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Key Reasons Why Simon Property (SPG) Stock Soared 31% QTD

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Shares of Simon Property (SPG - Free Report) have gained 31% in the quarter-to-date period compared with its industry’s growth of 16%.

Earlier this month, this Indianapolis, IN-based retail real estate investment trust (REIT) reported third-quarter 2022 comparable funds from operations (FFO) per share of $2.97, exceeding the Zacks Consensus Estimate of $2.93. Moreover, the figure increased 1.7% year over year.

Its results were aided by a healthy operating performance and growth in occupancy levels. This retail REIT behemoth also raised its 2022 comparable FFO per share outlook from $11.70-$11.77 to $11.83-$11.88.

Analysts, too, seem bullish on this Zacks Rank #3 (Hold) stock. The Zacks Consensus Estimate for the company’s 2022 funds from operations (FFO) per share indicates a favorable outlook as it has increased marginally upward over the past week.

Zacks Investment Research
Image Source: Zacks Investment Research

Let us now decipher the factors behind the increase in the stock price.

Improving Leasing Environment: The increase in consumers’ preference for in-person shopping experience following the pandemic downtime has been driving the recovery in the retail real estate industry. Retailers continue to rent out more physical store spaces to meet this growing demand. As a result, Simon Property’s portfolio of premium assets in the United States and abroad has been experiencing solid leasing activity.

For the nine months ended Sep 30, 2022, it signed 983 new leases and 1,116 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.

Healthy Operating Performance: The occupancy for Simon Property’s U.S. Malls and Premium Outlets portfolio improved 170 basis points year over year to 94.5% as of Sep 30, 2022. Also, the base-minimum rent per square foot for this portfolio was $54.80 as of Sep 30, 2022, rising from $53.91 as of Sep 30, 2021.   

During the third quarter, the retailer sales touched another record high of $749 per square foot for the malls and the outlets combined. This reflected an increase of 14% year-over-year.

Focus on Omni-Chanel Strategy: Simon Property’s adoption of an omni-channel strategy and successful tie-ups with premium retailers has paid off well. Its online retail platform, coupled with an omni-channel strategy, is likely to be accretive to its long-term growth. Further, its efforts to explore the mixed-use development option, which has gained immense popularity in recent years, has enabled it to tap the growth opportunities in areas where people prefer to live, work and play.

Balance Sheet & Cash Flow Strength: The company maintains a solid balance-sheet position with ample liquidity. It exited third-quarter 2022 with $8.6 billion of liquidity and a fixed-charge coverage ratio of 5.0, which is well ahead of the required level. SPG also enjoys investment-grade credit ratings, giving it favorable access to the debt market.

SPG’s trailing 12-month return on equity (ROE) is 54.59% compared with the industry’s average of 6.27%. This reflects that the company is more efficient in using shareholders’ funds than its peers.

In addition, its current cash flow growth is projected at 44.90% compared with the 26.69% growth estimated for the industry.

With strong financial footing and enough financial flexibility, it is well-placed to capitalize on long-term growth opportunities.

Dividends: Solid dividend payouts remain the biggest enticement for REIT investors, and SPG has consistently raised its dividend rates. Concurrent with the third-quarter earnings release on Nov 1, 2022, SPG announced a 2.9% sequential hike in its fourth-quarter 2022 dividend to $1.80 per share. Prior to this, the company increased its third-quarter 2022 dividend to $1.75 per share from $1.70 paid earlier. Such efforts boost investors’ confidence in the stock.

Nonetheless, given the convenience of online shopping, it is likely to remain a popular choice among consumers, affecting the market share for brick-and-mortar stores. Also, interest rate hikes add to its concerns.

Stocks to Consider

Some better-ranked stocks from the retail REIT sector are Regency Centers (REG - Free Report) , Federal Realty Investment Trust (FRT - Free Report) and American Assets Trust (AAT - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Regency Centers’ current-year FFO per share is currently pegged at $3.97.

The Zacks Consensus Estimate for Federal Realty’s ongoing year’s FFO per share has presently stands at $6.24.

The Zacks Consensus Estimate for American Assets Trust’s 2022 FFO per share is pegged at $2.26, presently.

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

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