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Should You Retain Simon Property (SPG) Stock Right Now?
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In an improving leasing environment in the retail real estate industry, Simon Property Group’s (SPG - Free Report) portfolio of premium assets in the United States and abroad, the adoption of omnichannel retailing and balance sheet strength position it well for growth. This retail REIT behemoth enjoys wide exposure to retail assets across the United States. Additionally, its presence in international markets is likely to encourage sustainable long-term growth compared with its domestically focused peers.
Simon Property’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 to 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, which has gained immense popularity in recent years, have enabled it to tap growth opportunities in areas where people prefer to live, work, play, stay and shop. Going forward, an improving leasing environment is likely to benefit this retail REIT’s properties at premium locations. We expect the company’s 2024 total revenues to increase 2.3% on a year-over-year basis.
In 2023, it signed 1,185 new leases and 1,841 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. This comprised roughly 10.9 million square feet, of which 8.3 million square feet were related to consolidated properties.
Given the favorable retail real estate environment, this leasing momentum is expected to continue in the current year. As of Dec 31, 2023, the occupancy for the U.S. Malls and Premium Outlets portfolio came in at 95.8%, up 90 basis points from 94.9% as of Dec 31, 2022. We project the 2024 year-end occupancy for this portfolio at 95.6%.
To enhance its portfolio, Simon Property has been focusing on premium acquisitions and transformative redevelopments and has invested billions in transforming its properties. 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 concerted efforts to bolster its financial flexibility. This enabled the company to exit 2023 with $10.9 billion of liquidity. As of Dec 31, 2023, Simon Property’s total secured debt to total assets was 18%, while the fixed-charge coverage ratio was 4.3, ahead of the required level.
SPG also enjoys investment-grade credit ratings, giving it favorable access to the debt market. With solid balance sheet strength and available capital resources, it remains well-poised to tide over any mayhem and bank on growth opportunities.
Solid dividend payouts are the biggest enticement for REIT investors, and Simon Property is committed to boosting shareholder wealth. During the pandemic, while several REITs suspended dividend payments in light of the pandemic that disrupted the macro economy and affected rent collections, Simon Property continued with its dividend payment, though at a reduced rate.
Later, the company announced dividend hikes, with the most recent one being declared concurrent with the fourth quarter of 2023 earnings release, whereby the company increased the payment to $1.95 per share from $1.90 paid out earlier. This marked a hike of 2.6% from the prior dividend payment and a year-over-year increase of 8.3%. This retail REIT has increased its dividend 10 times in the last five years. This spate of dividend increases brings additional relief to investors and reaffirms confidence in this retail landlord.
Shares of this Zacks Rank #3 (Hold) company have risen 41.7% in the past six months, outperforming its industry’s increase of 13.8%.
Image Source: Zacks Investment Research
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 might adversely impact the market share for brick-and-mortar stores and affect retail REITs, including Simon Property.
A high interest rate environment is a concern for SPG. Elevated rates imply high borrowing costs for the company, which would affect its ability to purchase or develop real estate. The company has a substantial debt burden, and its share of total debt as of Dec 31, 2023, was approximately $32.5 billion. Higher interest expenses during the fourth quarter of 2023 adversely impacted its results.
For the first quarter of 2024, our estimate implies a year-over-year rise of 7.2% in the company’s interest expenses. Moreover, with high interest rates in place, the dividend payout might seem less attractive than the yields on fixed-income and money market accounts.
The Zacks Consensus Estimate for Essential Properties’ ongoing year’s funds from operations (FFO) per share has been revised 1.7% upward over the past month to $1.80. It also suggests a 9.1% increase year over year.
The Zacks Consensus Estimate for Tanger’s 2024 FFO per share has been revised a cent upward over the past two months to $2.06, which suggests year-over-year growth of 5.1%.
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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Should You Retain Simon Property (SPG) Stock Right Now?
