Recently, I wrote an article discussing the positive merits of under-followed REIT stocks compared to the wildly popular high-yield mortgage REIT stocks. One of the stocks mentioned as providing superior returns was the largest of the REIT companies: Simon Property Group (SPG). A comment was posted on the article asking for a more in-depth discussion of Simon Property Group and now is the time for that discussion.
With a $46 billion market cap, Simon Property Group is by a factor of three the largest REIT in the U.S. The next largest REITs are a couple of healthcare companies, Ventas (VTR) and HCP (HCP). At $17 billion market cap, Simon competitor General Growth Properties (GGP) also is worth $17 billion and mortgage REIT Annaly Capital (NLY) has a $16 billion market value. Simon Property Group is a retail REIT, owning retail shopping and outlet centers. The company website gives this business description:
The company currently owns or has an interest in 337 retail real estate properties in North America and Asia comprising 245 million square feet as well as a 29% interest in Klépierre, a publicly traded French REIT with a portfolio of approximately 270 shopping centers in 13 countries in Europe.
Simon Property Group was recently added as a component of the S&P 100 and is the only real estate company included in the index.
The economic recession and stock bear market of 2008 and 2009 hit Simon Property Group hard. The share price dropped from around $100 in September 2008 down to a low of $26 in March 2009. The quarterly dividend was cut from 90 cents per share to a 60 cent payout of which 80% was in stock. Note that the stock had a dividend yield of 9% for those investors brave enough to buy shares at or near the bottom of the bear market. Since that early 2009 low, the share price has exhibited an almost linear rise to the current value north of $150. In 2011, the share price appreciated by 32% compared to a less than 3% gain by the S&P 500. For the first third of 2012, the Simon share price is up 20% compared to 11.5% for the S&P.
Although Simon Property Group acts more like a growth stock than an income stock, the dividends are still important. Over the last year the dividend has increased from 80 cents quarterly to $1.00. The payout may continue to increase to keep up with net income growth. As a REIT, the company is required to pay out at least 90% of net income as distributions. Net income has been growing at such a rate, the company has been forced to increase the dividend in each of the last three quarters. The current dividend yield is 2.6%.
The growth should continue - and on a global basis. Simon Property is currently building the company's signature Premium Outlet malls in Japan - the eighth in that country, Toronto, Canada - first Canadian mall and Korea. A mall project is underway in China and during the first quarter the company reached a joint venture agreement to build outlet malls in Brazil. The Klépierre deal gives Simon broad exposure in Europe and the deal is immediately accretive to funds from operations - FFO.
Reviewing Simon Property Group concerning its results and future plans reminds me very much of the Las Vegas Sands (LVS). Simon Property is also a company with a leadership - Chairman and CEO David Simon - who manages the company with deep industry insight and a goal of long-term growth. Both of these companies stand apart - and above - the others in their respective industries.
Further reading: Earth: One Big Gaming Market For Las Vegas Sands.