Is It Wise to Retain Simon Property (SPG) Stock Right Now?
Amid the recovery of the retail real estate industry, Simon Property Group’s SPG 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 has 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 tapping growth opportunities by 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 and play. Going forward, an improving leasing environment is likely to benefit this retail REIT’s properties at premium locations. We expect the company’s 2023 total revenues to improve 2.1% year over year.
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 also maintains a solid balance sheet position with ample liquidity. This enabled the company to exit the first quarter of 2023 with $9.3 billion of liquidity.
As of Mar 31, 2023, Simon Property’s total secured debt to total assets was 19%, while the fixed-charge coverage ratio was 4.6, ahead of the required level. The company also enjoys investment-grade credit ratings, giving it favorable access to the debt market. With strong financial footing and enough financial flexibility, it remains well-poised to tide over any mayhem and bank on growth opportunities.
Solid dividend payouts are the biggest enticements for REIT investors, and Simon Property is committed to boosting shareholder wealth. During the pandemic, while several REITs suspended dividend payouts, Simon Property continued with its dividend payout though at a reduced rate.
Later, the company announced dividend hikes, with the most recent one being declared concurrent with the first-quarter 2023 earnings release, whereby the company increased the dividend payment to $1.85 per share from $1.80 paid out earlier. This marked a sequential hike of 2.8% and a year-over-year increase of 8.8%. 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 6.4% in the past month compared with its industry’s growth of 5.5%.
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However, with the pandemic's impact waning, mall traffic has rebounded significantly. However, given the convenience of online shopping, it is likely to continue to be 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.
Moreover, amid macroeconomic uncertainty and a high-interest rate environment, a slowdown in the economy and the depletion of savings could limit consumers’ willingness to spend to some extent.
A high-interest rate environment is a concern for Simon Property. 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 Mar 31, 2023 was approximately $32.1 billion.
Our estimate for 2023 interest expenses implies a rise of 6% year over year. Moreover, the dividend payout might become less attractive than the yields on fixed-income and money market accounts due to high interest rates.
Stocks to Consider
Some better-ranked stocks from the retail REIT sector are Acadia Realty Trust AKR and Saul Centers BFS, 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 Acadia Realty Trust’s 2023 FFO per share has been revised marginally north over the past two months to $1.23.
The Zacks Consensus Estimate for Saul Centers’ 2023 FFO per share has been revised 2 cents north over the past month to $3.05.
Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.
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Simon Property Group, Inc. (SPG) : Free Stock Analysis Report
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