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Simon sees occupancy on the rise

NEW YORK -- Simon Property Group Inc., the largest owner of U.S. malls including Sugarloaf Mills and Mall of Georgia, has little interest in buying department store space from retailers and leasing it back, a senior executive said on Friday, a stance that may limit options for cash-strapped J.C. Penney Co. Inc.

Penney, which has 111 stores in Simon malls across the country, has been talking with its financial advisers about ways to raise capital after a botched turnaround that led to a steep sales slump. Sale-leasebacks may be one of those options, analysts have said.

"I do not believe we believe we would be interested in sale-leasebacks," Richard Sokolov, president of the real estate investment trust, said during a conference call when analysts asked him about the company's general position on the subject.

Simon may have little reason to be interested.

Earlier it reported funds from operations, a closely watched measure of REIT earnings, rose 14.4 percent in the first quarter. Rents, sales and occupancy at its malls and outlet centers all rose, and it boosted its forecast for the year.

Shares of Simon were little changed at $175.91 on the New York Stock Exchange. Since the start of the year, the stock has risen 11.5 percent, while shares of its nearest competitor, General Growth Properties Inc, increased 9.9 percent.

Of the 635 department stores in Simon's U.S. portfolio, only six or seven are vacant, and there's a line of prospective tenants, many of them in retail categories that traditionally set up shop outside malls including supermarkets, theaters and health clubs.

It's part of a diversification that is attracting more shoppers to malls and the stores that pay rent there. Simon is adding hotels and apartment buildings to some of its U.S. properties, while CBL & Associates Properties Inc has leased mall space to libraries.

"To the extent they can put them all in one box-like destination for a community, that seems to work out really well," said Richard Imperiale, president of Uniplan Investment Counsel Inc, a fund that owns Simon shares.

Simon's FFO increased to $741.9 million, or $2.05 a share, from $648.7 million, or $1.82, a year earlier

Analysts, on average, expected FFO of $2.01 a share, according to Thomson Reuters I/B/E/S.

FFO is a performance measure that is closely watched because it usually excludes gains or losses from property sales and removes the effect of depreciation on earnings.

Simon maintained its quarterly dividend at $1.15 per share after raising it for the past six quarters, but it said it would likely restart the increases.

"We anticipate -- subject to review and board approval -- increasing our dividend as we anticipate our taxable income continuing to grow," David Simon, the company's chief executive and chairman, said during the call.

As a REIT, Simon is required to distribute at least 90 percent of its taxable income to shareholders.

First-quarter sales, rent and occupancy all increased. Sales at tenants' stores at its U.S. core portfolio malls and outlet centers rose 5.3 percent on a trailing 12-month basis to $575 per square foot. Some 121 of its U.S. properties averaged tenant sales of more than $700 per square foot.

Stronger sales attract tenants and eventually lead to higher rents. Also, landlords take a share of tenants' sales.

Occupancy at Simon's malls and outlet centers rose to 94.7 percent from 93.6 percent a year earlier, and it was able to push up rents by 13.4 percent for new leases. The average base rent was $41.05 per square foot.

Net operating income, which reflects how well properties owned for at least a year are being managed, rose 4.8 percent.

Simon raised its full-year FFO forecast, excluding one-time items, to a range of $8.50 to $8.60 per share from $8.40 to $8.50. Analysts expect $8.59 per share, according to Thomson Reuters I/B/E/S.

Simon, the only real estate company in the Standard & Poor's 100 index, owns or has an interest in 327 retail properties in North America and Asia.

Its portfolio includes some popular U.S. malls, including Roosevelt Field Mall and Woodbury Common Premium Outlets in New York, the Forum Shops at Caesars Palace in Las Vegas, and Lenox Square Mall in Atlanta.

The company has international outlet centers in Canada, Malaysia, Japan, Korea, Mexico and Europe. It also has a 28.7 percent stake in Klepierre SA, Europe's second-largest retail real estate owner.