Simon Property Group Stands Out As A Premier REIT

| About: Simon Property (SPG)

Summary

Simon Property Group maintains an investment grade rating of A.

Simon Property group has doubled its dividend from $3.50 in 2011 to an expected payout of nearly $7 for 2017.

The REIT company maintains a hefty pipeline of new and redevelopment projects.

Simon Property Group (NYSE:SPG) is the largest retail U.S. real estate investment trust, or REIT, within the United States. Its properties are primarily in premium outlets, upscale malls, and international shopping centers. The REIT owns over 200 properties worldwide. Simon has amassed and refined a portfolio of premier class A mall and outlet properties over the last decade. Over the last six years, Simon Property group has doubled its dividend from $3.50 in 2011 to an expected payout of nearly $7 for 2017. The firm has one of the highest credit ratings in the REIT space, at A. The company is also growing faster than most other REITs, especially among mall property companies. SPG has also maintained a high dividend yield as its increases in dividend payments have recently outpaced its share price appreciation. Its five-year low yield point was just over 2%, but now the REIT firm pays a dividend yield of nearly 4%, towards its all-time high level. The only negative element is its high price/FFO ratio. But in our view it is offset by the multitude of positive aspects of this real estate company.

Simon Property Group's (SPG) dividend was increased by a solid 6%. Its overall yield is 3.84%. The firm started paying a dividend in 1994. Simon Property Group has maintained a solid three-year growth rate of dividends of 10.9 percent. Simon Property Group currently ranks 8th in dividend yield within the large cap REIT-Retail category. The quarterly dividend for the February payment will be $1.75 versus the prior year rate of $1.65 per share.

The dividend will be paid at the new higher rate on February 28, 2017, to shareholders of record at close of business on February 14, 2017. Simon Property Group Inc. is currently priced at $182.07. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
2/14/2017 1.75
11/14/2016 1.65
8/15/2016 1.65
5/13/2016 1.6
2/10/2016 1.6
11/12/2015 1.6
8/13/2015 1.55
5/13/2015 1.5
2/11/2015 1.4
11/12/2014 1.3
8/13/2014 1.3
5/14/2014 1.223
2/12/2014 1.176
11/13/2013 1.129
8/14/2013 1.082
5/15/2013 1.082
2/12/2013 1.082
11/14/2012 1.035
8/15/2012 0.988
5/15/2012 0.941
2/13/2012 0.894
12/14/2011 0.188
11/14/2011 0.847
8/15/2011 0.753
5/13/2011 0.753
2/10/2011 0.753
11/12/2010 0.753
8/13/2010 0.564
5/12/2010 0.564
2/11/2010 0.564

Source: Annual Report

Analysis of Simon Property Group is based upon our five key criteria for the Top 100 list, which include;

Category Value Score
Dividend Yield 3.84% 69
Dividend Growth (3-7 year avg) 13% 158
Forward P/E 25.34 298
S&P Financial Rating A 120
Beta 0.85 100
Total Score 745
% Yield 3 Year Div. Growth Rate 7 Year Div. Growth Rate FFO 2016 P/FFO Ratio 10 yr P/FFO Low 10 yr P/FFO High 5 yr low Yield % 5 yr max Yield %
3.84% 10.9% 15.5% 11.60 15.70 5.60 15.95 2.19% 3.90%

Latest Earnings & Growth Update:

Simon Property Group issued its earnings data on January 31st. The company reported fourth-quarter funds from operations (FFO) of $10.49 per share compared to $9.86 of the same quarter in 2016. For the entire 2016 calendar year, FFO per share was up a solid 9%. The REIT firm also produced nearly 4% growth in net income from 2015. As for FFO guidance, Simon Property Group expects growth to be in the 6-7% range for 2017. This amounts to $11.45 to $11.55 versus reported FFO per share of $10.49 in 2016.

As for earnings (less appropriate for REIT firms), it produced $2.53 earnings per share for the quarter. The REIT firm posted revenue of $1426.00 million in Q4, slightly under expectations. However, the real estate firm's revenue was up over 3% compared to Q4 of 2016. The REIT company maintains a $1.6B pipeline of new and redevelopment projects. In the most recent conference call, the firm's management team indicated that the REIT maintains over 430 department stores in their portfolio of assets, and with only one vacancy. In fact, the REITs overall property base has been protected from notable store closures including Macy's. Only one of Macy's closure was within the SPG mall portfolio. Its premium outlet and mall occupancy rates are at 96.8%. This was nearly 1% higher than last year. The firm has added nearly 300 quick-service restaurants, over 80 big box tenants, and 20 entertainment concepts in the past five years. Thus, Simon's growth capabilities are strong.

The firm has demonstrated a great ability to gain scale through prudent acquisitions. In 2012, Simon Property Group purchased Paragon Outlets in Texas and California. The company also increased its international presence with its acquisition of Paris-based property investor Klépierre (28%). Klépierre was attractive to Simon's growth strategy has it owned nearly 300 properties throughout Europe, especially in France where the firm is based. The next year, the REIT firm acquired interests in McArthurGlen and 5 designer outlet properties in Oregon. In 2014, the firm purchased interests in Oyster Bay and King of Prussia.

The firm has major new development projects just completed or in the works. Its new Clarksburg Premium Outlets in the D.C area had a terrific new opening in Q4 2016. Its Brickell City Centre in Miami also opened in the fourth quarter with favorable traffic. Construction is ongoing for several other new projects including its Shops at Clearfork in Texas and 9 new outlets. Four of these new outlets are in overseas markets and are expected to be open in 2017.

Due to its premier status among mall based REITs, a strong dividend growth history, above average yield, investment grade rating, and low beta, Simon Property Group is a solid investment choice for any dividend investor looking for a high yield and quality growth. It qualifies as one of our Top 100 Dividend Stocks.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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