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Simon Property Counters Online Sales Boom; Time to Hold?

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On Jan 10, 2017, we issued an updated research report on Simon Property Group, Inc. (SPG - Free Report) , the Indianapolis, IN-based retail real estate investment trust (“REIT”), which is engaged in acquiring, owning and leasing a diverse portfolio of shopping malls.

Simon Property enjoys a diversified exposure to retail assets across the U.S. Also, the company’s international presence fosters more sustainable long-term growth as compared with its domestically focused peers. This diversification, with respect to both product and geography, largely insulates Simon Property from market volatility. It also helps the company to consistently post a decent performance.

Apart from exposure to various retail assets, the company’s adoption of omni-channel strategies, portfolio-restructuring moves and a robust balance sheet are likely to drive its growth, amid a recovering economy.

However, over the past six months, shares of Simon Property descended 16.8% against 13.6% decline of the REIT and Equity Trust – Retail industry. In fact, rise in online sales is a concern as it curtails the demand for retail real estate space. This affects occupancy and growth in rent.

While the company is striving to counter such pressure through various initiatives, the implementation of such measures requires a decent upfront cost. Therefore, this would limit any robust growth in its profit margins in the near term.

This retail REIT is slated to come up with its fourth-quarter and full-year 2016 earnings results on Jan 31, 2017. The Zacks Consensus Estimate for fourth quarter funds from operations (FFO) per share is currently pegged at $2.63.

For this Zacks Rank #3 (Hold) stock, the FFO per share estimate for fourth quarter declined 2.6% to $2.63 while the same for 2017 inched up 0.1% to $11.69 over the past seven days.

Key Picks

Some better-ranked stocks in the REIT industry include The GEO Group, Inc. (GEO - Free Report) , Mack-Cali Realty Corp. (CLI - Free Report) and Urban Edge Properties (UE - Free Report) . While The GEO Group sports a Zacks Rank #1 (Strong Buy), Mack-Cali and Urban Edge carry a Zacks Rank#2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The GEO Group’ 2016 estimates inched up 1% to $2.94 per share, over the past 60 days.

Mack-Cali’s 2016 FFO per share estimates ascended 1.9%, over the past 60 days, to $2.20.

For Urban Edge Properties, the projected growth rate for FFO per share is 37.6% for 2016 and 6.3% for 2017.

Note: Funds from operations (“FFO”) a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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