In 2014, Harvard Business Review (HBR) named Simon Property Group’s (NYSE: SPG) Chairman and CEO, David Simon, as one of the top 5 CEOs and the top CEO among all REITs. Although he went to Columbia University for his MBA, HBR recognizes his abilities as well as Simon Property Group’s high rankings in several metrics, including total shareholder return. As a REIT analyst, researching Simon Property Group has been a very smooth and pleasurable experience.
Commanding the largest market capitalization among regional mall REITs (US$56 billion), Simon Property Group owns, develops, and manages retail properties. These properties primarily consist of malls, Premium Outlets, and The Mills. For New England shoppers, the company owns such prime locations as Wrentham and Kittery Premium Outlets. The naysayers dooming the mall concept should visit these outlets during a busy shopping weekend.
Simon Property Group’s portfolio includes 110 malls, 68 Premium Outlets, and 14 Mills distributed across 37 states and Puerto Rico. The company also has a broad international footprint with real estate ownership interests in Japan, South Korea, Canada, Mexico, Malaysia, and select European countries. In May 2014, Simon Property Group spun off 98 properties to Washington Prime Group, also known as WP Glimcher (NYSE: WPG). The spin-off consisted mostly of strip centers and enclosed malls.
Simon Property Group’s performance in Q1 2015 (versus Q1 2014) was stellar with:
- An increase in revenues of 5 percent
- Same store net operating income increased 4 percent
- Comparable Funds from operations per share increased 7 percent
- Dividend per share increased 15 percent
- Dividend payout ratio remained at 66 percent
- Occupancy reached 96 percent.
The company’s debt portfolio has been well managed and is one of the most conservative among its peers. Simon Property Group’s debt-to-total capitalization ratio is 28.3 percent. The majority of their debt is at a fixed interest rate and the effective weighted average interest rate is 4.3 percent.
When examining its valuation, Simon Property Group’s stock is priced just right. The company’s price-to-FFO multiple has been approximately 20 and the implied capitalization rate is between 6.5-7.0 percent. The dividend yield is somewhat low at 3.3 percent.
A solid stock comes at a premium and Simon Property Group is no different. Given the above analysis and metrics, money should be put to work elsewhere.
Source: Simon Property Group
Written by Heli Brecailo
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Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.