Simon Property Group's (NYSE:SPG) Wednesday morning earnings report delivered an earnings beat, but not everything looked great. The massive mall and outlet property owner reported funds from operations, or FFO, of $1.90 per share, versus $2.21 per share a year ago. That's a 14% decline.

But it's also not the whole story. The company's results were affected by a loss of $127.6 million, or $0.35 per diluted share, when Simon Property retired $1.5 billion in unsecured debt during the quarter. Also coloring the results is that in last year's third quarter, a number of properties that are now part of the spun-off Washington Prime Group contributed $0.24 in funds from operations. Taking all one-time and spin-off-related adjustments into consideration, comparable FFO grew 14% for the quarter. Overall, it was another quarter of solid growth, with FFO coming in higher than analysts were expecting.

Let's take a closer look at the quarter.

Two things I liked in the earnings release

1. Property development continues. Development, redevelopment, and expansion of its rental properties is Simon Property's path to growth. The company currently has over $2 billion invested in ongoing projects, which, according to company estimates, will contribute a steady 9% rate of return.

2. Occupancy continues to climb. Simon was able to fill more of its rentable space this quarter. It reported 96.9% occupancy on its properties, up from 95.5% in the third quarter of last year and 96.5% from its most recent quarter. While the differences may look small, remember that Simon has over 175 million square feet in rentable retail space. Each tenth of a percent of an incremental increase in occupancy represents around 175,000 square feet and millions of dollars in revenue.   

Two things I didn't like from the earnings release

1. Limited international development. Simon is first and foremost and American company. Less than 10% of its net operating income comes from outside the United States.  


But as e-commerce continues to make significant gains, especially in the United States, investors looking for Simon to diversify its geography are being disappointed. Despite a long list of development projects, only a few, accounting for less than a million square feet of space, mostly in Canada and Mexico, are for properties outside the United States. Simon does have several joint ventures in Europe and Asia, but it's clear that the company is focusing its expansion efforts here at home.

2. Sales per square foot remain flat. This is the second quarter in a row in which retailer sales per square foot in the U.S. malls and outlets declined from the previous quarter, falling from $614 to $613. Retailers have shown an increasing willingness to pay up for space in Simon's premium properties, but that won't continue if they aren't being rewarded with increasing sales numbers. This is an issue that bears watching going forward.

The big picture
There's something for both the bulls and the bears in the earnings release. On one hand, Simon continues to deliver for shareholders. In addition to the earnings beat, Simon raised its full-year guidance on FFO another $0.15, to a range of $8.84 to $8.88. The company is capitalizing on an improved economy and raising rents for its tenants, and the guidance increases show that the company is confident in its own future. However, the sales numbers continue to be a concern. American consumers have more money to spend -- they just aren't spending it at Simon's properties.