6 Reasons to Add Simon Property Group (SPG) Stock Right Now

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Improving economy, widespread vaccination, boost in shopper confidence and healthy consumer spending raise hopes for the Retail REIT industry constituents in the holiday season.

The retail REIT behemoth — Simon Property Group SPG — is well poised to ride on this growth curve backed by its portfolio of premium retail assets in the United States and abroad, solid operating fundamentals and strategic moves. Simon Property’s third-quarter 2021 funds from operations (FFO) per share of $3.13 exceeded the Zacks Consensus Estimate of $2.47 on better-than-anticipated top-line growth.

Shares of SPG have gained 15% in the past month, while its industry has inched up 1.9%. Also, the recent trend in the 2021 FFO per share estimate revision indicates a favorable outlook for SPG as it moved nearly 1% up to $10.33 over the past week. This Zacks Rank #2 (Buy) stock is likely to rally further in the near term on a number of favorable factors.

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Let’s explore what makes the SPG stock a solid choice

Premium Asset Base: Simon Property enjoys a wide exposure to retail assets across the United States. Moreover, Simon Property’s international presence fosters sustainable long-term growth as compared with its domestically focused peers. The REIT’s ownership stake in Klépierre facilitates the expansion of its global footprint, which gives it access to premium retail assets in the high barrier-to-entry markets of Europe. Diversification, with respect to both product and geography, will help SPG grow in the long term.

Omni-channel Strategy: Adoption of an omni-channel strategy and successful tie-ups with premium retailers have been aiding the company. Particularly, Simon Property’s online retail platform, weaved with an omni-channel strategy, will likely be accretive to its long-term growth. It is also tapping growth opportunities by assisting the digital brands to enhance their brick-and-mortar presence as well as banking on buying recognized retail brands in bankruptcy. Additionally, Simon Property is exploring the mixed-use development option, which has gained immense popularity in recent years among those who prefer to live, work and play in the same area.

Acquisitions, Development and Redevelopment: The retail REIT has been restructuring its portfolio, aiming at premium acquisitions and transformative redevelopments. For the past few years, the company has been investing billions in transforming its properties focused on creating value and driving footfall at its properties. After a temporary pause amid the pandemic, Simon Property is now active again in redevelopment and new developments. Last December, Simon Property also completed the acquisition of Taubman Centers, Inc., adding a number of premier retail assets to its portfolio.

Improving Leasing Environment and Guidance Raise: With the resumption of the economy and improvement in the leasing environment, Simon Property is poised to benefit from its superior assets in premium locations. In the third quarter, the company recorded increased leasing volumes, occupancy gains, shopper traffic and retail sales. Also, management raised the 2021 FFO per share guidance to the $11.55-$11.65 range, up from the $10.70-$10.80 band projected earlier, suggesting an increase of 85 cents at the mid-point.

Balance Sheet: Simon Property is steadily making efforts to bolster its financial flexibility. This enabled the REIT to exit third-quarter 2021 with $8 billion of liquidity. Through the first nine months of the year, Simon Property was active in both the secured and unsecured credit markets. Following the quarter-end, the company amended and extended its $3.5-billion unsecured multi-currency revolving credit facility, which will initially mature on Jan 31, 2026, and at the company’s sole option, can be extended for a year. Simon Property’s total secured debt to total assets was 21%, while the fixed-charge coverage ratio was 4.5 as of Sep 30, 2021, well ahead of the required level. Moreover, the company enjoys a corporate investment-grade credit rating of A from Standard and Poor’s and a senior unsecured rating of A3 from Moody’s. With solid balance-sheet strength and available capital resources, SPG remains well poised to navigate negative externalities and bank on the opportunities generated from market turbulences.

Dividend: Solid dividend payouts are the biggest enticement for REIT investors and Simon Property is committed to boosting shareholder wealth. Last year, 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, distributing $1.30 instead of the prior payment of $2.10. Later, the company announced dividend hikes with the most recent one being declared concurrent with the third-quarter earnings release. The company announced a 10% sequential hike in its fourth-quarter 2021 dividend to $1.65 per share. This followed a 7.1% sequential hike in its third-quarter 2021 dividend to $1.50 and 7.7% sequential increase in second-quarter dividend to $1.40 per share. This spate of dividend increases brings additional relief to investors and reaffirms confidence in this retail landlord.

Other Key Picks

Federal Realty Investment Trust’s FRT FFO per share estimate for the current year moved up 0.8% to $5.28 in the past week.

Federal Realty carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Realty Income O holds a Zacks Rank of 2, at present and has a long-term growth rate of 4.4%.

The Zacks Consensus Estimate for Realty Income’s 2021 FFO per share has been revised marginally upward in a month’s time.

Regency Centers Corporation’s REG Zacks Consensus Estimate for the ongoing-year FFO per share has moved marginally up to $3.81 over the past week.

Currently, Regency Centers carries a Zacks Rank of 2.

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 Group, Inc. (SPG): Free Stock Analysis Report

Federal Realty Investment Trust (FRT): Free Stock Analysis Report

Regency Centers Corporation (REG): Free Stock Analysis Report

Realty Income Corporation (O): Free Stock Analysis Report

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