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A Tale Of 3 Retail REITs: Part 3

Apr. 02, 2018 12:05 PM ETSimon Property Group, Inc. (SPG)35 Comments


  • SPG is the best positioned retail REIT in terms of balance sheet and property quality and diversification, giving it economies of scale and network effect competitive advantages.
  • Despite being one of the few retail REITs to experience strong FFO growth last year, SPG's underlying numbers reveal that its business model is not exempt from industry headwinds.
  • With a dividend yield at right around 5%, SPG isn't expensive, but it isn't cheap either.

Highly regarded Simon Property Group (NYSE:SPG) enjoys best-in-class assets, financial strength, and management. However, its heavy exposure to malls and struggling big box retail chains prevent me from viewing it as a buy until a more attractive dividend yield is offered.

In my previous two articles in the series (part 1 and part 2), I found both Kimco (KIM) and Tanger (SKT) to offer attractive and sustainable dividend yields with a considerable growth runway. While their businesses are certainly faced with challenges, my analysis concluded that their steep sell-offs were both overblown, providing an opportunity to lock in long-term lucrative, growing, and sustainable income with the additional potential for considerable principal upside. While SPG is every bit their equal, if not superior, in its balance sheet and management, its primary asset class (big box malls) appears to be facing stronger headwinds (due to excessive e-commerce exposure as evidenced by struggling tenants like Sears, Macy's, etc.) than the recession and e-commerce resistant focuses of KIM (grocery-anchored community town centers) and SKT (outlet centers). While, SPG has also sought diversification in outlets (30% exposure), it does not enjoy the same scale, network, and specialization advantages as SKT in the space, while still being exposed to the same challenges confronting the space. Furthermore, the market has not discounted shares to the same extent as it has KIM's and SKT's, leaving its dividend yield a bit low (and its potential downside a bit large) considering the risks facing the REIT:

ChartSPG data by YCharts
ChartSPG Dividend Yield (TTM) data by YCharts

Mall counterparts Washington Prime Group (WPG) and CBL Properties (CBL), with lower overall property quality and significantly higher balance sheet risk, have priced in the significant risks facing malls, and while there is good reason for SPG to command a significant premium to

ChartCBL data by YCharts

This article was written by

Samuel Smith profile picture
Become a “High Yield Investor” with our 8% Yielding Portfolio.

Samuel Smith is Vice President at Leonberg Capital and manages the High Yield Investor Seeking Alpha Marketplace Service.

Samuel is a Professional Engineer and Project Management Professional by training and holds a B.S. in Civil Engineering and Mathematics from the United States Military Academy at West Point and a Masters in Engineering from Texas A&M with a focus on Computational Engineering and Mathematics. He is a former Army officer, land development project engineer, and lead investment analyst at Sure Dividend.

Analyst’s Disclosure: I am/we are long CBL, WPG, SKT, KIM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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