Simon Property Group (SPG Quick QuoteSPG - Free Report) is well-poised to benefit from its portfolio of premium retail assets in the United States and abroad. Solid retail-real-estate demand in the near term is likely to drive healthy demand for its properties, aiding leasing activity, occupancy levels and rent growth. Focus on supporting omnichannel retailing and developing mixed-use assets is encouraging. Moreover, accretive buyouts and redevelopment efforts augur well for long-term growth.

However, growing e-commerce adoption and limited consumers’ willingness to spend amid macroeconomic uncertainties and high interest expenses raise concerns.

In early December, Simon Property reported a 6.4% year-over-year increase in traffic across its nationwide portfolio during the Black Friday weekend. The company’s performance reflects the enduring appeal of brick-and-mortar retail in a digitally dominated era. Malls led the charge, with a notable 7.1% traffic surge, underscoring their central role in Simon’s strategy.

What’s Aiding SPG?

This retail REIT behemoth’s adoption of an omnichannel strategy and successful tie-ups with premium retailers have paid off well. Its online retail platform, coupled with an omnichannel strategy, is likely to be accretive for its long-term growth. It is also focused on helping digital brands enhance their brick-and-mortar presence. Further, SPG’s efforts to explore the mixed-use development option have enabled it to tap growth opportunities in areas where people prefer to live, work, play, stay and shop.

In the first nine months of 2024, it signed 877 new leases and 1,750 renewal leases (excluding mall anchors and majors, new development, redevelopment and leases with terms of one year or less) with a fixed minimum rent across its U.S. Malls and Premium Outlets portfolio. Given the favorable retail real estate environment, this leasing momentum is expected to continue in the upcoming quarters. As of Sept. 30, 2024, the ending occupancy for the U.S. Malls and Premium Outlets portfolio was 96.2%, up 100 basis points from 95.2% as of Sept. 30, 2023. We expect the company’s 2024 total revenues to increase 4.6% on a year-over-year basis.

Simon Property has been focusing on premium acquisitions and transformative redevelopments to enhance its portfolio. For the past years, the company has been investing billions to transform its properties, which bode well for long-term growth. Moreover, the company capitalized on buying recognized retail brands in bankruptcy. With the brands generating a decent amount from digital sales, investments in them seem strategic for SPG.

Simon Property is making efforts to bolster its financial flexibility. This enabled the company to exit the third quarter of 2024 with $11.1 billion of liquidity. As of Sept. 30, 2024, Simon Property’s total secured debt to total assets was 17%, while the fixed-charge coverage ratio was 4.3, ahead of the required level. With solid balance sheet strength and available capital resources, it remains well-poised to tide over any issues and bank on growth opportunities.

Solid dividend payouts are the biggest enticements for REIT investors, and Simon Property is committed to boosting shareholder wealth. Concurrent with the third-quarter 2024 earnings release, the company increased the dividend payment to $2.10 per share from $2.05 paid out earlier. This marked a hike of 2.4% from the prior payment. The retail REIT has increased its dividend 12 times in the past five years, and its payout has grown 4.07% over the same period. Given the company’s solid operating platform, opportunities for growth and decent financial position compared with the industry, this dividend rate is expected to be sustainable over the long run.

Over the past six months, shares of this Zacks Rank #3 (Hold) company have gained 16.1%, outperforming the industry’s growth of 14.6%.

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What’s Hurting SPG?

With the pandemic's impact waning, mall traffic has rebounded significantly. However, given the convenience of online shopping, it is likely to remain a popular choice among customers. Consequently, this is expected to adversely impact the market share for brick-and-mortar stores and affect retail REITs, including Simon Property.

The company has a substantial debt burden, and its share of total debt as of Sept. 30, 2024, was approximately $31.66 billion. High interest expenses remain a concern. For 2024, we estimate a year-over-year rise of 6% in the company’s interest expenses.

Stocks to Consider

Some better-ranked stocks from the retail REIT sector are Regency Centers (REG Quick QuoteREG - Free Report) and Tanger, Inc. (SKT Quick QuoteSKT - Free Report) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Regency’s 2024 funds from operations (FFO) per share has been revised a cent northward over the past month to $4.27.

The consensus estimate for Tanger’s current-year FFO per share has been revised a cent upward over the past two months to $2.11.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.