Below are 2 of the largest REIT owners of retail properties. Both have outstanding records of stock growth along with dividends, the prime driver for stock growth.
Simon Property (SPG) is an S&P 100 company (the only REIT in this elite group) and is the largest REIT in the world. SPG owns 337 retail properties in North America and Asia, comprising 245 million square feet. In 2011, revenue grew to $4.3 billion, generating Funds from Operations (FFO) of $2.4 billion, the highest ever recorded by an REIT and roughly $670 million higher than in 2010. In 2011 FFO was nearly double FFO reported by any other REIT in the U.S. (FFO is an industry standard for earnings used to set dividends). FFO per share was a record $6.89, an increase of 37%. Sales per square foot increased to $536 per square foot and occupancy improved to 94.8%.
In 2011, SPG invested $400 million in new development and redevelopment projects and completed $1.8 billion in acquisitions. The most significant transactions were: an increase in ownership interest in King of Prussia to 96% (one of the largest and most productive malls in the US) and acquisition of ABQ Uptown, a lifestyle center in Albuquerque, New Mexico. Last month, it invested $3.5 billion in 2 acquisition transactions. Based on the current pipeline of projects, annual investments in properties should be $1 billion going forward.
The company has a global vision for its organization and will use its competitive advantages to compete globally. SPG has invested abroad in Asia and Europe, to create a global footprint, and that has produced successful projects. Last month, it acquired a 29% interest in Klépierre, a publicly-traded French REIT owner of 270 shopping centers in 13 European countries so it can pursue growth across the European continent. SPG also invested in a public retail real estate company that has the scale to compete profitably across all of Europe. The 2 investments are expected to be accretive to FFO because they have considerable consumer brand equity, large trade areas and generate significant cash flow. To finance the projects, SPG sold 9 million shares and $1.75 billion of senior notes. The weighted average interest rate for the notes was 3.39% with a weighted average term of 14.7 years.
The dividend has been growing. In Q4 2011, the quarterly dividend was increased from 80¢ to 90¢, and in Q1 2012, the dividend was increased again, to 95¢ (a new record). SPG said "we are on a trajectory to pay dividends of at least $3.80 per share in 2012 - a record amount for the Company." However, SPG cut the dividend during the recent recession to help conserve monetary assets for potential acquisitions and that reduction will remain a blemish on its long term record of raising dividends.
Tanger Factory Outlet Centers (SKT) is the leading owner of outlet shopping centers with 39 centers in 25 states coast to coast and in Canada. The centers are located in close proximity to interstate highways, near tourist, vacation and resort destinations for 180 million shoppers each year. The properties have almost 12 million square feet of top brand names with more than 435 retail partners and the company has maintained an average occupancy rate of more than 95%.
In 2011, revenue increased 14% to $315 million and FFO per share increased 18% to $1.44 which led to a record dividend. Real estate assets (before depreciation) rose 22% to $1.9 billion with an occupancy rate of 98.8%.
The outlet industry has become a favored property sector in the REIT industry. SKT acquired 5 outlet centers which expanded the square footage 15% during 2011. Additionally, one outlet center was opened and ground was broken on a new outlet center development that will open in 2012. SKT relationships with premier brand name manufacturers provide it with a competitive advantage in the outlet industry.
SKT expects improved rental income in 2012 from increases in rental rates achieved during 2011. 93% of lease space was renewed during 2011. In 2011 over 548,000 square feet was re-tenanted during the year at an increase in average base rent of 50% over the rent that was being paid by the previous tenant. Renewal and re-leasing rental spreads should continue to be positive in 2012.
SKTs finances are strong with no significant debt maturities until November 2015. In Q1 2012, the annual dividend was raised to 84¢, continuing its streak of higher annual dividends (rare among REITs) for the 19 consecutive years when it has been a public company.
These REITs have excellent records of long term growth. Each stock grew roughly 5 fold in the last 10 years (SPG to $158 and SKT to $32), few stocks can make that claim. However, much of the growth came from a dramatic reduction in stock yields to under 3%. Future growth will be dependent on higher FFO bringing further dividend increases and the outlook for growth remains excellent. SPG will expand its global presence and SKT will continue to introduce new manufacturers, brand names and designer retailers to the outlet concept and work with existing tenants to extend brand names through new retail concepts in the US and Canada. When shopping at stores in their malls, it will feel good to know that some of the money spent will be coming back via dividends.
I am long SPG & SKT