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Recently, Fitch Ratings affirmed Simon Property Group Inc.’s (SPG - Analyst Report) and its operating partnership, Simon Property Group L.P.’s Issuer Default Rating (IDR) at 'A-' with a “Stable” outlook.
The rating affirmation is justified by Simon’s resilient cash flow from its sufficiently large, superior quality mall and premium outlet portfolio coupled with interests in other retail real estate. This, in turn, fortifies a fixed-charge coverage ratio suitable for the 'A-' rating.
In addition, Simon’s ratings reflect a solid management team and accessibility to multiple sources of capital. While leverage remains high of late, it is anticipated to remain in line with the requirement for 'A-' IDR for a large capitalization retail real estate investment trust (REIT).
However, Simon’s increasing development pipeline heightens its risk, though it is partly offset by sufficient liquidity coverage. As a matter of fact, Simon’s keenness for large purchases leads to a deterioration in its debt metrics in the short-term.
The rating affirmation of Simon at 'A-' IDR is encouraging. In fact, this plays a major role in preserving investor confidence in the stock and helps boost its creditworthiness in the market.
This largest publicly traded REIT boasts a diversified retail portfolio and its tenant roster consists of names like The Gap Inc. (GPS - Analyst Report), Limited Brands Inc. (LTD - Analyst Report) and Abercrombie & Fitch Co. (ANF - Analyst Report). The diversification helps it endure the continuously changing retailer landscape.
Therefore, with strong fundamentals, robust growth projections, and a healthy dividend yield, Simon Property offers an enticing upside potential going forward. Moreover, Simon Property currently retains a Zacks Rank #2 (Buy). We also have a long-term Outperform recommendation on the stock.
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