In an improving leasing environment in the retail real estate industry, Simon Property Group’s (SPG - Free Report) portfolio of premium assets in the United States and abroad, the adoption of omnichannel retailing and balance sheet strength position it well for growth. This retail REIT behemoth enjoys wide exposure to retail assets across the United States. Additionally, its presence in international markets is likely to encourage sustainable long-term growth compared with its domestically focused peers.
Simon Property’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 to 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, which has gained immense popularity in recent years, have enabled it to tap growth opportunities in areas where people prefer to live, work, play, stay and shop. Going forward, an improving leasing environment is likely to benefit this retail REIT’s properties at premium locations. We expect the company’s 2024 total revenues to increase 2.3% on a year-over-year basis.
In 2023, it signed 1,185 new leases and 1,841 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. This comprised roughly 10.9 million square feet, of which 8.3 million square feet were related to consolidated properties.
Given the favorable retail real estate environment, this leasing momentum is expected to continue in the current year. As of Dec 31, 2023, the occupancy for the U.S. Malls and Premium Outlets portfolio came in at 95.8%, up 90 basis points from 94.9% as of Dec 31, 2022. We project the 2024 year-end occupancy for this portfolio at 95.6%.
To enhance its portfolio, Simon Property has been focusing on premium acquisitions and transformative redevelopments and has invested billions in transforming its properties. 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 concerted efforts to bolster its financial flexibility. This enabled the company to exit 2023 with $10.9 billion of liquidity. As of Dec 31, 2023, Simon Property’s total secured debt to total assets was 18%, while the fixed-charge coverage ratio was 4.3, ahead of the required level.
SPG also enjoys investment-grade credit ratings, giving it favorable access to the debt market. With solid balance sheet strength and available capital resources, it remains well-poised to tide over any mayhem and bank on growth opportunities.
Solid dividend payouts are the biggest enticement for REIT investors, and Simon Property is committed to boosting shareholder wealth. During the pandemic, while several REITs suspended dividend payments in light of the pandemic that disrupted the macro economy and affected rent collections, Simon Property continued with its dividend payment, though at a reduced rate.
Later, the company announced dividend hikes, with the most recent one being declared concurrent with the fourth quarter of 2023 earnings release, whereby the company increased the payment to $1.95 per share from $1.90 paid out earlier. This marked a hike of 2.6% from the prior dividend payment and a year-over-year increase of 8.3%. This retail REIT has increased its dividend 10 times in the last five years. This spate of dividend increases brings additional relief to investors and reaffirms confidence in this retail landlord.
Shares of this Zacks Rank #3 (Hold) company have risen 41.7% in the past six months, outperforming its industry’s increase of 13.8%.
Image Source: Zacks Investment Research
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 might adversely impact the market share for brick-and-mortar stores and affect retail REITs, including Simon Property.
A high interest rate environment is a concern for SPG. Elevated rates imply high borrowing costs for the company, which would affect its ability to purchase or develop real estate. The company has a substantial debt burden, and its share of total debt as of Dec 31, 2023, was approximately $32.5 billion. Higher interest expenses during the fourth quarter of 2023 adversely impacted its results.
For the first quarter of 2024, our estimate implies a year-over-year rise of 7.2% in the company’s interest expenses. Moreover, with high interest rates in place, the dividend payout might seem less attractive than the yields on fixed-income and money market accounts.
Stocks to Consider
Some better-ranked stocks from the retail REIT sector are Essential Properties Realty Trust, Inc. (EPRT - Free Report) and Tanger Inc. (SKT - Free Report) , each 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 Essential Properties’ ongoing year’s funds from operations (FFO) per share has been revised 1.7% upward over the past month to $1.80. It also suggests a 9.1% increase year over year.
The Zacks Consensus Estimate for Tanger’s 2024 FFO per share has been revised a cent upward over the past two months to $2.06, which suggests year-over-year growth of 5.1%.
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.