry.
Revenues, consisting principally of rent and tenant reimbursements, at the Indianapolis-based REIT fell fractionally in the three months, settling at $1.03 billion from $1.04 billion in 2007. Net income rose 28.6 percent to $145.2 million from $112.9 million.
The company revealed Friday that it will pay out its quarterly dividend in a mix of 90 percent common stock and 10 percent cash. To enjoy certain tax exemptions, REITs are required to distribute 90 percent of their taxable income in dividends. Simon previously had made such payments in cash only.
The decision contributed to a $1.46, or 3.3 percent, drop in Simon’s shares, which closed Friday at $42.98 in New York Stock Exchange trading. REITs as a group all closed lower, and cash-squeezed General Growth Properties Inc. saw its shares fall 6 cents, or 8.5 percent, to 65 cents on the New York Stock Exchange.
David Simon, chairman and chief executive officer of the firm that bears his surname, said of the dividend move: “We believe this change in composition will fortify one of the industry’s strongest balance sheets, as it will permit us to retain over $925 million of cash if adopted for all of 2009. The decision is a reflection of our conservative stance on capital allocation and liability management and is not in response to the current retail operating environment.” On a call with investors, Simon said the decision would be reviewed quarterly.
For the 2008 fiscal year, the company’s funds from operations increased 9.5 percent to $1.85 billion, or $6.42 a share, from $1.69 billion, or $5.90 a share, in the previous year. For the year, revenues rose 3.6 percent to $3.78 billion from $3.65 billion in 2007. Net income in the 12 months fell 3.1 percent to $422.5 million from $436.1 million.
As of Dec. 31, the company said the occupancy rate in its regional malls stood at 92.4 percent, compared with 93.5 percent a year ago. At its premium outlet centers, the rate fell to 98.9 percent from 99.7 percent.
Simon, which owns all or part of 386 properties covering 263 million square feet of space, issued 2009 full-year guidance of funds from operations of $6.40 to $6.60 a share.