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Simon Property (SPG) Up 33% in 3 Months: Will the Trend Last?
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Shares of Simon Property Group (SPG - Free Report) have soared 33% over the past three months compared with its industry’s growth of 17.5%.
The company’s portfolio of premium retail assets in the United States and abroad, the adoption of omnichannel retailing, focus on mixed-use developments and healthy balance sheet strength have enabled it to ride the growth curve so far.
Analysts seem bullish on the Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for its 2023 funds from operations (FFO) per share has been raised nearly 1% over the past month.
Image Source: Zacks Investment Research
Let us now decipher the factors behind the increase in the stock price and check whether the trend will last.
The retail real estate market fundamentals have remained solid in 2023. Retailers were seen renting out more physical store spaces to meet the growing consumer demand. As a result, Simon Property’s portfolio of premium assets in the United States and abroad experienced solid leasing activity, driving occupancy levels and rent growth across its portfolio.
In the nine months ended Sep 30, 2023, the company signed 922 new leases and 1,440 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.
The occupancy for this portfolio improved 70 basis points on a year-over-year basis to 95.2% as of Sep 30, 2023. The base minimum rent per square foot for this portfolio was $56.41 as of the same date, up from $54.80 recorded a year ago.
Retail real fundamentals will likely remain strong in the upcoming period, benefiting retail REITs like Simon Property. The company’s healthy leasing pipeline and continued broad-based demand from the retail community across several categories will drive its performance.
Simon Property’s adoption of an omni-channel 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 to its long-term growth. The company is also focused on tapping its growth opportunities by assisting digital brands enhance their brick-and-mortar presence.
Also, 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.
The retail REIT maintains a healthy balance sheet position and had $8.8 billion of liquidity as of the end of the third quarter of 2023. The fixed-charge coverage ratio was 4.5 as of Sep 30, 2023, well ahead of the required level.
SPG also enjoys a corporate investment-grade credit rating of A- (stable outlook) from Standard and Poor's and a senior unsecured rating of A3 (stable outlook) from Moody’s, rendering it favorable access to the debt market. The company’s solid financial footing with ample financial flexibility is likely to support its growth endeavors going forward.
In addition, SPG’s trailing 12-month return on equity is 64.91% compared with the industry’s average of 4.50%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
Solid dividend payouts are a massive enticement for REIT investors, and SPG has remained committed to boosting shareholder wealth even during the pandemic. Encouragingly, the company has raised its dividend payout 10 times in the last five years, with the latest hike being announced in August 2023, concurrent with the second-quarter 2023 earnings release. Check out Simon Property’s dividend history here.
Given SPG’s solid operating platform, opportunities for growth and a decent financial position compared with the industry, we expect the dividend rate to be sustainable in the upcoming period.
Nonetheless, growing e-commerce adoption and limited consumers’ willingness to spend amid persistent macroeconomic uncertainty and high interest rates may pose key near-term concerns for the company.
The Zacks Consensus Estimate for Realty Income’s ongoing year’s FFO per share has been unchanged at $4.01 over the past month. However, the estimate suggests year-over-year growth of 2.3%.
The Zacks Consensus Estimate for Essential Properties Realty Trust’s 2023 FFO per share has been raised marginally to $1.68 and indicates an increase of 9.8% from the year-ago period’s reported figure.
The Zacks Consensus Estimate for TANGER INC’s current-year FFO per share has moved 1.6% northward over the past two months to $1.94, implying a year-over-year rise of 6%.
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.
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Simon Property (SPG) Up 33% in 3 Months: Will the Trend Last?
Shares of Simon Property Group (SPG - Free Report) have soared 33% over the past three months compared with its industry’s growth of 17.5%.
The company’s portfolio of premium retail assets in the United States and abroad, the adoption of omnichannel retailing, focus on mixed-use developments and healthy balance sheet strength have enabled it to ride the growth curve so far.
Analysts seem bullish on the Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for its 2023 funds from operations (FFO) per share has been raised nearly 1% over the past month.
Image Source: Zacks Investment Research
Let us now decipher the factors behind the increase in the stock price and check whether the trend will last.
The retail real estate market fundamentals have remained solid in 2023. Retailers were seen renting out more physical store spaces to meet the growing consumer demand. As a result, Simon Property’s portfolio of premium assets in the United States and abroad experienced solid leasing activity, driving occupancy levels and rent growth across its portfolio.
In the nine months ended Sep 30, 2023, the company signed 922 new leases and 1,440 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.
The occupancy for this portfolio improved 70 basis points on a year-over-year basis to 95.2% as of Sep 30, 2023. The base minimum rent per square foot for this portfolio was $56.41 as of the same date, up from $54.80 recorded a year ago.
Retail real fundamentals will likely remain strong in the upcoming period, benefiting retail REITs like Simon Property. The company’s healthy leasing pipeline and continued broad-based demand from the retail community across several categories will drive its performance.
Simon Property’s adoption of an omni-channel 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 to its long-term growth. The company is also focused on tapping its growth opportunities by assisting digital brands enhance their brick-and-mortar presence.
Also, 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.
The retail REIT maintains a healthy balance sheet position and had $8.8 billion of liquidity as of the end of the third quarter of 2023. The fixed-charge coverage ratio was 4.5 as of Sep 30, 2023, well ahead of the required level.
SPG also enjoys a corporate investment-grade credit rating of A- (stable outlook) from Standard and Poor's and a senior unsecured rating of A3 (stable outlook) from Moody’s, rendering it favorable access to the debt market. The company’s solid financial footing with ample financial flexibility is likely to support its growth endeavors going forward.
In addition, SPG’s trailing 12-month return on equity is 64.91% compared with the industry’s average of 4.50%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
Solid dividend payouts are a massive enticement for REIT investors, and SPG has remained committed to boosting shareholder wealth even during the pandemic. Encouragingly, the company has raised its dividend payout 10 times in the last five years, with the latest hike being announced in August 2023, concurrent with the second-quarter 2023 earnings release. Check out Simon Property’s dividend history here.
Given SPG’s solid operating platform, opportunities for growth and a decent financial position compared with the industry, we expect the dividend rate to be sustainable in the upcoming period.
Nonetheless, growing e-commerce adoption and limited consumers’ willingness to spend amid persistent macroeconomic uncertainty and high interest rates may pose key near-term concerns for the company.
Stocks to Consider
Some better-ranked stocks from the retail REIT sector are Realty Income (O - Free Report) , Essential Properties Realty Trust (EPRT - Free Report) and TANGER INC (SKT - Free Report) . While SKT sports a Zacks Rank #1 (Strong Buy) at present, O and EPRT carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Realty Income’s ongoing year’s FFO per share has been unchanged at $4.01 over the past month. However, the estimate suggests year-over-year growth of 2.3%.
The Zacks Consensus Estimate for Essential Properties Realty Trust’s 2023 FFO per share has been raised marginally to $1.68 and indicates an increase of 9.8% from the year-ago period’s reported figure.
The Zacks Consensus Estimate for TANGER INC’s current-year FFO per share has moved 1.6% northward over the past two months to $1.94, implying a year-over-year rise of 6%.
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.