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Growth & Income

Simon Property Group Inc. (SPG - Analyst Report) has been on a long-term uptrend since mid-2010 and is currently trading near its 52-week high of $160.48. This retail REIT (real estate investment trust) is benefiting from strengthening fundamentals for commercial real estate. With a decent dividend yield of 2.6%, this Zacks #2 Rank (Buy) promises to be a solid pick for investors seeking both growth and income.

Strong Second Quarter

Simon Property Group reported strong second quarter results on July 24, which included a 14.1% year-over-year growth in total revenues to approximately $1.2 billion. Comparable sales in the regional malls and premium outlet centers combined portfolio increased 9.9% to $554 per square foot. Average rent per square foot in the combined portfolio increased 3.7% during the quarter to $39.99.

FFO came in at $1.89 per share, surpassing the Zacks Consensus Estimate by 5.0% and the year-ago FFO by 14.5%. Occupancy in the combined portfolio remained relatively high at 94.2%.

Outlook Raised

With solid quarterly results, Simon Property increased its FFO guidance for the full year 2012 to between $7.60 and $7.70 per share from its earlier projection of $7.50 to $7.60.

Over the past seven days, the Zacks Consensus Estimate for 2012 increased 1.6% to $7.73, which is above the upper end of the company’s guidance range. This implies a year-over-year growth of 12.2%. For 2013, the Zacks Consensus Estimate has increased 1.7% to $7.97 over the same time period, representing a year-over-year growth of 3.1%.

Dividend Payout

Simon Property paid a dividend of $1.05 per share in the second quarter of 2012, which marked a 31.3% increase over the year-ago quarter. Over the years, the company had paid a regular quarterly dividend, and the current dividend payment affirms a decent yield of 2.6%.

Premium Valuation

Simon Property’s valuation metrics are at a premium on a price-to-earnings (P/E) and price-to-sales (P/S) basis. Shares of Simon Property are currently trading at a forward P/E of 20.76x versus the peer group average of 18.88x. On a P/S basis, the shares are trading at 10.68x versus 7.65x for the peer group average. A healthy earnings growth prospect warrants the premium valuation of the company.

Since October 11, 2011, Simon Property shares have consistently fared better than the simple moving average for 200 days or SMA (200). In addition, the stock has outperformed the S&P 500 index since April 15, 2011. The year-to-date return for the stock is noteworthy at 24.46% compared to an S&P 500 tally of 10.21%.

The Bottom Line

With a favorable supply/demand relationship, rising earnings estimates, robust growth projections, and a healthy dividend yield, Simon Property offers an enticing upside potential going forward. In addition, a continued focus on some of the premium markets bodes well for its long-term growth.

Headquartered in Indianapolis, Indiana, Simon Property is the largest publicly traded retail real estate company in North America, engaged in acquiring, owning and leasing a diverse portfolio of shopping malls. The company currently owns or has ownership interests in 336 properties spanning 244 million square feet of gross leaseable space in North America, Europe, and Asia. The company presently has a market cap of $48.6 billion.

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