Simon Property Group: My Kind of Dividend Growth

Do you remember watching all the real estate infomercials in the 1990s? Some slick guy telling you he will teach you his secrets to making millions in real estate. I never fell for it, but some of my friends did succumb. If people ask me what kind of real estate I invest in, then the answer is pretty easy. I rely on real estate investment trusts (REITs) to diversify my dividend portfolio. This week I am taking a look at Simon Property Group (SPG) to see if they deserve a spot in my real estate empire.

Company Overview
Simon Property Group primarily invests in malls and shopping centers around the United States. Here is a partial overview from Wikipedia:

…engaged in the ownership, development and management of high-quality retail real estate, primarily regional malls, Premium Outlet Centers and community/lifestyle centers. Through its subsidiary partnership, it owns or has an interest in at least 380 properties in the United States comprising more than 258 million square feet of gross leasable area in 39 states, plus Puerto Rico. Simon Property Group also holds interests in 52 European shopping centers in France, Italy and Poland; five Premium Outlet Centers in Japan; one Premium Outlet Center in South Korea and one Premium Outlet Center in Mexico. It currently has ownership interests in some of the most high-profile shopping malls in the world…

Dividend History
Looking back over the dividend history, it is clear SPG started out slowly. The company began increasing dividends in 2001 and they have continued to ramp up. Between 2006 and 2007, the dividend growth rate was 10.6%. Rising from $3.04 to $3.36. This is the kind of dividend growth I want in my portfolio.

5-Year Performance
If you had invested in SPG 5 years ago, then you may think yourself a savvy investor. The stock price has grown 224% from $27.27 to $88.23 at the close today. The dividend has increased 53% from $2.20 to $3.36. The yield on cost on those original shares would net you 12.3% today.

10-Year Performance
If you had invested in SPG 10 years ago, then the results are still pretty darn good. The stock price has grown 387% from $18.12 to $88.23 at the close today. The dividend has increased 66% from $2.02 to $3.36. The yield on cost on those original shares would net you 18.5% today.

The Future
Simon Group is down from its 52 week high of $123.96 due to merger activity it undertook in early 2007, the real estate hysteria of 2007, and a write down of $26 million. The write down was a joint development with Toll Brothers. This is the only joint development between the two companies. Despite the share price decline, the company sits at a premium with a price-to-earnings of 37.

The good news for Simon Group is that it has been able to grow steadily over the past ten years. The dividend growth rate has been excellent over the past five years. They are aggressively going after acquisition targets and the company is expanding its portfolio to international markets. SPG has three projects under construction in Italy and four in China. I like where this company is headed. If they were an infomercial, then I would be getting out my wallet right now.

Disclosure: none

Comments

[NARSpin:]

Lousy call. Commercial real estate is in the tank, and clearly ready to break out to the downside. Just troll around on some of the CRS blogs, or pound the pavement yourself to see the pain that is out there. Trying to extrapolate a dividend without mentioning the liquidity crunch SPG faces is a farce.

2007 Dec 28 04:06 PM

[Research In...:]

Agreed on the lousy call. Though not exactly the same, this is somewhat akin to taking a look at the graph of internet stocks in mid 2000 and justifying continued stock appreciation based on the past share price appreciation. I'm curious how the NOI would look if the occupancy rates dropped a few points...

Eric
researchinvesting.blog...

2007 Dec 28 05:23 PM

[Jake Johnson:]

I would argue that you are both using a short sighted point of view, whereas I am looking long-term. Trying to link Internet stock prices with dividend growth is absurd. One has nothing to do with the other. People ran up Internet stocks based on irrational exuberance. How can the same be said for dividend growth?

2007 Dec 28 05:48 PM

[farkus:]

Do you have any idea what is taking place in the commercial real estate market? Have you bothered to look at the historic spread between the Treasury curve and Simon's dividend yield? You need to do a little homework in this sector.

2007 Dec 28 06:27 PM

[Jake Johnson:]

Just my opinion. Apparently it is not a popular one here. I don't allow current events to dictate my long-term investing style. In fact, I take the opposite tact. Only the future will tell the tale. Thanks for taking the time to read my article and post an opinion.

2007 Dec 28 07:08 PM

[zb:]

This may be a good idea for long term investing. The stats say this one may be a falling knife though. But it's probably not too bad if you have a 4-5 year horizon or longer.
A little off topic from dividend per se, but perhaps a good value play in a few months.

2007 Dec 28 07:23 PM

[Amit Chokshi_:]

Even a 4-5 year horizon may not be good enough. If you took '98-'02 or so, SPG was not a good investment. You can probably find a lot of stocks that had phenomenal returns over the past 5 years considering if you bought in 2002 you were buying a lot of stocks at the bottom of the market shake out.

You can find safer dividend plays in telecoms, tobacco, and big pharma. Also, I haven't look at SPG yet so I've missed the short angle for it but there could be much more to fall. The one area you might want to consider looking into is how their leases are structured.

Are they flat rent with inflation kickers or do they get rent + a % of their tenant's sales over a certain level? If it's the latter, you need to factor in how some of the retailers who've struggled recently may impact SPG's earnings.

SPG is down but could probably still be a good pure short or a good hedge against long retail positions.

2007 Dec 28 09:07 PM

[kainschild:]

technically speaking, SPG appears to be completing a descending triangle at the end of a multiyear uptrend. When this happens over 59% of the time the breakout from the triangle is to the downside. Once this happens at around $85(not adjusted for dividends), the first downside target is about $46.

2007 Dec 29 10:54 AM

[fonsecafunds:]

I like it!

2007 Dec 29 12:47 PM

[granger:]

I agree. This may not be the best starting point, but a solid long term hold. It would be a great diversifier to a portfolio. I also have uisng MPW, FSP, and IGR. I will do more homework, but I like the global footprint of this one. Thanks for the idea,

2007 Dec 29 12:49 PM